Bilateral trade and investments
Improving the Consulate General of the Netherlands’ information services on trade and investments opportunities in Vietnam.
W.D. Smidts
Bilateral trade and investments
Improving the Consulate General of the Netherlands’ information services on trade and investments opportunities in Vietnam.
Author: W.D. Smidts
Student number: 1230115
Supervisors RuG: Prof. Dr. L. Karsten
Dr. B.J.W. Pennink Supervisor Consulate General: Drs. A.L.M. van Zeeland
Faculty: Management and Organisation
Specialisation: Business Development
University: University of Groningen
Institute: Ministry of Foreign Affairs
Consulate General of the Netherlands
Ho Chi Minh City, Vietnam Rotterdam, May 26, 2006
“De auteur is verantwoordelijk voor de inhoud van het afstudeerverslag; het auteursrecht van het afstudeerverslag berust bij de auteur.”
Cover Photo
The photo on the front page is taken in the summer of 2005. This image incorporates some features that are characteristic for Vietnam as a country, and in its relation to the past and the future. In the front it shows the statue of the founding father of modern Vietnam, Ho Chi Minh. He is most famous for establishing communist control in parts of Vietnam in the 1960s. Until today his words are quoted by emphasising the value of being an independent and free country, after the Vietnam War.
“Nothing is more precious than independence and liberty.”
Ho Chi Minh (1890-1969)
However the background of the picture illustrates much more of Vietnam at its present stake. Ho Chi Minh’s statue is presented in front of the People’s Committee. This municipal government building shows the importance of the Communist Party in Vietnam, with the communist Vietnamese flag high on top.
Illustrative for the transition the country is currently undertaking, is the spot on the right hand side. As one of the highest building in Vietnam, the HSBC (Hong Kong Shanghai Bank of China) stretches above the city and dominates the skyline. Vietnam’s economic reform program, initially started at the end of the eighties has open the economy and consequently paved the way for foreign companies to start doing business in and with Vietnam.
Executive Summary
“Vietnam is a country in transition.” As one of the conclusions of this research suggests, change is the only constant factor in Vietnam. In the past decades the country has shown considerable changes in the way the economy was structured and consequently in its performance. It is the official task of the Consulate General (CG) of the Netherlands to promote bilateral trade and investments, and to inform Dutch companies upon the developments in Vietnam. This is done by promotional activities, but the majority of the Dutch companies are informed by the information services of the CG. As the CG observed a discrepancy between the current information services and the standards they want to provide, improvements had to be made. This gap led to the starting point of the management question. “How can the information and advice on doing business and business opportunities be improved to provide Dutch businesses with optimal service?”
The information that should be provided by the Royal Netherlands Embassy (RNE) and CG should be in line with the requirements for the so called two star countries. This ranking- based framework is the result of a research by the Ministries of Economical and Foreign Affairs, that indicates what kind of services Dutch companies can expect from the RNE and CG. Vietnam recently was awarded this two star status, and companies can now count on the broadest form of support. This can be done by providing information services, providing assistance with a large number of facilitating activities and a orientation meeting.
There already was a large amount of information available on several items of the Vietnamese market, but no framework has been established and applied that allows to thoroughly analyse the current status of the Vietnamese business system and sectors.
Therefore no structured conclusions on the competitiveness of an industry have been made, which is important in identifying its business opportunities.
This has led to the following research question: “Which method can the CG use to systematically analyse Vietnam’s Business System, promising sectors and business forms in order to improve its information services, and how?” This means that the information services of the CG can be improved, by investigating the trade and investment opportunities. How this is realised differs per subquestion. Each of them represents a smaller part of the total research question, and additionally focuses on a different level. The focus of this research is narrowed down per subsequent part. It starts at the national level, then on the sector level and finally on the company level. How they are approached and how these answers are realised is now explained.
The first part focuses on what kind of Business System Vietnam has and what their implications are. In order to answer this subquestion use has been made of the theoretical concept from Whitley that deals with ideal types of business systems. The most important conclusion is that Vietnam shows many similarities with the characteristics of two types of business systems, namely the State-Organised and Highly Co-ordinated type. Its implications include that Vietnam is developing in such a rapid pace that changes in institutional structuring are still taking place. This implies that the State has a strong voice historically, but due to economic reforms this influence is diminishing.
The second part has the aim to identify which sectors offer specific business opportunities to Dutch companies, and more precisely how. A demand-oriented approach has been
applied in order to come to the sectors that are being selected. Based on the trade requests that are received by the Dutch government it is possible to identify the sectors with the largest amount of interest from Dutch companies. The sectors turned out to be the food- processing and environment sector. Use has been made of an integrated model to identify the business opportunities in a structured way. Porter’s Diamond provides a framework that focuses on the competitive advantage of a sector within a country. By applying this framework with the input of several interviews in each of the sectors it was possible to get a thorough understanding of the competitive advantages and disadvantages of the sector.
Among the major conclusions in the environment sector are that the demand for environmental technologies in Vietnam exceeds the national production. That the Official Development Aid provides a significant part of the total capital funding in this sector, and that the requirements for assigning a project are perceived to be high. The sector itself is therefore highly uncompetitive, which provides major commercial opportunities for foreign companies that are able to fill the demand. Because the Vietnamese environment sector is so dependent on the capital inflows it is also quite vulnerable. Therefore it remains the question how sustainable the advantages are.
An important conclusion for Vietnam’s food processing industry is that it is highly correlated to the agriculture sector. The agriculture sector has witnessed an immense growth in the last twenty years. Vietnam’s agriculture sector now relies heavily on cheap labour production and in general low quality products. Together with the fact that only a small percentage of the food products are processed, this provides opportunities for the food-processing industry. Under the pressure of international competition Vietnam’s agricultural products need to develop among the value chain. These added values can be achieved by processing the food.
The third part finalises the research question by focusing on the investment forms that are eligible to foreign companies. The question that is answered is therefore which different investment forms exist in Vietnam, and what their implications are for foreign companies.
The theoretical approach used here is based on varying publications on investment forms in Vietnam. In relation to rationales that may influence the decision making process of chosen the optimal investment form. Each of the investment forms has been explained and their implications are offset in an overview that provides insight into the advantages and disadvantages of the differing investment forms. Among the most important implications is that direct investment via a Fully Owned Enterprise asks for the highest burden in terms of costs, but at the same time provides full coordination and the ability to generate direct profits. This is in sharp contrast with the investments like a Branch or Representative Office that do not face the large amounts of risk, but at the same time are bounded in their commercial activities. Finally the process of licensing that has been investigated by the Worldbank is exemplified in relation to the investment policy in Vietnam.
How the complete answers to the subquestions can help you to get a better understanding of the situation in Vietnam is explained in this research report.
Foreword
In this foreword I would like to address my gratefulness to all people that have facilitated and participated in my graduation research. To me it was a unique experience, but it was not possible without the support of so many people. Therefore I would like to thank some people in particular. Allow me to start at the beginning.
Once there was a Vietnamese student who participated in an exchange program with the RuG. As the Vietnamese student returned to Vietnam it turned out that he was awarded a Master in Arts degree, instead of a Master in Science. Action was needed. So the Dutch Consulate General in Ho Chi Minh City was approached to solve the problem by contacting the RuG. It was the first contact between the Consul-General, Ton van Zeeland, and the professor in International Business Luchien Karsten. The problem with the correct Master degree was solved, but the Consul-General had one more question: “By the way, do you know a student that is willing to conduct research for us?” The next day I was on the phone with Vietnam.
It was during that time that I discussed my plans of conducting a graduation research abroad with one of my Business Development teachers, Bartjan Pennink. Together with Luchien Karsten, he turned out to be the initial link between the Consulate General and me.
Both have become the supervisors of my research. I own them many thanks for their valuable comments regarding this research. Especially in the beginning I had the idea that everything in Vietnam was useful information to my research. They helped me to narrow down the scope of the research and to establish a structured framework.
In March 2005 I took off and headed for Vietnam. It was the beginning of a six-month period in Vietnam. From the first day on, I was overwhelmed by the hospitality of all staff at the Consulate General. In particular my supervisor, Ton van Zeeland. From staying in his house the first ten days, to driving his old-timer Vespa for six months, nothing was too much. The teamwork was a great experience and we were also able to achieve some successful Holland Promotion Activities. I became convinced that a pro-active approach indeed is the way to pick up the momentum in Vietnam and to facilitate Dutch trade and investments. The Economic Officer, Le Son, provided me with real insight into the Vietnamese culture, by joining his football team and having numerous lunches.
But the starting point are my parents that have always supported me in the things I was doing. Vietnam was a peak in that sense. Celebrating holiday in Vietnam with my parents and sister provided us with a lot of shared memories. And last but not least, Annemiek for finding a job in Vietnam. This made that we could experience Vietnam together. Your enthusiasm has supported me from day number one, and helped me from start to finish.
This report is the result of the research that I have conducted in Vietnam. I hope that it is useful and that you will enjoy reading it.
Walter Smidts
Rotterdam, 12 April 2006
Table of Contents
Executive Summary ... 3
Foreword... 5
Table of Contents ... 6
List of Figures, Tables and Business Snapshots ... 9
CHAPTER 1 MANAGEMENT QUESTION... 10
1.1 Diplomatic relations between The Netherlands and Vietnam... 10
1.2 Economical Affairs ... 11
1.3 Management question ... 12
CHAPTER 2 RESEARCH DESIGN ... 16
2.1 Problem statement ... 16
2.2 Structure of the research ... 17
2.3 Theoretical framework... 19
2.4 Research methods and approach ... 20
2.5 Role of the Researcher ... 22
PART I VIETNAM’S BUSINESS SYSTEM... 24
CHAPTER 3 VIETNAM’S ECONOMIC PERFORMANCE... 25
3.1 Economic policy and reforms ... 25
3.2 Economic performance ... 26
3.3 Economic structure and government influence ... 28
3.4 International trade and investments ... 32
3.4.1 Trade regime... 32
3.4.2 Trade and export ... 33
3.4.3 International Trade Framework and Agreements ... 34
3.4.4 Foreign investments ... 35
3.5 An a-typical development country ... 36
CHAPTER 4 INSTITUTIONAL STRUCTURING ... 38
4.1 Literature discussion on Institutional Structure... 38
4.2 Applying Vietnam to the Institutional Features ... 38
4.2.1 The State... 38
4.2.2 Financial System... 39
4.2.3 Skill development and control system ... 40
4.2.4 Trust and authority relations... 41
4.3 Vietnam’s Institutional Structure ... 42
CHAPTER 5 BUSINESS SYSTEMS ... 44
5.1 Literature discussion on Business Systems... 44
5.2 Assessing Vietnam’s business system ... 47
5.2.1 Ownership coordination ... 47
5.2.2 Non-ownership coordination ... 50
5.2.3 Employment relations and work management ... 51
5.3 Vietnam’s business system ... 51
5.4 Implications of the Vietnamese Business System ... 53
Conclusion part I... 55
PART II BUSINESS OPPORTUNITIES ... 57
CHAPTER 6 SECTOR SELECTION... 58
6.1 Information and Advise Services RNE and CG ... 58
6.2 Classification of Economic Activities ... 58
6.3 Identification of promising sectors ... 59
6.3.1 Trade requests... 59
6.3.2 Selection of two sectors ... 61
CHAPTER 7 PORTER’S DIAMOND ... 62
7.1 Methodology for sector analysis ... 62
7.2 Literature review on Porter’s Diamond ... 64
7.2.1 Why Porter’s Diamond?... 64
7.2.2 The Diamond of Porter ... 64
7.2.3 Review on the Elements... 66
7.3 Application of the Diamond ... 68
CHAPTER 8 ENVIRONMENT ... 70
8.1 Overview of the environment sector... 70
8.2 Determinants of Porter’s Diamond... 71
8.2.1 Factor conditions ... 71
8.2.2 Demand conditions ... 73
8.2.3 Related and supporting industries... 74
8.2.4 Firm strategy, structure and rivalry... 77
8.2.5 Chance... 79
8.2.6 Government ... 79
8.3 Conclusions and Recommendations ... 81
CHAPTER 9 FOOD-PROCESSING ... 83
9.1 Overview of the food-processing sector ... 83
9.2 Determinants of Porter’s Diamond... 84
9.2.1 Factor conditions ... 84
9.2.2 Demand conditions ... 86
9.2.3 Related and supplying industries ... 88
9.2.4 Firm strategy, structure and rivalry... 90
9.2.5 Chance... 91
9.2.6 Government ... 92
9.3 Conclusions and Recommendations ... 93
Conclusion part II... 96
PART III MARKET ENTRY ... 98
CHAPTER 10 INVESTMENT FORMS ... 99
10.1 Types of investment... 99
10.2 Criteria for initial choice ... 102
10.3 Rationale scheme ... 103
CHAPTER 11 SETTING UP A BUSINESS IN VIETNAM ... 106
11.1 Application and licensing procedures... 106
11.2 Investment policy ... 107
Conclusion part III ... 108
CHAPTER 12 CONCLUSIONS AND FUTURE RESEARCH ... 109
12.1 Conclusions ... 109
12.2 Future research ... 111
REFERENCES ... 113
List of Figures, Tables and Business Snapshots
Figures
1.1 Information needs
1.2 The direct and indirect effect of the Management question 2.1 Research Model
3.1 Economic indicators (GDP and Inflation) over the period 1992 till 2004 3.2 Distribution of companies in Vietnam based on their total capital 3.3 Foreign Direct Investments in Vietnam 1998 and 2002
7.1 Porter’s Diamond, the integrated model
8.1 The Diamond. Advantages and disadvantages of the environment sector 9.1 The Diamond. Advantages and disadvantages of the food-processing sector 10.1 Rationale scheme for identifying the best fitting investment form
Tables
1.1 Service level of the Dutch Government per country 2.1 Sources of information per subquestion
3.1 Structure of GDP by ownership type, comparing 1995 and 2003 3.2 Structure of GDP by sector, comparing 1995 and 2003
3.3 Growth rates in percentages per year 3.4 Export growth rates in percentages per year
4.1 Key institutional features structuring business systems 5.1 Key characteristics of business systems
5.2 Characteristics of owner-control types 5.3 Vietnam’s Business System
6.1 Cumulative number of trade requests per Vietnamese sector 7.1 Overview of interviewed companies for sector analysis 8.1 Market for environmental equipment and services 9.1 Market for food-processing and packaging equipment 10.1 Advantages and disadvantages of different investment types
11.1 Starting a business in Vietnam. The licensing application procedure Business Snapshots
8.1 Citenco, Solid Waste in Urban Areas
8.2 Dutch and Vietnamese co-operation in the water sector 8.2 Solid Waste Disposal in Ho Chi Minh City
9.1 Campina JVC Vietnam 9.2 San Nam Food Processing 9.3 Cargill and Gerkens 9.4 Agricultural Hi-tech Park
CHAPTER 1 MANAGEMENT QUESTION
This first chapter will be of introductory nature. It aims to provide insight in the relations between the Netherlands and Vietnam. This will be done in the first paragraph by describing the historical background, the diplomatic ties and the establishment of the Royal Netherlands Embassy (RNE) and the Consulate General (CG). The second paragraph will be more specific and focuses on the economic role they currently fulfil. These two paragraphs create a perspective from which the initial management question can be derived. This will be done in the third paragraph. It defines the incongruence between the current and the preferred status in providing services to Dutch companies. This will be done from the perspective of the CG as it is the principal of this research. The management question will explain in more detail on what elements the CG’s service level is based. Once the management question has been defined it can function as a starting point for the research question. But first a closer look will be given on the CG in historical perspective.
1.1 Diplomatic relations between The Netherlands and Vietnam
“Throughout Vietnam, one can find several silent witnesses to the country’s early relations with the Netherlands. Near Hai Duong a bronze plaque bears the name of the Dutch Governors General to Vietnam. Meanwhile, in the ancient port town of Hoi An, references to Dutch traders abound, as it was here in 1632 that the Dutch United East India Company, the VOC, first established trade relations. These historical markers all refer to trade and political relations during the 17th century.” (www.embassy-netherlands.org) Nowadays it is almost four centuries since the VOC landed in Vietnam. The relation between The Netherlands and Vietnam has been intensified in many different ways. Not only in the field of trade and investments, but also with regards to diplomatic ties. These were established in 1973, when the Netherlands Ambassador to Beijing was accredited to Hanoi. It was only three years later in 1976 that the Embassy in Hanoi was officially opened. Although it has been closed for budget reasons between 1988 and 1993, diplomatic relations remained. Actually in 1993 the Netherlands reopened their Embassy in Hanoi and established a Honorary Consulate in the southern part of Vietnam, Ho Chi Minh City.
(Minister of Foreign Affairs, 2000).
Diplomatic relations intensified during the following years. This is reflected in the fact that the Honorary Consulate has been upgraded to a Consulate General in 1997. As well as in the number of people who are nowadays employed at the Embassy and CG, reaching almost thirty and nine respectively. Till late 1997 Vietnam had the transition-status, meaning that no official political discussions were taking place. However in early 1998 Vietnam established an Embassy in The Hague and in the second half of 1998 the first structural political dialogues with the Vietnamese government took place. (Minister of Foreign Affairs, 2000).
During the nineties the activities in the field of development co-operation included the most important bilateral relations. The Netherlands are supporting Vietnam in the fields of healthcare and education through non-governmental channels. The economic relations are
small but steadily increasing over the years. How these economic relations are developing and what the role of the Embassy and CG is, will be the topic of the next paragraph.
1.2 Economical Affairs
Despite a slowdown in the world economy, Vietnam scored a GDP growth rate of 7.4% in 2003. This was the second highest in Asia, only after China. The total export value showed a 19% increase and accounted for USD 19.9 billion. These numbers seem impressive. And although the economical relations between The Netherlands and Vietnam are increasing, the Dutch trade with Vietnam only accounted for 1% of all Dutch trade with Asia in the year 2000. This raises the question how trade and investment relations can be more intensified, and how the Netherlands government can support these relations. (EU Counsellors report on Vietnam 2004, 10)
The Royal Netherlands Embassy (RNE) in Hanoi and the Consulate General (CG) in Ho Chi Minh City represent and promote the interests of the Netherlands Government in Vietnam. The interests are recognised in several fields, like economic, consular, public &
cultural affairs, and development co-operation. These interests are also represented in the different departments at the RNE and CG.
The economic sections of the RNE and the CG work as one entity. They consist of five people in total; the Consul General in Ho Chi Minh City, the Economic and Commercial Secretary in Hanoi, and three commercial assistants based at the RNE and the CG. The most important task of the RNE and CG in Vietnam, in terms of economic relations, is to support the Dutch companies who contribute to the bilateral trade and investments between The Netherlands and Vietnam. The economic sections offer active support to Dutch companies already present in Vietnam and the ones who are interested in entering the market. Such assistance consists of giving advice on market opportunities, information on different economic sectors, finding out contact-details of relevant companies and government institutions, and advising Dutch companies on investment support projects.
This policy is executed throughout several activities. Trade requests are processed, trade missions are supported and Dutch businesses are informed via the official channels. The requests vary from passing contact details of Vietnamese business counterparts to analysis of specific (sub)sectors.
To give body to the increasing possibilities created by Vietnam’s rapidly developing economy the RNE and CG support Dutch companies where possible. The awareness of these possibilities is also reflected in several developments at the RNE and CG. At the beginning of 2004 an additional agricultural assistant was assigned at the Embassy in Hanoi. The investment supporting programs by the Dutch Government also received more tender applications. Furthermore in October 2004 a new Consul General was appointed. He composed a 4-year step by step plan for the economic department of the CG. (Zeeland, ALM van, 2004) In short, it aims to shift the economic and commercial support to a more proactive approach, in order to intensify the trade relation between Vietnam and The Netherlands. All together these developments make that more emphasis has been laid on the support to Dutch companies that want to do business in Vietnam.
1.3 Management question
Now the bilateral relations between the two countries have been clarified in terms of their historical perspective and diplomatic ties, the focus of this paragraph will shift to a more pragmatic approach. It explains what kind of supporting services Dutch companies can expect from the Economic Departments of the RNE and CG and subsequently the starting point for the management question.
Embassies and Consulates
In 1999 the ministries of Economic and Foreign affairs carried out a research on the economical activities at the Embassies and Consulates. The resulting recommendations have led the Ministries to work towards a strengthening of the economical function at these Embassies and Consulates. This is put in practice by a better translation of the companies’
needs into the services the Dutch government provides, increasing transparency for the Dutch businesses and increasing professionalism.
The outcome is presented in “Working methods for Dutch Embassies and Consulates- General in economical important countries”. (Ministry of Economic and Foreign Affairs 2000, 1-2). These methods make use of a classification system based on countries their relative economic importance. Each country is classified in a category, in accordance with their economical importance. They are appointed zero or one star if they are economically not or less important, and 2 or 3 stars if they are economically important. The latter depends on the accessibility of the country for foreign companies.
The following overview shows this distinction in tabular format. The columns represent the countries classified according to their stars. The rows show what kind of services are being provided by the Embassies and Consulates. This ranges from three different types of services. Firstly a general “orientation meeting” is offered in all different categories.
Secondly “information and advice” on eight different subjects is offered. It depends greatly on the star-category if information and advice services are provided. And thirdly actual
“assistance” is provided in four different situations. It also varies amongst countries if a company can ask for this kind of assistance.
Table 1.1 Service level of the Dutch Government per country. (Ministry of Economic and Foreign Affairs, 2000)
According to the Economic officers at the RNE and CG and the Vietnam Counsellor at the Ministry of Economic Affairs, Vietnam has recently been upgraded from a one to a two star country with a so called hard accessible market. This indication has been made based on the country’s economic relevance to The Netherlands. Meaning that Vietnam has placed itself in the spotlight of economic important countries. However Dutch companies might still face difficulties entering the Vietnamese market. Therefore it has the hard accessibility label. To indicate what kind of countries are being accredited three stars, one should think of the western nations. These are for example the EU-countries, Norway, Swiss, US, Canada, Australia and New Zealand. (Ministry of Economic and Foreign Affairs, 2000) From this overview we can conclude that Vietnam is one of the countries that can count on the broadest form of support. Every service element is covered for a country with the two star qualification. This research will focus on the first two items of the heading information and advice, namely Doing Business and Business Opportunities. How these items are being approached and how the information need ultimately will be satisfied is the topic of the next chapter.
Principal of the research
As explained previously, the Economic Departments of the RNE and CG work as one entity. For a proper understanding of the principal’s perspective it is necessary to point out that the CG has issued the research and has acted as the principal and supervisor of the research. This is crucial in defining the management question.
Direct Services to Dutch Companies
*** and ** - countries
easy access
*** and ** - countries hard access
* - countries 0 – countries
Orientation Meeting X X X X
Information and advice on:
1. Doing Business -- X X --
2. Opportunities -- X -- --
3. Legislation -- X X --
4. Potential Business Partners X X -- --
5. Tendering X X X --
6. Projects multilateral institutions X X X --
7. Available Dutch instruments X X X --
8. Market approach and product introduction
X X -- --
Assistance with:
1. Activities on visiting market -- X X --
2. Trade difficulties X X X X
3. The use of instruments X X X --
4. Collective trade promotional instruments
X X X --
In order to explain the proactive approach in providing information services it is necessary to outline which information should be presented and how. This seems to be the crux to the management question. There is a discrepancy between the current and preferred situation.
As the information service is at this moment incomplete or outdated, effort has to be made to fill this gap. The first two items that are indicated in the upper table on the information and advice services are elementary in a first encounter with a foreign country. Therefore the management question can be defined as follows;
Management question
“How can the information and advice on doing business and business opportunities in Vietnam be improved to provide Dutch businesses with optimal service?”
In order to answer the management question and fulfil this gap, a research has been assigned to a Master student from the State University of Groningen, Faculty of Management and Organisation. Consequently, this thesis is the result of the research process that has been initiated to answer the management question. The following figure gives a schematic overview of the problem analyses.
The Dutch companies want information on the Vietnamese market. Due to this information need they consult the CG, which provides them with the necessary information. In order to provide complete and recent information the researcher will provide input on the above mentioned items.
An explicit and implicit objective
This research report has the aim to fill the information gap as indicated in this management question. In order to improve the information services of the CG, a systematic theoretical framework should be used. The outcomes of using such a framework have a direct and indirect effect. Therefore an explicit and implicit objective of the management question can be exemplified.
First the management question expresses the need to fill the information gap that currently exists. This research report will illustrate how the necessary information is gathered and what the conclusions are of the investigation. It fills the information gap and can therefore be referred to as the direct result. Furthermore, a solid foundation for conducting research has been established, by creating a research model that is based on a theoretical framework.
Dutch companies Interested in
Vietnam
Consulate General Ho Chi Minh City
Vietnam
Recommendations by
Researcher Information
needs on Vietnam
Figure 1.1 Information needs
Using this systematic way of conducting research provides a second advantage. Because there is always the danger of uncritically and unreflectively gathering information based on the observer’s common-sense. This may lead to a situation in which the researcher entraps himself in the current traditions that dominant among the social groups to which he belongs. However, this theoretical framework can be seen as an example for the CG to conduct future research in this field. This is the indirect result of the research. By thoroughly assessing several features of the Vietnamese economic situation and business climate, an example will be given of an enchanting way of gathering information and conducting research.
This method might be of use for the CG in future situations when it wants to enhance its information service. Moreover, the indirect effect that this report produces is an example of how such an analysis could be performed. In order to show how these steps can be helpful in facilitating the information and advice task of the CG, this research will focus on establishing a framework that makes it possible to conduct a systematic analysis. The figure below presents the two objectives that are initiated by the management question.
Figure 1.2 The direct and indirect effect of the Management question
As stated before this research focuses on the information and advice services, with an emphasis on Doing Business and Business Opportunities. How these points are being approached and how these information needs will ultimately be satisfied is the topic of the next chapter.
Management Question
Filling the information gap on trade and investment
opportunities
Providing a framework that can be used in future
research
Direct effect Indirect effect
CHAPTER 2 RESEARCH DESIGN
This chapter deals with the research design. The structure of this chapter will be based on the elements that are indicated by Gill and Johnson (2002) on how to establish a research design. In paragraph 2.1 the problem statement will be defined. The problem statement encapsulates the research objective, the research question, the subquestions and the research demarcations. The problem statement describes for whom the survey is carried out and what the end result will be like. The research question formulates the main question of the thesis. This will be divided in subquestions with a more narrow focus. Finally, research demarcations give the scope of the survey, the limitations of the methodology and the results. In paragraph 2.2 the structure of the research will be described. This also provides insight in the demarcations of the subquestions. The structure of the research is highly correlated with the theoretical framework. Therefore a first explanation of the theories chosen will be exemplified in paragraph 2.3, as well on the relation between them. This is followed by paragraph 2.4 that describes the methods and approaches used in this research.
Further deepening of the theoretical framework will be done during the discussion of the subsequent topics.
2.1 Problem statement
This research is descriptive in nature, because it answers a what-question. This kind of research provides a description of the situation on different aspects. Pennink (1995) argues that the answers to these questions are explorative in nature. This method of typifying the research, leads to a closer connection between the question to be answered and the essential aim of the principal. This can be done by giving an empirical or normative answer.
The elements of the problem statement will be defined in line with the management question. The essence is that the RNE and CG assist Dutch companies by providing them services, and that part of this information package needs to be investigated and updated.
The management question described what kind of services is offered, for a two star country like Vietnam. From this perspective the research objective, the research question and subquestions will be formulated.
Research Objective
Improve the CG’s information services by presenting a method of analysing Vietnam’s Business System, promising sectors and business forms in a systematic way.
Research Question
Which method can the CG use to systematically analyse Vietnam’s Business System, promising sectors and business forms in order to improve its information services, and how?
Subquestions
1. What kind of Business System does Vietnam have and what are the implications?
2. Which sectors offer specific business opportunities to Dutch companies, and how?
3. Which different investment forms exist in Vietnam, and what are their implications for foreign companies?
Demarcations
The limited quantity of time and sources will have some implications on the scope of the research:
• Due to a bounded research period only a limited number of sectors will be investigated on their business potential.
• The home base for research is Ho Chi Minh City. Consequently, most of the field research will be conducted there. However, Ho Chi Minh City is the economic heart of the country. The city generates more than a quarter of the total GDP revenues.
Further data collection takes place in the capital of Vietnam, Hanoi and the biggest city in the Mekong Delta, Can Tho. Therefore the results of the research are less valid to other regions of the country.
2.2 Structure of the research
The content of the research is structured in a straightforward manner. It is divided in three main parts, and each part aims to answer a subquestion. These different parts are illustrated in the following research model.
Figure 2.1 Research Model
Research Design Ch.2
Conclusions and Recommendations CG
Ch.12 Part I
Vietnam’s Business System Ch.3 Economic
Performance Ch.4 Institutional
Structuring Ch.5 Business Systems
Part II
Business Opportunities Ch.6 Sector Selection Ch.7 Literature
Discussion Ch.8 Environment
Sector
Ch.9 Food-processing Sector
Part III Market Entry Ch.10 Investment
Forms Ch.11 Setting up a
business Management Question
Ch.1
The research model shows which steps are taken in order to answer the subquestions and in which order of rank the research is carried out. Starting with the explorative investigation in Chapter 1. This exploration has the objective to get clarity on the management question.
Based on this management question, the problem statement could be formulated as part of the research design. This is the subject of this second chapter. On the basis of this research design three different parts can be distinguished. They are the direct result of the three different subquestions.
The first part gives an overview of the Vietnamese economy, and is titled Vietnam’s Business System. It takes a closer look at the Economic performance and moves on to an analysis of Vietnam’s Business System, including an outline of its institutional structuring.
This framework shows how Vietnam’s economy is structured and what the implications are for foreign companies. It gives the reader insight in the business climate and the current developments and nature of changes that are taking place.
This analysis functions as a base for an in depth study of business opportunities in Vietnam, which will be explored in the second part. As said, this will only apply to a limited number of sectors. Consequently the information will be more detailed but relevant for a smaller number of companies. The choice of the promising sectors is therefore an important one. The sector selection has been made in relation to the information needs of Dutch companies. Promising sectors in Vietnam without interest from Dutch companies will therefore not be investigated. In this way the review of the promising sectors will give a deeper insight in opportunities for a smaller number of Dutch companies. Namely for those who want to be active in Vietnam.
The third part will be of practical nature by focusing on the different business forms and the consequences they have for the companies in that case. Several issues should be taken into account when it comes to entering the market and consequently selecting a business form. The implications can range from unattractive to favourable consequences. It is worth considering these features before setting up a business in Vietnam.
The focus of the research can be presented in a comprehensive way. As can be seen in the figure below, the subsequent parts of the research have an increasing level of detail.
Meaning that each step can be placed after the previous one. The main line throughout the report can be characterised as a funnel. Each part becomes more concrete and relevant to companies in business.
PART LEVEL SUBJECT
1 MACRO LEVEL
BUSINESS SYSTEM AND INSTITUTIONAL STRUCTURING
2 MESO LEVEL PROMISING SECTORS
3 MICROLEVEL MARKET ENTRY
2.3 Theoretical framework
In order to serve the information needs of companies, the presented material must fit to the profile of the target group. Hence, the information must be of general nature, but applicable to the companies under consideration. Theories can facilitate the search of structurally searching and collecting information. A theory is a network of hypotheses constructed to conceptualise and explain a particular phenomenon. It tries to explain the relationship between two or more concepts. (Gill and Johnson 2002, 31). Theories on micro economical level focus on companies level and they are therefore primarily applicable to individual companies. In order to overcome this limitation, a more general focus need to be adopted.
That is why the theories of Whitley and Porter are used. They have played a tremendous role in the creation of the research model. The information provided by the CG has to be applicable to a larger group. Initially, the Dutch companies who are interested in doing business in Vietnam, and more specifically the companies that are active within sectors that offer specific business opportunities in terms of trade and investments.
Whitley’s national business system approach and Porter’s Diamond offer a perspective on the structuring nature of the context in which companies perform. By focusing on the constraints and incentives that exist in the context of corporate behaviour, these authors offer valuable insight. It provides a concept of the tension that might occur between the interests and activities of individual companies and those of the corporate environment in which they are active. (Os, 2003)
The way business is executed in a country shows how it is organised and controlled, financed and managed, and what kind of relationships exists between managers and personnel. These features, are examples of the way business is being done in a specific country. Whitley has named the combination of these institutional features business systems. He argues that business systems are stable systems of firm characteristics, coordination and control mechanisms, and market structures. (Whitley, 1999)
In addition to this, Porter’s Diamond deals primarily with the origins of firm success.
Porter’s Diamond framework also identifies and categorises contextual factors. This is in line with Whitley’s theory on business systems. In Porter's case, these factors lead to the presence or absence of national competitive advantages. (Porter, 1990).
A remarkable difference between the two approaches is that Whitley presents a rather rigid model with non-interacting features that lead to stable business system ideal types, whereas Porter prescribes a model that incorporate features that are all interacting with each other.
The interactive nature of the Diamond gives the concept a more dynamic approach. As a result, the factors of competitive advantage may change over time.
All together, the theories of Whitley and Porter concentrate on the influence of country- specific factors on the strategy of an individual firm. Both theories underline the necessity of knowledge about the national context, for the strategy of a company. In this research they form the basis of generating awareness on the specific character of the Vietnamese business system and the competitive advantage of its sectors. These considerations will act as a theoretical framework in answering the actual research questions. Or as Gill and Johnson state: “Nothing is more practical than a good theory.” (2002, 28)
Now the structure of the research has been outlined the methodological approach for the research has to be contemplated upon. This will be described in the next paragraph, concerning the methods and approach.
2.4 Research methods and approach
“Research methodology is always a comprise between options in the light of tacit philosophical assumptions, and choices are frequently influenced by the availability of resources.” (Gill and Johnson, 2002: 01)
This section will review the methods for data collection that will be used in this research.
To answer the research question both primary and secondary information resources will be used. Primary information will be gathered by conducting field research. Desk and literature research will be conducted to collect secondary information.
The following overview shows which phases in the research can be distinguished. The management question is stipulated because it formed an essential part in clarifying the specific need for information at the CG. This has already been exemplified in Chapter 1 on the management question. But for reasons of justification it is worth noticing which sources of information have been used and which parties have contributed to the process of clarifying the management question. From there on the overview is completely in line with the problem statement as mentioned in the research design. The three subquestions can be identified and for each of them the sources of information are being displayed.
Primary Information Secondary Information
Management question How can the information and advice on doing business and business opportunities in Vietnam be improved to provide Dutch businesses with optimal service?
• Interviews with RNE and CG
• Interviews with EVD, BEB/EZ
• Interviews with DBAV and Eurocham
• Documentation provided by Ministry of Foreign Affairs and EVD
First subquestion
How is Vietnam’s Business System structured?
• Interviews with the
Vietnamese government, and other authorities
• Interviews with staff of the RNE and CG
• Literature on Institutional Economics, Business Systems, Hierarchies and Markets
• Publications on Vietnam Second subquestion
Which sectors offer specific business opportunities to Dutch companies, and how?
• Interviews with Dutch and Vietnamese companies in the selected sectors
• Interviews with and seminars organised by consultants
• Literature on Competitive Advantages of Nations
• Documentation and publications on the selected sectors
• Trade requests and answers Third subquestion
Which different business forms exist in Vietnam, and what are their implications?
• Interviews with Dutch and Vietnamese companies
• Literature on market entry
• Literature on decision making processes
• Documentation on business forms
Table 2.1 Sources of information per subquestion
It can be seen that the method for collecting primary information will mainly be done by interviews. Observing and interviewing are the most common forms of field research (Baarda and De Goede 1997, 135). Observing will unintentionally play a role in the research, because the research will be conducted within the surveyed environment.
However, interviewing will be the most important source of primary information. By making use of interviews it is possible to expose the experiences of the interviewed persons in detail. And to reveal what developments are currently taking place in their field of expertise.
The secondary information distinguishes literature and publications. The literature provides useful insight as a base for the theoretical discussions and the research framework, and publications and documentation on the different topics provide detailed information. The following subject describes which methodology will be used to reach this goal.
Methodological emphasise
On the methodological continuum, a research can be identified as being inductive or deductive. Knowing what kind of methodological type is in line with the purpose of the research helps the researcher to adopt the appropriate research strategies. It helps to focus on the approach that should be taken, the chronological steps that should be carried out and the way information is gathered.
According to Gill and Johnson, a deductive research method entails the development of a conceptual and theoretical structure prior to its testing through empirical observation. It begins with abstract conceptualisation and then moves on to testing through the application of theory. In this way it creates new experiences or observations. On the other hand induction involves moving from observation of the empirical world to the construction of explanations and theories about what has been observed. (Gill and Johnson, 2002, 34-40) From this explanation it can be concluded that the research approach used in this research does not fit one of these extremes. It is better characterised by a position in between. The approach used in this research is based on the two important theories of Whitley and Porter.
Their work has been of inductive nature. Out of observation from the empirical world they constructed explanations and theories. This research uses these theories as a foundation. So it creates an own research model based on previous work. Then, it uses this model to analyse the status of Vietnam’s situation, which refers to a more deductive nature. It begins with abstract conceptualisation and then it moves on to creating new experiences and observations.
Consequently use will be made of a descriptive survey in this research. From the features that are used in the theories, a framework will be established to facilitate a comparison with the situation in Vietnam. This creates new experiences and observations, which in turn lead to unique conclusions. However, due to the different levels of aggregation, each part of the research has its own methodological emphasises. Therefore successive methodological explanation and deepening will be exemplified in each individual part.
2.5 Role of the Researcher
The principal of the research is the Dutch Consulate General. The internship at the Dutch Consulate General included the participation in several activities. The internship was primary initiated in order to conduct research. However by functioning as a member of the economic department a large part of the internship was dedicated to organising and participating in promotional activities. These activities were closely related to the trade promotional function of the CG. Some highlights will be mentioned here in particular.
These activities have contributed as valuable input for this thesis. They have also functioned greatly in order to sketch the researcher’s terms of reference. It provides insight into the additional activities that did not primarily contributed to the research but that had significant impact on the number and the intensity of observations. It contributed to the collected data and the way in which intangible features were experienced. The following activities of substantial dimension can be summarised in short:
• The organisation of and participation in the International Industrial Machinery Exhibition in May 2005. Together with five Dutch companies, the CG and RNE participated in this event. By combining forces in one booth under the name
“Holland Square” the Dutch machinery industry was represented and promoted during one week.
• The organisation of and participation in a Seminar, named “The Netherlands, a potential business partner”. This seminar took place in the Mekong Delta in August 2005 and attracted nine Dutch companies who gave presentations for a Vietnamese audience of 140 people. The seminar was closed with a matchmaking event and a company visit to a fish processing company.
• Joining the team that prepared the incoming “Dutch Trade Mission to Vietnam” in October 2005. Co-operating in this team included giving a presentation in The Hague, prior to the Trade Mission. The topic of this presentation concerned the business climate in Vietnam.
These three events indicate the highlights of the additional activities that were part of the internship. A more extensive description of these activities can be found in Appendix I.
They provide, together with some pictures, a better insight on the objective and realisation of the activities.
Another feature that shaped the setting of the research and consequently the role of the researcher, were other parties that stood in close contact with the CG. During the start up of the research period meetings have taken place with the RNE, the DBAV and Eurocham.
The main purpose of these collaboration was to shape the management question and to make use of their extensive information and network resources.
• The Royal Netherlands Embassy in Hanoi, who functioned as a direct involved party in the research.
• The Dutch Businesses Association Vietnam (DBAV) in Ho Chi Minh City, who functioned as an informant.
• The European Chamber of Commerce (Eurocham) in Ho Chi Minh City, who functioned as an informant.
By co-operating and discussing ideas with these parties it was possible to design and shape the direction that has been outlined in this research design. At this point it is time to start with Part I.
Research Model
Research Design Ch.2
Conclusions and Recommendations CG
Ch.12 Part I
Vietnam’s Business System Ch.3 Economic
Performance Ch.4 Institutional
Structuring Ch.5 Business Systems
Part II
Business Opportunities Ch.6 Sector Selection Ch.7 Literature
Discussion Ch.8 Environment
Sector
Ch.9 Food-processing Sector
Part III Market Entry Ch.10 Investment
Forms Ch.11 Setting up a
business Management Question
Ch.1
