Asian Negotiations
Negotiating in Vietnam—a Rising Asian Economic Tiger
Background
Since the United States normalized diplomatic ties with Vietnam in 1994, there has been a surge of economic activities in the country. A steady stream of U.S. foreign investments has poured into Vietnam. The country’s current economic growth has the potential to challenge that of the Pacific Rim countries. If such growth continues, Vietnam could become a major economic force in Asia in the 21st century.
Even though Vietnam offers many business opportunities, the wise foreign investor needs to be aware of the economic, political, and social risks associated with doing business in Vietnam. Despite the unification of North and South Vietnam, economic progress in the northern part of the country has significantly lagged behind that of the southern part. There is also a dire need for improvement of the country’s infrastructure, especially in the areas of transportation and telecommunications. Even though Vietnam’s government has created a political and legal environment more conducive to a free-market system, the government is still overtly involved in business activities, especially when they involve foreign companies. Violations of basic human rights and social freedoms are major concerns as well.
C&A Electronics, Inc., is a U.S.-based company that specializes in the manufacturing of electronic communication switches for telecommunications systems. The company’s focus has been marketing to developing countries where improvements in telecommunications systems are a top priority. During the past 10 years, the company has expanded its operations into Eastern Europe, Latin America, and Asia. The main market in Asia has been China. In 2001, C&A Electronics decided to expand its operations into Southeast Asia. A preliminary marketing research identified Vietnam as the entry point. Dick Bernard, the company’s business development manager, made initial contact with the Vietnamese government in May 2001 and was linked up with a privately owned telecommunications company, Vietnam Telecommunications Services, Inc. (VTS), located in Ho Chi Minh City. VTS was under contract to the Vietnamese government to upgrade the telecommunications system throughout Vietnam. VTS had been negotiating with large foreign telecommunications companies, such as AT&T, Siemens, NEC, and Ericsson.
Mr. Bernard’s first meeting with VTS went very well. VTS was impressed with C&A Electronics’s experience in other developing countries and felt more comfortable dealing with a small company. It was clear from the outset that the Vietnamese government would be a party to any future negotiation. The first meeting ended on a positive note with an agreement to meet in 90 days, at which time C&A Electronics would submit a formal proposal to VTS.
In September 2001, Mr. Bernard met with VTS and provided a detailed proposal of how his company’s communication switch could be integrated into VTS’s telecommunications infrastructure. C&A Electronics was willing to enter into a licensing arrangement under which it would retain control over the switching technology. C&A Electronics would provide the switches to VTS based on an agreed-on schedule. VTS was pleased with the proposal and requested a formal meeting for its senior management to review the proposal in more detail. Both companies agreed to meet in Hanoi, Vietnam, in October 2001.
On October 14, 2001, Mr. Bernard arrived in Hanoi prepared to discuss his company’s proposal in more detail. Upon arriving at the VTS facilities, he was ushered into a conference room where, much to his surprise, he found several high-ranking government officials in attendance. The meeting began with introductions, and then the senior government official, Mr. Nguyen Van Quoc, took over the meeting. Mr. Nguyen stated that the development of an up-to-date telecommunications system was critical to Vietnam’s future economic success. There were, however, several governmental requirements in the area of technology transfer, foreign currencies, and operational staffing.
The Vietnamese government considered the telecommunications system an essential industry to the country. The government’s intention was to have the capability to produce the complete system in Vietnam, which meant that the switching technology was essential. The Vietnamese government recognized C&A Electronics’s concern over safeguarding its intellectual property rights (IPRs). The government was also concerned with the payment mechanism. In fact, the Vietnamese government wanted to use a countertrade buyback arrangement. Under this arrangement, C&A Electronics would provide VTS with the required technology, machinery, and equipment needed for in-country production. Once operations were up and running, C&A Electronics would buy back from VTS an agreed-upon portion of the switching production. This approach would help Vietnam better manage its foreign trade account. The Vietnamese government was also concerned with development of a cadre of technicians and managers who could oversee the implementation of the system throughout Vietnam. C&A Electronics’ experience in markets of other developing countries would prove to be invaluable.
To show Vietnam’s commitment to doing business with C&A Electronics, Mr. Nguyen closed by saying that his government would be willing to help C&A Electronics market its products to other Southeast Asian countries. Mr. Nguyen thanked Mr. Bernard for providing a comprehensive proposal and turned the meeting over to VTS.