Wastewater treatment in Vietnam
What are the opportunities for Dutch companies in the
wastewater sector in Vietnam?
Wastewater treatment in Vietnam
What are the opportunities for Dutch companies in the
wastewater sector in Vietnam?
Author: Raymond van Wasbeek
Student Number: 1501739
Supervisors RuG: Prof. Dr. L. Karsten
Dr. B.J.W. Pennink Supervisor Consulate General: Drs. A.L.M van Zeeland
Faculty: Management and Organization
Specialization: International Business& Management
University: University of Groningen
Institute: Ministry of Foreign Affairs
As Smidts (2006) concluded in his research, Vietnam is a country in transition also counts for the wastewater sector in Vietnam. Not only is this market growing at a fast pace, it is also changing. Knowing that the country did not have a coherent institutional framework for environmental management and policy until more than a decade ago, the country is catching up with environmental regulations. It can be said that the institutional framework for environmental management and policy is in its infant stage, but wants to grow up fast. Some might argue that they try to grow up too fast with the necessary consequences. But in order to answer the research question: “What are the opportunities for Dutch companies in the wastewater sector in Vietnam” it was important to first look at the (waste) water sector in general and also this sector in Vietnam.
The first of three main parts of this research therefore looks at the global (waste) water sector. The whole market is growing, but it can be said that the Asian and Middle East market are the fastest growing market. The region has the highest per annum investment and is already the third most important region behind the North America and the EU. Because most countries in this region can be qualified as developing countries, it is expected that the importance of the region will only grow. The main focus then will be the treatment of industrial wastewater, because it is expected that most resources will flow to this segment. Also important is the fact that treatment of industrial wastewater “requires more advanced and costly technology to remove the heavy metals and poisonous chemicals from wastewater” (Muizer van den Bergh, 2002: 71).
GDP, number of enterprises, industrial zones, spending of State budget and ODA, FDI, and the growth of the environmental sector shows the huge potential of this market in Vietnam. The membership of the WTO, the growing interest of the public and media, but also the “growing up” of the rules and regulations will force companies to implement wastewater treatment plants.
This growth is also noticed by other foreign countries and there companies. Because the financing of these types of projects is hard in Vietnam, ODA is very important in the environmental sector in Vietnam. Most of the ODA is bounded and therefore companies from countries that supply the ODA will execute the project. Because the biggest donors in Vietnam’s environment are the governments of Sweden, the Netherlands, Denmark, Canada, Switzerland, Australia, Japan, the US and Germany, companies from these countries are most active in this sector in Vietnam (Water and Wastewater Equipment and Services in Vietnam, 2003). But also surrounding countries like Singapore and South Korea are active.
I would like to use this opportunity to thank all people that have made this incredible once in a lifetime opportunity. First off all I want to thank the Consulate general, Mister van Zeeland to come for all that he has done for me during my stay in Vietnam. This is something I will never forget.
The hospitality of all the staff members at the Consulate general made it a joy to come to work every day. It was a great experience to be a part of the team and to work with such great colleges every day. In particular I want to thank Mister Le Son, not only for his help during my research, but also inviting me to join his football team and the many interesting lunches that we had. After work, it was my new group of friends that made the exploration of HCM and Vietnam even more fun. I therefore want to thank them for the great times we had. Without meeting all the people I did in Vietnam, my time there would not be as much fun as it was and therefore I want to thank them all.
This report would not have been possible without the input of both my Supervisors. I therefore would like to thank Mr. Karsten and Mr. Pennink for their valuable input for this research.
But most of all I would like to thank my parents for all their support over the years. I would not have been able to realize this without them.
I hope this report finds you in good health. Raymond van Wasbeek
1 MANAGEMENT QUESTION... 13
1.1 Management question ... 14
2 RESEARCH DESIGN... 16
2.1 Problem statement... 16
2.2 Data collection... 17
2.3 Structure of the research... 18
2.4 Theoretical framework ... 20
2.4.1 Whitley... 20
2.4.2 Porter... 23
2.4.3 Literature review on Porters Diamond... 24
2.5 Research Methods and approach... 28
2.6 Methological emphasize... 30
2.7 Role of the researcher... 30
3 THE GLOBAL WATERSECTOR... 33
3.1 Importance of different market segments... 33
3.2 Importance of the different regions... 34
3.3 The big players ... 35
3.4 Major trends in the water sector... 36
3.5 Investment ... 37
3.6 Conclusion part I ... 37
4 THE DUTCH WATER SECTOR ... 40
4.1 Importance of the different segments... 40
4.2 Importance of being internationally active... 42
4.3 Dutch supply figures ... 44
4.4 Breakdown of export turnover by sub segment ... 44
4.5 The project cycle and its active areas... 46
4.6 Dutch support system ... 48
4.6.1 ORET ... 48
4.6.2 PSOM... 49
4.6.3 Partners for Water... 50
4.6.4 Netherlands Consulate and Embassy... 50
4.6.5 Dutch ODA ... 51
4.6.6 Dutch FDI ... 51
4.7 Conclusion part II... 51
5 VIETNAM ... 54
5.1 Vietnam’s industry ... 54
5.2 Trade Liberalization in Vietnam ... 56
5.3 Influence of liberalization on the Environment... 57
5.4 Industrial parks... 60
5.5 Reasons not to implement a wastewater plant in the IZ... 63
5.6 Institutional framework ... 64
5.6.1 National institutions... 64
5.6.2 Provincial Institutions ... 65
5.7 Legislation and Regulations... 66
5.8 Problems with rules and regulations ... 69
5.9 Environmental Impact Assessment ... 72
5.10 Public awareness... 72
5.11 NGO... 73
6 VIETNAM’S BUSINESS SYSTEM... 75
6.1 Ownership coordination ... 75
6.2 Non-ownership coordination... 76
6.3 Employment relations and work management ... 77
6.4 Vietnam’s business system ... 77
6.5 Implications of the Vietnamese Business System... 79
6.6 Future changes... 79
7 The wastewater sector in Vietnam... 80
7.1 Factor conditions... 80 7.1.1 Water supply ... 80 7.1.2 Capital resources... 81 7.1.3 Natural resources ... 81 7.1.4 Labor... 82 7.2 Demand conditions... 83
7.2.1 Growth number of enterprises ... 84
7.2.2 WTO ... 85
7.2.3 Growth environmental sector... 86
7.2.4 Growth wastewater sector... 86
7.3 Related and supporting industries ... 87
7.3.1 ODA... 87
7.3.2 Finance... 88
7.4 Firm strategy, structure and rivalry... 89
7.4.1 Rivalry... 90 7.5 Government... 91 7.5.1 Regulation ... 91 7.5.2 International treaties... 92 7.5.3 Government as a customer... 93 7.6 Chance... 93
7.7 Conclusion part III ... 94
1.1 Information needs 2.1 Research model
2.2 Porters Diamond, the integrated model
3.1 Global market for goods/services (in € Billion)
3.2 Estimate of regional markets in wastewater (turnover in € billion) 4.1 Total turnover Dutch water sector and by market segment (in € billion)
4.2 Players in the water sector broken down by their most important market segment and a breakdown in their turnover over the various market segments of the water sector
4.3 Geographical scopes of activities broken down by market segment
4.4 Turnover in domestic- and export markets, total and by segment (in € billion) 4.5 Share and turnover generated in domestic and export markets
4.6 Dutch water sector compared to the world market (in € billion and %) 4.7 Share and turnover generated in domestic and export markets
4.8 Export turnover in wastewater by sub segment (in € million)
4.9 Percentage of players active and foreseeing opportunities by sub segment
4.10 Turnover of the project cycle of the Dutch water sector by activity area (in € billion)
4.11 Project cycle home and export markets.
4.12 Consulting, realization and operations turnover by market segment (in € million) 4.13 Top 10 investors in Vietnam (by capital) 1998-nov.2005
2.1 Overview of interviewed companies 2.2 Key characteristics of business systems 2.3 Characteristics of owner-control types
2.4 A comparison of nomothetic and ideographic methods
3.1 World Market (including service provision and management) (in € billion) 3.2 Size of the various regions in world market (in € billion)
3.3 Relative size and share of municipal and industrial wastewater by region 3.4 10 largest operators
3.5 Investment in extension per annum in the world water market (in € billion and in share)
3.6 Investment per annum (in € billion)
4.1 Turnover in the water sector, in total and broken down by market segment (in € billion)
5.1 GDP growth by sector
5.2 Comparison of Enterprises Located Inside and Outside Industrial Estates 5.3 Agencies in the National Framework for Environmental Management
5.4 Industrial Waste Water: Limit Values of Parameters and Maximum Allowable Concentration of Pollutants
6.1 Characteristics of owner-control types 6.2 Vietnam’s transition in Business System 7.1 Basic requirements and Labor standards 7.2 Number of enterprises
7.3 Environmental and pollution control equipment and services Market 2002-2004 (in USD Millions)
CEETIA Hanoi Civil Engineering University
CEFINEA Ho Chi Minh City Polytechnical university
DONRE Departments of Natural Resources and Environment
DOSTE Departments of Science, Technology and Environment
EIA Environmental Impact Assessments
EPC Environmental Protection center
EPZ Export production Zone
ERP Effective Rate of Return
EASEAN Association of Southeast Asian Nations
EU European Union
EVD Economische voorlichting Dienst
EZ Economische Zaken
FDI Foreign Direct Investment
FMO Netherlands Development Finance Company
Fr France
GDP Gross Domestic Product
GSO Government Statistic Office
HP Hydropower
I&D Irrigation and Drainage
IP Industrial Parks
IZ Industrial Zone
LEP Law on Environmental Protection
MONRE Ministry of Natural Resources and Environment
MOSTE ministry of Science, Technology and environment
NEA National Environment Agency
Neso Netherlands Education Support Office
NL Netherlands
NGO Non Governmental Organization
NWP Netherlands Water Platform
ORET Ontwikkelings Relevenate Export Transacties
PSOM Programma Samenwerking Opkomende Markten
SME Small and Medium Enterprises
SOE State Owned Enterprises
Sp Spain
SR Social Republic
SWOT Strength, Weaknesses, Opportunities, Threats
TCVN Tiêu chu n Vi t Nam (Directorate for Standards and Quality)
UK United Kingdom
U.S Unites States
VEPA Vietnam National Environmental Protection Agency
VN Vietnam
WC Water Construction
WrM Water(resources)management
WS Water Supply
WTO World Trade Organization
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This first chapter will introduce the research. It will explain why this topic of the research is chosen. It will look at what makes a sector a sector with high opportunities.
The first step in the research sequence is to identify a broad area of research. Water is shown to be a sector with many opportunities in Vietnam. This is shown on the EVD website when you look at Vietnam but this was also recognized during a meeting with the different post in the (South-East) Asian area.
But how can you define a sector in a foreign country as being a high opportunity sector? And why is the water sector in Vietnam seen as a sector with many opportunities for Dutch companies? These questions were discussed during a lunch meeting with the Consul General of the Netherlands mister van Zeeland, the head of the Dutch business association in Vietnam mister Wijnbergen, my colleague mister Velderman and myself. The most important factors in order for a sector to show great opportunities were discussed to be:
• There has to be a demand within the sector in Vietnam • Dutch companies have an expertise in this sector
• The Vietnam authority should see it as a sector with priority • Strategic importance
• It should be durable • Commercially attractive
Vietnam, Vietnam’s business system, Vietnam’s economic performance, institutional structuring and business systems in Vietnam are described in his research and therefore for the most part left out of this research. For the most part, this research will use the same layout as was used in mister Smidts (2006) research.
The broad area identified therefore has to do with both the environment and water. The next step in the research sequence is to select a topic. A close look at the rivers in Vietnam shows that there is much pollution. The problem is identified, but not much action has been taken. Therefore, with the above mentioned factors of what makes a sector a sector with opportunities, a specific topic was selected. The topic of this research is wastewater.
“What are the opportunities for Dutch companies in the wastewater sector in Vietnam?”
Many Dutch companies in different industries contact the Dutch Consulate in Ho Chi Minh City in order to get information on their particular industry. But this research topic was not initiated by any request by Dutch Companies. The goal of this research is not only to inform Dutch companies about the opportunities in the wastewater sector in Vietnam, but also to trigger Dutch companies to come and invest in Vietnam. In order to convince Dutch companies, they need to be informed. The following figure shows schematically the problem analysis.
Figure 1.1 Information needs Source Smidts 2006
This research offers information about many aspects of the wastewater sector in Vietnam. As later will be explained, the Diamond of Porter and theory by Whitley will be used to define the wastewater market in Vietnam. But also general information about the global wastewater market and this market in the Netherlands will be given. But most companies
Dutch companies interested in the wastewater sector in Vietnam Information needs on Vietnam Consulate General in
Ho Chi Minh City Vietnam
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This chapter will focus on the research design. The structure of any research paper is important and therefore a clear structure will be used. The first step that should be taken “is to delineate carefully the question or problems the research is attempting to tackle” (Gill in Johnson, 2002: 47). Stating the problem will be covered in section 2.1. The problem statement consists of the research objective, the research question and the research demarcations. The goal of the problem statement is to clarify for whom the research is conducted and what the end results would be like. The research question is the main question this research tries to answer. It is not unusual that the main question is supported by sub question for a more narrow focus and this is also the case in this research. For a research paper it is also important to specify its scope of limitations. This is covered in the research demarcation section. The next paragraph, paragraph 2.2, will cover the data collection. Paragraph 2.3 will cover the structure of the research. The influence of the theoretical framework on the structure of the research is clearly visible and therefore paragraph 2.4 will introduce the theoretical framework. This section will also describe the relation between the structure of the research and the theoretical framework. Paragraph 2.5 will describe the methods and approaches used in this research. Than in paragraph 2.6 the methological emphasis will be looked and the last paragraph of this section, paragraph 2.7 will look at the role of the researcher.
Research objective
To inform Dutch companies, active in the wastewater sector, what the opportunities are in the wastewater sector in Vietnam.
Research question
What are the opportunities for Dutch companies in the wastewater sector in Vietnam? Sub questions
The sub question for this research will be used to give a clearer view on the wastewater sector in the rest of the world and in The Netherlands. It is important to see what direction the global wastewater sector is heading. Is the Asian market seen as a potential market or do other regions show more potential? Therefore the global wastewater sector will be briefly highlighted. The main market Dutch companies are active in is their own domestic market. It is therefore of vital importance to look at their domestic market in order to see what their opportunities are abroad.
What does the global wastewater sector look like?
What does the Vietnamese wastewater sector look like? Demarcations
This research has a time limit. Therefore time, but also the available sources will have an effect on the scope of the research:
• Time is in many was a factor in this research. The goal of this research was to
give an as much up to date view on the market. This means that new information can be found almost daily. As a researcher you have to stop searching at some time and use the information that has been collected at that time. Not only update information but also more information on the subject can be found the longer one search for it. At one time the researcher has to decide that the information gathered is sufficient to answer the research question.
• The Netherlands Consulate is located in Ho Chi Minh City. This was therefore the
home base for this research. This research uses many newspaper articles which are written in local newspapers. Although these news papers do write about events in the whole country, there main focus is one the Ho Chi Minh City area. Hanoi, the capital Vietnam, and Can Tho are the large cities in Vietnam where most date collection takes place but other regions in Vietnam are therefore not as much covered in this research. This could make this research in these regions less valid
In order to answer the above mentioned questions the right information should be gathered. Much of the information gathered for this research was found in articles about the environmental state of Vietnam, internet sites and newspapers. A goal of this research was to give an as updated overview of the current wastewater market in Vietnam. The information used in this research should therefore be as up to date as possible. A problem with some of the articles found was that they were from the beginning of 2000. Because Vietnam is changing in such a rapid pace, much of the information in these articles could be outdated and therefore invalid. In order to check the validity of the information found in these articles interviews were conducted to test if the information is still up to date. Local newspapers were also used to gather information. Although most of the data gathered from the newspapers is up to date, newspapers in Vietnam are not the most reliable source. Most papers are under the supervision of the Government and therefore are hesitant to report information that could damage the government. Therefore one needs to be careful with the information provided by newspaper and double check the information used.
weeks of my stay in Vietnam. This was done close to the end of my stay so that I had a good overview of he data that was missing. The data collection by interviews was therefore done for two purposes. One set of interviews was taken to verify if the collected information from articles, internet sites and newspapers was valid an up to date. A second round of interviews was to gather any missing information that was not found in any of the three above mentioned sources.
The different companies that were interviewed are shown in table. As mentioned before, the rounds of interviews were conducted. One round to verify the collected data from local newspapers, internet sites and reports and a second round to collect extra information not previously gathered.
Company Name representative Background Round of interview 1. Peja Doan Nam NL Private 1st
2. Ballast Nedam R. Krijgsman NL Private 1st 3. Department of NRE Nguyen Trung Viet VN Government 1st
4. Royal Haskoning J.H. Laboyrie NL Private 1st and 2nd 5. Martins Water Ltd. Mr. Martins NL Private 2nd
6. Heineken T. Plooij NL 2nd
Table 2.1 Overview of interviewed companies
The above mentioned interviews were all scheduled interviews. This does not mean that these are the only companies that were interviewed. During the many company visits and drinks organized by the Consulate much information was also gathered in a “casual” way. These “casual” interviews were done with representatives of previously interviewed companies (see table 2.1) but also with other companies. The type of question asked to these companies could be either very general but also specific to wastewater in Vietnam. Some of these other companies or institutions are:
Dutch Lady Evidens waterbedrijf
Hubert Stavoren B.V FMO
EVD EZ
Neso TNT
Caldic Armanda Foods
Dutch Business Association
This research is divided into three main parts. Each of these three main parts will answer on of the sub questions in this research. The following research model gives a graphic view of what the structure of the paper looks like.
Figure 2.1 Research model
The first part will look at the global (waste) water market. It will only be a short part, but it is incorporated in this research because it gives a good overview of the total (waste) water market. It gives numbers on the growth of the market and which world regions are seen as important. The global market will be looked at first, because it will give a good view on where the opportunities are in this sector. It will show if the Asian market is seen as a market with potential. This is obviously important to know before further exploring the Vietnamese market.
The second part looks at the (waste) water sector in the Netherlands. It shows the importance and size of wastewater treatment compared to other components of the water sector. The importance of exports in the wastewater sector in the Netherlands is also highlighted. This part shows what the wastewater sector in the Netherlands is all about and this is important to know because in order to know what the opportunities of Dutch
companies in Vietnam are, one has to know what Dutch companies are capable of and if they are even interested in looking abroad for opportunities.
The third part will focus on Vietnam and what is happening in this country. This part consists of three parts. The first part will give an overview of the (environmental) market in Vietnam. The changes in the country over the years are highlighted and the influences of these changes on the environmental market are looked at.
A theory is “characterized by an attempt at explaining observations and, from those explanations, predictions or expectations might be generated” (Gill and Johnson, 2002: 31). This research is conducted for Dutch companies active in a specific sector. Therefore the information should be tailored to this specific group of companies. The theory used in this research should be on a micro economical level because it should be applicable for individual companies. The theories of Porter (1990) and Whitey do that, which makes them a perfect fit for this research.
2.4.1 Whitley
In this research the business theory of Whitley will be used to look at the economic development of Vietnam. Smidts (2006) already did a good job describing these business systems for Vietnam, but his focus was to general to conclude that his information gathered also is completely true for a specific sector, like the wastewater treatments sector, in Vietnam. This research will use much of the information gathered by Smidts, but will try to apply it more to the wastewater sector in Vietnam.
Before explaining the different types of business systems and their characteristics it is important to understand what is meant by a business system. Whitley (1999) defines business systems as “distinctive patterns of economic organization that vary in their degree and mode of authoritative coordination of economic activities, and in the organization of, and interconnections between, owners, managers, experts, and other employees” (Whitley, 1999: 33).
Key characteristics of Business systems
Ownership coordination
Primary means of owner control
Extend of ownership integration of production chains Extend of ownership integration of sectors
Extend of ownership integration of sectors Non-ownership coordination
Extend of alliance coordination of production chains Extend of collaboration between competitors
Extend of alliance coordination of sectors Employment relations and work management Employer-employee interdependence
Delegation to, and trust of, employees
Table: 2.2 Key characteristics of business systems
In order to compare different business systems eight key dimensions can be used. These eight dimensions are shown in table 2.2. As can be seen from table 2.2 these eight key dimensions are categorized as either one of three main groups. The three groups are: ownership coordination, non-ownership coordination and employment relations and work management. The eight key dimensions can be seen as interrelated to each other. These interrelationships were investigated by Whitley and he argues that there are six distinguishable ideal types of business systems. These six ideal types are the Fragmented, Compartmentalized, State organized, Coordinated Industrial District, Highly Coordinated and Collaborative type.
Smidts (2006) argues that three of these six types of business systems are the ones that most likely apply to Vietnam. These three types are the State Organized, Coordinated Industrial Districts and Highly Coordinated business systems. These three will be further explained below. Information regarding the other three types can be found in the literature of Whitey (1999).
State Organized business systems “are dominated by large firms, with highly integrated production chains and to some extend integrated activities between different sectors. Ownership patterns differ, and the State supports growth of SOE through subsidies. Moreover the state dominates the economic development and guides firm’s directions. Whereas the employer-employee relation is only to a limited extend interdependent. A typical example of such a state organized business system is post war South Korea” Smidts, 2006: 46).
Highly co-ordinated business systems “rely mainly on alliance forms of owner control. But economic activities are structured by organizational coordination. This is achieved by the importance of intensive sector network structures. They co-ordinate many activities, and the bulk of the work force is integrated in these large alliance structures, which causes a high interdependence and level of delegation between employers and employees” (Smidts, 2006: 46).
It should be taken in mind that the theory that is used for the most part is based with the reference to the capitalistic western economies. The embeddedness problem emphasizes this problem of using these types of theories on countries that have a non-capitalistic economy, like in socialistic or Marxist orientation nations (Hamilton and Biggard, 1988). Next the eight key dimensions and the three main groups will be briefly be explained
Three of the eight key dimensions for comparing business systems are categorized under Ownership Coordination. Primary means of owner control is one of these 3 dimensions. Owner control can be categorized in three major types of owner control. These are: direct control, alliance control and market control. These three control types differ in terms of six characteristics which are summarized in table
Characteristics types of owner control
Characteristics type of Control
Direct Alliance Market Involvement in High Some Low management
Concentration of High Some Low
ownership
Owners’ knowledge High Considerable Low of business
Risk Sharing and High Considerable Low commitment
Scope of owner High Considerable Low interest
Exclusivity of Considerable Limited High ownership
Legend: Features range between low, limited, some, considerable and high
Table 2.3 Characteristics of owner-control types
Extend of Alliance coordination of production chains, extend of collaboration between competitors and extend of alliance coordination of sectors make up the three dimensions categorized under non-ownership coordination. “in each case, the key contrast is between zero sum, adversarial contracting and competition , on the one hand and more cooperative, long term and mutually committed relationships between partners and competitors on the other hand.
Employers-employee relations and work systems differ in many different ways. “The Key contrast is between those societies encouraging reliance on external labor markets in managing the bulk of the labor force and those encouraging more commitments and mutual investment in organizational capabilities. This can be summarized as the degree of employer-employee interdependence” (Whitley, 1999: 38).
Degree of managerial delegation to, and trust of employees can be explained as patterns of work organization and control that can be distinguished primary in terms of the discretion and trust employers grand to the bulk of the workforce in organizing and carrying out tasks.
These eight key dimensions will be looked at later in this research to see which business systems best fits the wastewater sector in Vietnam
2.4.2 Porter
In order to get the right and wanted information, the used sample has to represent the research population. The collected information form the sample should give a generalized view for the whole target population without interviewing the whole population (Gill and Johnson, 2002)
The population of interest is easy to distinguish. Because this research looks at the opportunities for Dutch companies in the wastewater sector in Vietnam, the companies that will be aimed to gather information will be (Dutch) companies that are either active in this industry or have valuable knowledge about the sector or related sectors. The companies in the sample have to be both experienced in this sector or related sectors and they should be willing to share their knowledge.
increase the validity of the sample, because a large part of the population can be interviewed.
The second point is obvious as well. A possible source can have much knowledge about the market, but if he or she is not able or willing to share this information than the source become useless. It must be taken in mind that knowledge can be an important asset to a company. Part of this problem can be by showing the possible benefits, for the interviewed company, of this research paper.
2.4.3 Literature review on Porters Diamond
In order to analyze the wastewater market in Vietnam a clear and comprehensive framework should be used. A theory should be used that cover all the essential features that will lead to this clear and comprehensive framework. There are many options that can be used. An historical overview can be used to show the possible opportunities in the sector. A problem for the environmental sector is that it has a relatively short history. Strategic planning tools and techniques are also a viable option. A SWOT analysis in all the options can be used for extra clarification. These theories show great insight of the internal and external forces working on a company, but they will not provide the needed information to answer the research question. The theory used should show the current and future demand in the sector but also should give an overview of the sector as a whole (rivalry, related and supporting industries etc.) in order to answer the research question. Porter argues in his book the competitive advantages of Nations (1990) that the nature of competition and the sources of competition are the essential issues that should be considered in a sector research.
The reason that this theory of porter will be used in this research is because the theory looks at all the relevant aspects that influence the sector. The diamond and the two additional variables give a focus view on the different. The porter Diamond also uses clear reasoning and straightforward recommendation that are in line with the language of the entrepreneurs. Finally, the theory is a good fit with the research question in this research. The question asks for an indebt sector analysis and to show the possible business opportunities for Dutch companies. This model gives answer to both these question (Smidts, 2006).
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determinants of competitiveness” (Porter, 1990: 73). He came to this conclusion by acknowledging that certain countries have managed to become very successful, over a long period of time, in certain clusters of industries. He argues that countries posses national environments that is (partially) responsible for the success
Scope
Although Porter’s theory focuses on the competitive advantages of nations it can also be applied to industries or parts of industries within a nation. Some even argue that “implications for industries within a nation are of more importance” (Smidts, 2006: 65). “The determinants that create the national environment in which companies are born and learn to compete” (Porter, 1990: 77) make up the framework of porter’s Diamond. These determinants of national competitive advantage are:
• Factor condition • Demand conditions
• Related and supporting industries • Firm strategy, structure and rivalry
He also indicates two extra variables that have an influence on the competitive advantage of nations. These additional variables are:
• The government • Chance
Why are some industries more successful in one nation than in another? What
Influences the competitive advantage of a nation? These were some of the question that porter tried to answer when he conducted a four year study. The result of this research was that Porter came up with a model that could be used to explain why certain countries do have different comparative advantages. This model is now known as the Diamond of National advantages. Porter argues that the national environment plays a crucial role in the competitive success of companies. The study showed him that in countries certain clusters of industries were able to become very success, over a long time, in certain countries but were not competitive in others. The national environment was the main reason for this competitive advantage (Porter, 1990).
Figure 2.2 Porters Diamond, the integrated model
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Porter’s diamond consists of four main elements and two additional elements. In order to clearly understand the diamond, these elements will be further explained in this section.
Factor condition
According to the traditional economic theory factors of production determine a nations’ flow of trade. The Factor conditions covers labor, land, national resources, capital and infrastructure. The factors that a country is well endowed with will be emphasized by that country. Porter argues that it is not really important which factor conditions do exist in a country, but which factors of conditions it can efficiently create in a short period of time. Four kinds of factor conditions can be distinguished. Basic, advanced, general and specialized are these four distinguished factors. In order to create a competitive advantage specialized and advanced factors are of more importance than the other two. The reason is that in this age of globalization and international mobility there is no problem with finding and using missing important basic factors like foreign capital and an unskilled workforce. This can also be said about general factors like graduates and
infrastructure that benefit an industry. In order “to support competitive advantage, a factor must be highly specialized to an industry’s particular needs” (Porter, 1990: 78). In order to create these specialized and advanced factors a sustained investment is required which makes them hard scare and hard to imitate for competitors.
A disadvantage for a country can become, under certain conditions, an advantage to that country. Porter argues that two conditions should be met in order for a country to make an advantage out of a disadvantage. “First, companies should have the chance to innovate in advance of foreign rivals and second, there must be favorable circumstances elsewhere in the diamond (Porter, 1990).
Demand conditions
Home conditions and demand are very important in building competitive advantages. International competition does not diminish this. “The character of the home market usually has a disproportionate effect on how companies do perceive, interpret and respond to buyers need” (Porter, 1990: 79). Home demand is the best indicators what possible turnover can be achieved. Current demand should be look at also future demand is important. Future demand can be prognosed by looking at indicators that influence demand for the product.
Related and supporting industries
Industries that share common technologies, inputs, distribution channels, customers or activities or provide products that are complementary are seen as related and supporting industries. “World class related industries can provide sources of technology, ideas, individuals and potential competitors, all of which can be advantages in international competition” (Craig et all., 1992: 92). The high quality input or a product that is very cost effective by supporting industries can create an advantage in the industry. Therefore close working relationships and close lines of communication are very important to create advantages.
Firm strategy, structure and rivalry
“National circumstances and context create strong tendencies in how companies are created, organized and managed, as well as what the nature of national rivalry will be” (Porter, 1990: 82). Different countries have different managerial systems that seem to fit the countries competitive advantages. When a country has a competitive advantage in a type of industry, it seems that the every country characteristic, for instance managerial style, goals that companies seek to achieve and individual motivation, seems to be beneficial to that industry.
be analytical and distance than local rivals who “often go beyond pure economic or business competition and become intensely personal” (porter, 1990: 82).
Role of Government
There has been much argument about what role a government should in order for a nation to be competitive. Porter argues that both the argument that the government should essentially be a helper or supporter of an industry and the “free market” view are incorrect. Porter argues that it is only companies that create competitive industries. The government should be only encourage or push companies to perform at a high level. The Government should act in the best interest of a nation. Although the government is seen as an important variable, it is not a basic determinant. It can be more seen as a additional variable that can influence one of the other four variables in a positive or negative way.
The role of Chance
Chance can also be an important influence on a nation’s diamond. Policies and strategies can not influence all factors and situations. Other unexpected events can also have an important influence on the position of companies. Companies do not have an influence on these invents but can either have a positive or negative influence. When an entrepreneur comes up with a new idea, he or she will most likely first introduce in it is home country. He or she will not look actively for the most suitable place to implement the product or service. This idea that start by chance can become a competitive industry for that country (Ludwich, 2002).
Other events that can be categorized by change are: war, dramatic shift of exchange rates, political decisions by foreign countries, major technological breakthrough etc.
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The importance of every variable in different industries differs. This means that not every variable has the same weight. The variable in the diamond are interdependent. This means that variables within the diamond affect one another. “Selective disadvantages in factors of production will not motivate innovation unless rivalry is vigorous and company goals support sustained investment” (Porter, 1990: 83).
The importance of each variable differs per industry and nation. This means that the influence of the variables in an industry is of the same weight. Highly skilled labor might be more important in an industry than natural resources. In this research this importance of the variables will be taken into consideration.
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an extra contribution to this research. A fax with this request was send to 61 Dutch company active in the wastewater sector. These 61 companies were selected with the help of the NWP and the EVD. Although a subsequent number of companies answered the fax, only one question could be formulated for these replies. The answer to this question is incorporated in this research.
The purpose of this section is to reviews how the information to answer the main and sub questions was gathered. Both primary and secondary information resources we used to answer the questions to be answered in this research. The primary information was gathered by conduction field research and the secondary information was gathered by desk and literature research.
Part one and part two of this research is based entirely on secondary data. Two articles recently written give a great overview on the first two sub question in this research. These articles have been written recently and therefore give good up to date information to answer the first two sub questions. This research only gives a brief overview of the information in these articles and it is therefore recommended to take a close look to these articles as well. The articles can be found on the website of the NWP. The articles used are:
• Economische betekenis van waterzuiveringstechnologie by A. Muizer and A.
Leusink (2005).
• Strategic watercards by A. Muizer and M van den Berg (2002).
Part three of the research is the most focused part of the research. Part one and two were used to give a general view of the (waste) water market globally and in the Netherlands. Both are important to look at. But the focus is on the wastewater market in Vietnam. Part three therefore focuses on Vietnam. It will start with giving a general view of Vietnam, but it is always related to the wastewater sector. Then an indebt view in the wastewater market is giving, with theory, to show supply all the necessary information to give a clear answer to the research question. This information is gathered with both primary and secondary. At first as much secondary data on the subject was gathered. Some of the information found was not specific for only wastewater, but environmental equipment in general. Because of the close link of wastewater treatment with the environment, these sources offered useful information. But not all the information found was recently written. The goal of this research was to give an as much up to date view of the opportunities of this market. Vietnam is a fast changing country and therefore a source from 2000 can already by outdated. This could affect the validity of the research. Therefore, after most of the search for secondary information was done a set of interviews was conducted to see if the information found in relatively older sources was still applicable. If the information was not longer up to date, than it is not used in this research.
missing information. These interviews, as well as the first round of interviews, were conducted with Dutch companies active in Vietnam with expertise in wastewater and environmental related projects in Vietnam. Also interviews with the government and mister Le Son of the Netherlands Consulate were vital sources.
These were al formal ways of collecting information. By looking around and listening and talking to people during drinks, also information was gathered. One can say this is an informal way of gathering information.
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It is argued that a researcher can differentiate between two different social science research methods. These different social science research methods are inductive or deductive. In table the differences between the two are summarized.
Nomothetic methods emphasized Ideographic methods emphasize
1 Deductive vs. inductive
2 Explanation via analysis of causal vs. Explanation of subjective meaning relationships and explanation by systems and explanation by
covering laws (etic) understanding (emic)
3 Generation and use of quantitative vs. Generation and use of qualitative
data data
4 Use of various controls, physical vs. Commitment to research in or statistical, so as to allow the every day setting, to allow access testing of hypotheses to, and minimize reactivity among the
subjects of research
5 Highly structured research vs. Minimum structure to ensure 2, 3 methodology to ensure and 4 (and as a result of 1) replicability of 1, 2, 3, and 4
Table 2.4 A comparison of nomothetic and ideographic methods Source: Research methods for managers (Gill and Johnson, 2002: 44)
When looking at the above comparison between the two methods it can be seen that they are extremes. This research does not fit either one of these extremes. It is positioned in between these two extremes. In this research the theory of Porter (1990) is used. His work is of inductive nature. For his theory he observed the empirical world and with these observations he constructed his explanations and theory. This theory is the foundation of this research. The created research model is then used to describe the current states of the wastewater treatment sector in Vietnam, which is of a more deductive nature. “It begins with abstract conceptualization and then moves on to creating new experiences and observations (Smidts, 2006: 21).
The main goal of the internship at the Netherlands Consulate was to conduct research for this research report. But by being a member of the economic department I also got the opportunity to help out with many of the activities that the Consulate was organizing. Not only was this a great opportunity to learn more about many aspects and was great fun to be involved in, it also helped to come in contact with people that were important to this research and future related plans. Even though not all the activities were related to this research, some of them contributed valuable input for this research. Some of the activities participated in where:
• Writing a small research report for the EVD about sectors in Vietnam that
are seen as sectors with opportunities for Dutch companies. This research was relatively short and was not in debt. It showed where the opportunities are in Vietnam and with this broad view on different sectors the researches was able to use this information to narrow down the search for a specific research area.
• Helping with the organization of the “Holland Days” 2006 in Ho Chi
Minh city. Responsible for the MBA a case that students of 5 universities participated in needed to be written and the contest itself needed to be organized. Although this was the main focus for me and my colleague during the “Holland Days, our help was also appreciated in other events during these days.
• Organizing the stay of Minister Veerman and his delegation in Ho Chi
Minh city. During their stay they visited a shrimp processing farm and a dairy farm to give the Minister a view on how these sectors are developed in Vietnam.
• Joining the meeting about the cooperation of the different posts
(Consulates and Embassies) in the (south-east) Asian region. This meeting was attended by members of the different posts, members of the different business associations in the attending countries as well as members of different ministries form the Netherlands.
• The researcher of this research will be involved with the Holland Days
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Wastewater treatment is a part of the total water sector. Before proceeding to an indebt look at Vietnam it is of importance to look at the global sector as a whole. This will show where the opportunities lie in this sector. This part of the paper will therefore look at the importance of the wastewater sector compared to other sectors within water, the importance of different regions in the world, the biggest players in this sector, major trends in the water sector and the areas where most investments are expected. Although part I is relatively short, it will give a good overview of where the sector is at and where the opportunities lie.
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The wastewater treatment sector is a part of the total water market. The global water market in goods and services was estimated to be € 425 billion in 2001. Water supply is the largest market in the total global water market but wastewater is a good number two. These two are by far the largest sectors in the global water market and combined the make up close two € 300 billion of the total € 425 billion global water market.
Table 3.1 World Market (including service provision and management) (in € billion) *investments level only
Source: strategic watercard, 2002
Figure 3.1 Global market for goods/services (in € Billion) Source: Strategic watercard, 2002
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In both the water supply as well as the wastewater sector, Asia and the Middle East are ranked third, after North America and the EU, in size worldwide. As can be seen, this region is not far behind of North America and Europe. Compared to the Dutch market this number is close to 15 times larger.
Table 3.2 Size of the various regions in world market (in € billion) Source: Strategic watercard, 2002
Figure 3.2 Estimate of regional markets in wastewater (turnover in € billion) Source: Strategic watercard, 2002
The municipal and industrial segment of the wastewater market can be seen as two different markets. The waste both produce is different therefore different equipment is needed to treat their waste water. As Muizer and van den Berg (2002) argue “most resources will flow towards wastewater treatment because it is still lagging behind domestic wastewater treatment in many parts of the world and also requires more advanced and costly technology to remove heavy metals and poisonous chemicals from wastewater” (Muizer and van den Berg, 2002: 71). Therefore the focus of this research will be on the treatment of industrial wastewater.
Table 3.3 Relative size and share of municipal and industrial wastewater by region Source: Strategic watercard, 2002
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future market force is therefore expected to remain centered in the western world. This in spite of the fact that a major share of global investments will take place in developing countries and emerging markets” (Muizer and van den Berg, 2002: 24).
Table 3.4 10 largest operators Source: Strategic watercards, 2002
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Water is getting more and more important. One of the expected problems for the future is the “water stress”. Water stress can be defined as “the circumstance under which water abstraction for all major functions together (domestic, industrial, agricultural and natural ecosystems) exceeds the renewal of water sources” (Muizer and van den Berg, 2002: 25). By 2025 it is expected that around 300 million people will life in areas that cope with “water stress”. This shows the need to increase investment in the water sector.
The wastewater treatment market is seen as a market with great growth potential. Large investments, as seen in table, are needed for wastewater treatment facilities.
Table 3.5 Investment in extension per annum in the world water market (in € billion and in share)
Of late, people have shown a growing concern in the public health and the conservation of our ecosystem. As a consequence, effective wastewater treatment will become of great importance in the (near) future.
Compared to water supply, wastewater is lagging behind. 80 percent of the world population has excess to clean drinking water, but only 50 percent has sanitation. In many countries, a large percentage of their wastewater is still untreated. This explains why these largest investments are needed.
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In the next 10 to 25 years the world water market will be a fast accelerating market looking at the number of investments. This will be especially in developing countries and emerging markets. Population growth, massive urbanization and fast industrialization of these developing countries and emerging markets as well as in the developed countries will create a huge demand for investments in water services. It will be a challenge to secure a sufficient supply of the growing demand for clean water for personal, agricultural and industrial use will maintaining a save and healthy environment. In many regions in the world treating waste water is only at a starting point (Muizer and van den berg, 2002). Therefore it comes as no surprise that only 10 percent of the collected waste water is treated before it is released back in the environment (www.toekomstvisiewater.nl). Therefore the “investment forecasts as part of the “World Water Vision for 2025” provide for an overall increase in the desired annual investment level from € 80-90 billion per annum in 1995 to € 200 billion per annum in the period from 2000 to 2025” (Muizer and van den Berg, 2002: 26). The biggest increase in investment will be in environmental & industry.
When looking at the investment per region it can be seen that Asia and the Middle east is by far the region with the highest investment per annum.
Table 3.6 Investment per annum (in € billion) Source: strategic watercard, 2002
The water sector and the wastewater segment in particular, are still growing. The importance of wastewater is shown by the fact that only water supply has a larger annual turnover. The Asian market, Middle East included, is already the third largest market behind North America and the EU. But these two markets are much more developed markets with less growth potential. All Asian countries are seen as developing and therefore the wastewater sector is growing at a faster pace than this market in developed countries. Investment per annum shows that the Asian and Middle East market is already the largest world region.
The importance of wastewater treatment is shown by the fact that in many countries a high percentage of the wastewater is not treated. Also of the world population only 50 percent have access to sanitation. This explains why large investments in wastewater treatment facilities are needed.
Wastewater can be divided in two broad areas. These two broad areas are municipal and industrial wastewater treatment. Although both segments show growth, the industrial waste water treatment is seen as the market to invest in. The large expected growth indicates this. It is expected that most resources will flow to this segment. Also because the fact that the treatment of industrial waste water “requires more advanced and costly technology to remove the heavy metals and poisonous chemicals from wastewater” (Muizer van den Bergh, 2002: 71).
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In order for a sector abroad to be a sector with opportunities for Dutch companies, Dutch companies should also have an expertise in that sector. Therefore it is of importance that before looking at the Vietnamese market a close look should be given to the Dutch market. Porter (1990) emphasizes the importance of the home market and therefore part II of this research will take a closer look at the Dutch water sector. This part will look at the importance of the different segments, importance of being internationally active, the project cycle and will finish with a closer look wastewater sector. Part II consists mainly of figures and tables. These are used to give a clear view on the sector.
When Dutch companies are active abroad, they do not stand all on their own. There are many ‘support systems’ that companies can ask for help when are active abroad or want to become active abroad. These ‘supporting systems’ that Dutch companies can support in Vietnam are also looked at in this chapter.
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The water sector in the Netherlands is a € 11.5 billion industry. A large percentage of this € 11.5 billion comes from exports. Of the total water sector 34 percent comes from exports. The waste water sector accounts for a total of € 2.4 billion of which 38 percent comes from exports
Table 4.1 Turnover in the water sector, in total and broken down by market segment (in € billion)
Figure 4.1 Total turnover Dutch water sector and by market segment (in € billion) Source Strategic watercards, 2002
Figure 4.1 shows the size of the different segments compared to the total € 11.5 billion water market in the Netherlands. It can be seen that waste water is third in the total water market in the Netherlands with € 2.4 billion.
Figure 4.2 Players in the water sector broken down by their most important market segment and a breakdown in their turnover over the various market segments of the water sector
Source: Strategic watercards, 2002
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As mentioned before, much of the total profit in the water sector comes from export. Therefore many Dutch companies active in the water sector are also active abroad. Figure shows the percentage of Dutch companies that are only active in the national market, only active internationally and the percentage of companies that are both nationally as well internationally active.
Figure 4.3 Geographical scopes of activities broken down by market segment Source: strategic watercards, 2002
Figure 4.4 Turnover in domestic- and export markets, total and by segment (in € billion)
Figure 4.4 shows the size of the domestic market and export markets of the different segments. It shows that two thirds of the total water turnover comes from the domestic market. The other one third is contributed to international activities.
Figure 4.5 Share and turnover generated in domestic and export markets Source: Strategic watercards, 2002
Figure 4.5 shows the percentage of domestic and exports per segment in the water sector. Of the total turnover in the waste water segment a high percentage comes from international activities.
Figure 4.6 shows in € billion the market share Dutch companies have in the total global water market. It shows that, although water construction has a 35 percent market share, all segments have a share of around two percent.
Figure 4.7 Share and turnover generated in domestic and export markets Source: Strategic watercards, 2002
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Around 65 percent of the Dutch companies that consider wastewater their main focus are internationally active. The export share of total profit is therefore 35 percent. Dutch companies have a total turnover of around € 2.4 billion this is a market share of 1.8 percent.
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Figure 4.8 Export turnover in wastewater by sub segment (in € million) Source statistical watercards, 2002
Of all the Dutch companies in the wastewater sector, 77 percent is active in the industrial market. Most of these companies see growth opportunities in this sub sector. “As a consequence, the worldwide industrial market in wastewater can be considered an important growth market for the Dutch water sector” (Muizer and van den Berg, 2002: 74).
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The water sector is a large sector with many different segment like water supply, wastewater etc. Also with these segments there is a project cycle in which different types of companies are active in. Four of the major types of players are:
• “R&D players that focus on research and development • Consulting: players that on advise and/or design
• Realization: players in procurement or contracting or combinations of
procurement, contracting and consulting
• Operations: players that manage the infrastructure”
Figure 4.10 Turnover of the project cycle of the Dutch water sector by activity area (in € billion)
Source: Strategic watercards, 2002
Figure 4.11 Project cycle home and export markets. Source: Strategic watercards, 2002
Figure 4.11 shows the size of the domestic and export turnover in the different areas of the project cycle. Consulting and realization are both heavily internationally active when compared to the domestic turnover. Operations on the other hand are mainly focus on the domestic market and R&D is completely focused on the domestic market.
Figure 4.12 Consulting, realization and operations turnover by market segment (in € million)
Source: Strategic watercards, 2002
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As mentioned in the beginning of this chapter, Dutch companies who are active or want to be active aboard are not left on their own. As Porter (1990) mentioned “a set of strong related and supporting industries is important to the competitiveness of firms” (Porter, 1990: ). These support systems can help companies with information and/or financial support. Next these different support systems will be briefly discussed. Also the ODA contributed by the Netherlands and Dutch FDI will be briefly looked at.
4.6.1 ORET
The programme “Ontwikkelings Relevenate Export Transacties (ORET) gives the Dutch government a donation on the export of capital goods, services of labor to developing countries. The ORET program supports companies who want to be active in developing countries. One of the goals of the ORET program is to stimulate the investment climate in the developing countries to facilitated investments in infrastructure. (www.fmo.nl). The ORET program helps the developing countries with financing capital goods and services of labor. The ORET program has three facilities:
• “The tied facility is intended for export transactions to selected countries. The grant can exclusively be requested by a Dutch enterprise that wants to carry out the transaction.
• The untied facility is intended for export transactions to the so-called Least Developed Countries. The grant can be requested by a Dutch as well as a non-Dutch enterprise.
• The water facility is intended for export transactions that have to do with investments in the drinking water and sanitation sector” (http://www.fmo.nl/en/products/capitalgoodsexport.php).
ORET is for export transactions that are not higher than 45 million euro. In the case of wastewater related products this number will most likely not be exceeded. Projects that are not commercially attainable, in practice this means that the project has a payback period of more than 10 years, can possibly get ORET funding. Companies do have to show that they are financially, organizationally and technically capable of executing the project. They also have to show that they do “not have a controlling interest in the beneficiary enterprise at the point that the request is submitted” (www.fmo.nl/ ). Also upon request the company must be able to provide financial guarantees.
Under conditions, 75% of both the export transactions and the possible technical assistance cost can be financed.
not possible or leads to a higher cost, of the transaction must be of Dutch origin. The tied ORET will than be 35 percent of the total value of the export transaction.
“Within the ORET program there is a special facility available for investments in the drinking water and sanitation sector” (FMO.NL). As with the tied facility, companies have to be established in and operate outside of the Netherlands. If they do apply with this requirement, than they can get the grand percentage water facility amounts to 50%.
4.6.2 PSOM
Programma Samenwerking Opkomende Markten (PSOM) is focused on Dutch companies that want to execute projects in cooperation with local companies is developing countries. The goal of PSOM is to fight poverty in developing countries. The PSOM project stimulates pilot projects in the public sector that trigger long lasting economic development in developing countries. These investments should stimulate knowledge sharing, employment and income.
Although the PSOM project is open for all projects in every sector, there is a special environmental tender. If companies want to be eligible for this tender the project should comply with the criteria set for the business to business tender for PSOM projects. Also should there be measurable environmental effects be within a (average) two year period. In the case of for instance a wastewater plant these measurable environmental effects will not be a problem because treated wastewater is mentioned as one of the measurements o environmental effect. In Vietnam the PSOM aid is set to be 50 percent of the project budget and a maximum of EUR 750.000. A condition is that the consortium invest a least the same amount in related projects in the same receiving country.
In order to qualify for the PSOM aid there are some criteria the project should comply with. These criteria are:
• The parties involved are a Dutch company and a local company with the goal of
jointly setting up new activities in the developing country
• Both parties are financially healthy, have relevant expertise and experience and
are focus on a long trade and investment relation
• The Dutch company should be registered at the camber of commerce. The
“receiving” company should “officially” be registered in the receiving country. There is no limitation on the number of stocks the Dutch company owns at the receiving company
• The company does not have the financial possibility to execute the project and it
is not possible to get a bank to finance the business plan.
• The project is commercially attainable in the long run and has a positive influence
on the local economy (extra employment, introduction of new technology, improvement van means of living, strengthening SME and an improvement of environmental-conditions.
