JOINT-VENTURE IN VIETNAM

Joint Ventures: A foreign joint venture, one of the most popular forms of investment by
foreign companies, is understood as an economic entity with at least one foreign company
partner. The 2005 nvestment Law permits the establishment of 100 percent foreign-invested
enterprises (or 100 percent FE's- see above) in many but not all sectors. Recent reforms
have made this an increasingly popular option, although some foreign investors still opt to
form joint ventures with a Vietnamese partner. Joint ventures, like all different types of
business formations, have advantages and disadvantages.
On the positive side, a Vietnamese partner, which is often a state-owned enterprise
(SOE), can contribute cruciaI reIationships with government officiaIs and cIients,
IocaI market know-how, access to quaIified staff, and knowIedge of Iand-use rights.
However, there are many potential liabilities with a Vietnamese partner. Local management
skills are often limited and the organizational culture may be cumbersome and bureaucratic.
They also may not share the fundamental outlook and objectives of their foreign partner and
may hesitate to make major strategic moves such as recapitalization or fundamental
changes to the business plan.
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A joint venture agreement creates a separate entity, distinct from either of the
investors. There are many advantages of a joint venture over a business
cooperative relationship or an enterprise entirely owned by a foreign party. The
foreign party may rely on the local partner to share in risks of potential loss
(i.e., establishment of a distribution network, purchasing local supplies and
recruiting labor forces). The joint venture may also enjoy some tax benefits
under the Vietnamese investment laws. The foreign party, through its local
partner, also may establish a better relationship with the government and the
people of Vietnam.
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WHY CHOOSE 1OINT VENTURE (ci ny cua China m Uyn di thnh VN d nha)
When KFC Iirst went into the Japanese market in the early 1970's, the company chose to
Iorm a joint venture with a large scale poultry producer with excess capacity. This 50/50 joint
venture served the two partners very well, as KFC was able to ensure a stable supply oI
quality supplies to its operations, and the local corporation was able increase eIIiciencies in
production by selling its excess supply. Furthermore, KFC was able to utilize existing
distribution networks serviced by the partner and at the same time, adhere to exiting rules and
regulations imposed by the Japanese government on Foreign direct investment.
Despite of the many differences between the Vietnamese and the 1apanese market, a
similar joint venture agreement is highly recommended in Vietnam. The essence of a
joint venture is the synergy effect of two different entities merging. Such an
international business strategy will attempt to; solve many logistic problems such as
access to good quality chicken and other supplies, ease the access to the Vietnam
market, share risk with a local entity, and finally serve as a sign of commitment to the
host government increasing goodwill. In addition, a potential partner with sufficient
contacts/networks with government agency officials may smoothen the process of
setting-up operations in the nation.
By building on each partner's core competencies, knowledge, and efficiencies, a
mutually beneficial synergy effect could be achieved as a result of joint venture
activities. For instance, the local partner can learn from KFC how to produce a better
product at a lower cost and further expand on its new competitive positioning. KFC, on
the other hand, can maintain quality supply which is detrimental to its success.
A joint venture will also significantly ease the entry to the virgin Vietnamese market. A
new entrant would find it very difficult to form local and personal networks between
businesses and government agencies, which are crucial to success and provide access to
the local market and domestic suppliers. In addition, local business customs and laws
can be quicker understood and established ways to cut bureaucratic red-tape can be
further utilized. Also, the local knowledge of culture, language and geography is
beneficial for any foreign entrant into a relatively unknown market.
The Vietnamese government may very well find KFC beneficial to the nation, as it is the
pioneering western fast-food outlet. Training the joint venture partner, personnel and
other institutions in the value chain can reduce learning and experience curves. KFC's
operations may also inspire local competitors to increase service and quality of food. It
can also help to create a competitive fast-food industry in Vietnam as new competitors
respond to KFC's ideas. Moreover, a joint-venture agreement commonly produces
goodwill and commitment between the host government and the foreign investor. In
such a relationship, the foreign investor is not seen as trying to take advantage of the
nation for profit purposes, but rather show willingness to share. Maintaining good
relations with the host government is a critical success factor as government policy
impacts intensely upon business activities.
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