DEVELOPING A STRATEGIC ALLIANCE MODEL

FOR VIETNAMESE COMPANIES IN AFRICAN MARKETS

EXECUTIVE SUMMARY

“A strategic alliance is a formal agreement between two or more separate companies in

which they agree to work cooperatively toward some common objectives” (Thompson &

Strickland, 2011, p. 237).

Strategic alliances are increasingly an important mode of entry to help organizations grow

internationally. The research recommends Vietnamese companies who want to invest in Africa’s

markets apply strategic alliance, a more attractive and effective model, in replacement of exporting,

as their current practice. The research also aims at identifying key success factors for any

Vietnamese strategic alliance through three stages of its evolution: (1) alliance formation phase, (2)

alliance design phase, and (3) post-formation alliance management, and then proposes an integrative

conceptual framework linking literature reviews in the paper that can direct Vietnamese strategic

alliances into Africa. The development of the proposed framework takes into account practical

findings withdrawn from interviews with two Vietnamese limited companies that set up their

business alliances in some African countries.

Key words: Strategic alliance, partnership, exporting, entry mode, joint venture.

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INTRODUCTION

Research background

There has been a sea change in Africa that not many international businesses are very aware

of - Africa’s economy is an economy on the move (Collier, 2010) and is gaining its growing status

as an emerging market (Accenture, 2010). As mentioned in a report titled “Lions on the move” by

McKinsey (2010), Africa’s Gross Domestic Growth rose by 4.9 percent a year (2000-2008), more

than twice its pace in the 1980s and ‘90s, and its collective GDP by 2020 is projected to be worth

$2.6 trillion. Furthermore, the rate of return on foreign investment in Africa is higher than in any

other developing region (McKinsey, 2010). Regardless of differences, African countries have

similar economic structures and share growth opportunities, and in overall, the whole continent has

strong long-term prospects (McKinsey, 2010). Based on this positive outlook, the “black” continent

is now regarded as a promising destination, creating substantial new business opportunities that are

often overlooked by global companies and attracting many foreign investments including Vietnam.

A strategy for Africa must be part of investors’ long-term planning to capture the continent’s

immense potential.

Since Vietnam and Africa countries began their trade relationship in the early 1990,

Vietnam - Africa trade turnover has achieved strong growth over the last years thanks to policies to

promote trade ties between Vietnam and African countries and the dynamism of businesses in new

markets (Ly, 2011). Accordingly, businesses between Vietnam and African countries have

increasingly blossomed to complement resource and investment needs for both sides. Exporting

commodities is a common and simple method for Vietnamese companies to enter African markets

(Africa Markets Department of Ministry of Industry and Trade of Vietnam, 2012). Key economic

sectors that are in need in African nations are Vietnam’s international competitive edge that

Vietnam can easily target to supply (Ly, 2011). However, many Vietnamese enterprises have

failed or have hesitated to invest into African markets because of difficulties in lack of market

information, limited access to finance, less advanced payment methods, lack of trust, business

frauds, poor managements, and so on (Africa Markets Department of Ministry of Industry and

Trade of Vietnam, 2012). Otherwise, only state-owned companies that have more advantages in

terms of strong capitals and governmental supports can develop long-term and high-value

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investment projects in Africa (Africa Markets Department of Ministry of Industry and Trade of

Vietnam, 2012). Therefore, trade exchange between Vietnam and Africa is still modest. These raise

the research’s concern on a business strategy that can help Vietnamese enterprises grasp business

opportunities from this significant potential market, avoid failures and succeed in Africa. It can

be repeatable models that the most successful global companies typically rely on to grow

sustainably and profitably over the time in Africa (Allen, 2012). Strategic alliance is the model to

be recommended for Vietnam-African businesses in the research.

Today, strategic alliances are widely recommended as a vehicle for international expansion

because they help to strengthen a company’s core competence or competitive advantage, facilitate

resources and share risks (Thompson & Strickland, 2011, p. 238 & p. 265). Like any companies

who want to build and maintain a competitive advantage in the global economy, Vietnamese

enterprises need to turn to strategic alliances to help them do so. Also, as discussed in Africa

Progress Panel (2011), “businesses have become the newest and arguably some of the most

important allies of traditional development actors.” The report emphasized that engaging

businesses in partnerships has added much needed complementary capacity, expertise and

resources in creative ways to make development efforts across the Africa continent and has

enabled companies and organizations in Africa to improve accomplishment of their individual

objectives (Africa Progress Panel 2011). As a result, the partnership model between developing

country companies with African countries is also recognized as one of necessary models

contributing to Africa’s developments (Africa Progress Panel, 2011). In the case of collaborative

agreements between Vietnam’s firms and Africa’ where there are the growing needs in substantial

investment and access to complementary resources while the risks are high, strategic alliances are a

better strategy that this research wants to address to Vietnamese firms. By applying existing

literatures on strategic alliances and conducting interviews with two Vietnamese companies, the

research explores a new direction for Vietnamese business managers in partnering with African

companies.

Research Problem and Purpose

This study can be justified on a number of grounds: (a) the inadequacy of researches on

alliance strategy in Vietnam and in Africa, (b) a high alliance failure rate, (c) the lack of empirical

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evidences or real case studies about business alliances between Vietnamese companies and African

ones, and (d) the use the research’s results may be put to.

First, there is a gap between the development of strategic alliance theory in developed

countries and in emerging countries like Vietnam and African countries. A great deal of

management research over the years has been focused on the importance of strategic alliances for

large corporations from developed countries. However, having not many of such research in

Vietnam and in African countries suggests that Vietnamese companies must base their alliances

model with African partners on other applicable research findings and literature views about

strategic alliances, and from those studied frameworks, they can make necessary adjustments to

create, perform, and manage their alliances successfully.

Second, studies on alliance failure rates show a wide range of figures from 25%-70%

(Thompson & Strickland, 2011, p. 243), so the figures show a certainty that failure risk would not

be avoidable for any single alliance. Especially, strategic alliances formed by Small and Medium

Enterprises (SMEs) in Sub-Sahara Africa (SSA) show risky ventures, requiring a concerted effort of

all stakeholders to initiate appropriate measures to avert economic losses resulting from alliance

failure (Rambo, 2012). As a result, Vietnam’s strategic alliances in Africa are not an exceptional

case. This research demonstrates main factors that make strategic alliances as a successful strategy

for Vietnamese and African businesses.

Third, there are few researchers who have attempted to understand the state of alliances

through the form of international joint ventures in Vietnam and in Africa’s nations context, but no

research is done for a specific context of Vietnam’s business alliances into African countries.

Therefore, none of the empirical evidences or real case studies to date study and develop a strategic

alliance model that can be workable for Vietnam-Africa business collaborations.

Final, the results of this study contribute to the available knowledge of strategic alliances in

developing countries in general and help to draw some managerial implications for Vietnam’s

enterprises doing business with Africa companies. As Vietnam is joining the world’s economy and

aiming at building its competitive advantages, gaining new benefits from African alliances is a

critical need for Vietnamese companies in the transition time of Vietnamese economy.

The overall objective of this research is to build a conceptual model of strategic alliances

applicable for Vietnamese businesses when they invest into Africa, a region with plenty of

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business opportunities but also full of risks.

Research limitation

Owing to the shortage of researches and studies regarding the topic and a small number

of Vietnamese strategic alliances in Africa, unlike a common empirical research, this research

has conducted in a different way. The research combines literature reviews, realistic economic

statistics and other findings to build interview questions, which are sent to the participating

companies in the research interviews, and finally uses interview feedbacks to develop the

conceptual model of Vietnamese strategic alliances. As a result, the research has a limitation on

testing out the proposed model in a wider scope and makes it a strong case.

LITERATURE REVIEW

In order to gain an insight into Vietnamese strategic alliances in general and strategic

alliances with African enterprise in particular, this section summarizes literature review in order to

build an integrative conceptual model.

Alliances involve in different areas, ranging from collaborative marketing, sales or

distribution, joint production, to research and development of new technologies or products. They

can vary in terms of their duration and the extent of collaboration (Thompson & Strickland, 2011, p.

238). Yoshino and Rangan (1995) provided an overview of the range of inter-firm relationship that

can be categorized as strategic alliance (Figure 1). Otherwise, they can be visualized as Simoons’s

alliance spectrum (2012) by the degree of collaboration and integration (Figure 2). Basically, these

two classifications show quite similar forms of partnering, divided by nonequity/contractual

agreement and equity agreement. Equity-based alliances, including joint venture, however, call for a

higher level of commitment and collaboration. Simoons creates a new term “virtual joint venture” to

define the organizations work closer together while still remaining independent companies, i.e.

ownership of assets remains with partner companies and revenues are split between two companies

(Simoons, 2012, p. 12). They are traditional firm-to-firm alliances. In addition to that, there are

alliances between firms and nonprofit entities, including non-governmental organizations (NGOs),

and alliances between firms and individuals (Kale & Singh, 2009, p. 56).

The use of joint ventures, a form of strategic alliance in particular, is a common option in

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developing nations because their governments have passed business laws requiring local majority

ownership over foreign-owned companies for the purpose of controlling (Vogel & Cunha, 2010).

The importance of joint ventures as a form of strategic alliance also becomes evident because there

are many studies focusing specifically on international joint ventures as a form of strategic alliance

and joint ventures are the dominant mode of entry used by multinational companies in less

developed countries (Vogel & Cunha, 2010). As joint ventures are receiving so much attention, it is

essential to consider this special type in the proposed model.

In addition, it is important to briefly review on how to partner with the best chance for

success. The success of any single alliance depends on some key factors that are relevant at each

stage of alliance lifecycle: (a) the formation phase, (b) the design phase, and (c) the post-

formation phase (Figure 3) (Schreiner, Kale, & Corsten, 2009). Each phase has three key drivers

of alliance success. The alliance lifecycle can be seen as the roadmap that an organization will

follow to create successful alliances.

a. Formation and Partner Selection: a firm selects an appropriate partner to initiate

an alliance. Partner selection has been extensively focused in previous researched

because its important role in the alliance formation and its implication for alliance

success. An appropriate partner should be generally complementary, compatible,

and committed. Partner complementarity is the extent to which a partner

contributes resources that other partner needs to the relationship. Partner

compatibility refers to the fit between partner’s working styles and cultures.

Partner commitment includes the willingness to make resource contributions

required by the alliance and short-term sacrifices for the desired long-term

benefits (Kale & Singh, 2009, pp. 57-58).

b. Governance and Design: a firm and its partner set up appropriate governance to

oversee the alliance. Partners can choose one of three primary mechanisms to

design alliance governance. Equity sharing or ownership is an effective

mechanism that aligns the mutual interests of the partners, facilitates hierarchical

supervision to monitor the alliance’s functions, and creates a basis of the return on

shares from the alliance in proportion to the level of ownership. The equity-based

alliance can formed by one partner takes an equity stake in the other, or both take

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a stake by creating a new, independent venture. Contractual provisions in the

alliance agreement are also called non-equity based alliances, in which a contract

clearly sets forth mutual rights and obligations of partners, each firm’s inputs to

the alliance, processes, disputes settlement and expected results. Relational

governance or self-enforcing governance is based on trust without external/third-

party monitoring and has flexibility in response to unforeseen circumstances

(Kale & Singh, 2009, pp. 58-59).

c. Post-formation Alliance Management: a firm manages the alliance on an on-going

basis to realize expected benefits after the alliance is up and running. Managing

coordination between partners and developing trust between them are two

important factors in this phase. Coordination enables partners to manage their

interdependence and realize the benefits of their relationship. Whereas, trust

enables them to share greater information and valuable know-how, lower

perceptions of relational risk, and promote the willingness of partners to adapt the

alliance to evolving contingencies (Kale & Singh, 2009, pp. 59-61).

Given the time and sources of information constraints, it is not feasible to examine every

aspect of alliance success for Vietnamese companies in detail. Therefore, the study highlights

some of these factors that have a stronger impact on Vietnam’s alliance success under the

context of collaboration with African partners, i.e. partner attributes, alliance governance (joint

venture), the degree of their collaboration and their alliance dimension.

MODEL & HYPOTHESES

The proposed Vietnam-Africa strategic alliances model (Exhibit 1) is adapted and

developed from cooperative works between the author and Quan Le, managing director of GMX

Consulting, Ltd. In essence, this proposed model forms its arguments based on the conceptual

framework of collaborative relationships between two firms and takes a different approach to fit

the needs of alliance establishments between Vietnam and Africa’s enterprises by addressing the

issues relating to these collaborations.

Three hypotheses have been established in the research along the process:

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1. Vietnamese businesses need a more strategic model to enter African markets

instead exporting, a basic entry mode.

2. Majority of Vietnamese businesses established strategic alliances in Africa under

the form of a joint venture with two partners (one from Vietnam, one from Africa).

3. There are two main factors deciding the alliance strategy for Vietnam and Africa’s

enterprises: the degree of collaborative relationship and alliance dimensions

(multilateral and bilateral)

These hypotheses have been tested with reference to the data and information collected

from governmental agencies’ reports, and empirical interviews with heads of Vietnamese

companies who are experts in partnering with African enterprises.

When a Vietnam company is into a business alliance with African companies, its alliance

is classified into one of four types depending on the degree of collaborative relationship (low-

high) and dimension (bilateral – multilateral) that it has with partners. Prerequisite of each

category is attached to help to understand the framework.

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TYPE 2 Prerequisites

• Exporting is a non-alliance form, but commonly used for a purpose of trading of goods or services

• Joint R&D, share manufacturing, and know-hows

• Contract based

TYPE 3 Prerequisites

• Setting up a joint venture or a wholly owned company on the ground to expand local business internationally

• Equity/ownership based

TYPE 4 Prerequisites

• Collaborating with multi-parties (African, Vietnamese, and international investors) to establish alliances

• Equity/ownership + contract based

Exhibit 1: Vietnam-Africa strategic alliances model

TYPE 1 Prerequisites

• Collaborating with not-for-profit entities for a purpose of Africa’s developments

• Project based

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Specific questions were discussed in the research:

1. What are advantage and disadvantage that Vietnamese enterprises have faced in

strategic alliances with African companies?

2. What are key factors deciding the success for Vietnam-Africa business alliances?

3. How are Vietnam-Africa business alliances classified by the degree of

collaborative relationship and collaborative dimension?

RESEARCH METHODOLOGY

Research design

Using a multi-method field approach, information on the current status of Vietnam-Africa

business collaborations, relevant and useful literatures of strategic alliances, and contacts of

Vietnamese companies who are doing alliances in Africa were gathered from various type of

information sources such as websites, academic journals, books, governmental agencies,

networks, personal communications etc. The thrust is to find out an appropriate model for

Vietnam-Africa business alliances that can bring success for these alliances.

Qualitative approach

A qualitative approach for gathering information is chosen rather than a quantitative

approach because the option is motivated by the exploratory nature of the research. Strategic

alliances have been the subject of numerous empirical studies, but the fact remains that in the

specific context of the research, Vietnam, the study opts for a qualitative methodology.

Research methodology and data collection

This study uses interpretive case study research approach into the research context and to

gain understanding of Vietnam-Africa business alliances. The reasons are: (1) Vietnam-Africa

business alliances have been rarely studied so far. (2) The lack of research practice usage in the

field of management makes the access to business information in Vietnam very difficult. (3) In

the context of Vietnam-Africa strategic partnerships, there are involvement of Vietnamese

governmental agencies and “big guys” who are not familiar with being questioned about their

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managerial strategies. For all these reasons, the research considers that case study methodology

is most appropriate.

Two companies participated in the study are: GMX Consulting Ltd (“GMX”) based in

London, and Vietnam Africa Agricultural Development Co., (Ltd) (“VAADCO”), based in

Vietnam. GMX is an Africa-focused strategy consulting and investment advisory firm that

facilitates and creates trade and investment flows between Africa and Vietnam, and provides

Vietnamese and African businesses with trade and investment advice, ranging from sourcing

strategic partners to providing market research (GMX, website, 2012). VAADC is a Vietnamese

limited company that collaborates with African companies or Ministry of Agriculture by

proposing agricultural projects that increase food security for Africa, and bringing Vietnamese

experts to develop those projects (Xuan Vo, personal communication, November 28, 2012). Both

companies have expertise and experiences in partnering with African companies and

governments.

Data was collected using in-depth interviews with the founders of participating

companies and historical data analysis of their alliance projects, presentations and other relevant

documents. Interviewees’ opinions and advices were withdrawn for key concepts and themes on

the research topic. The researcher utilized the telephone and email discussions to feed back,

interpret and clarify their responses. Thus this paper can also be classified as a participative

research.

RESEARCH FINDINGS AND DISCUSSIONS

Exporting is the most favorable mode of entry

Looking at international trade between Vietnam and Africa’s countries, total export revenue

of Vietnam to African markets has annually increased. In 2011, Vietnam’s exports to Africa reached

USD 3.4 billions, up 97% as compared to the same period of 2010 (Viet Trade Promotion Agency,

2012). In 2012, they have surged over the past 10 months to USD 2 billions, in which eight

reviewed countries accounted for 63% of the total export value (Figure 4). Key exports items are

seafood, coffee, textiles, and garments and are shifted to include more industrial and manufactured

products such as computers, electronics and components, transport equipment, and mobile phones

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(General Customs Department of Vietnam, 2012). Vietnam has been able to expand its export

sector to African markets mainly by exploring labor-intensive and technology-intensive products

that are now specified as Vietnam’s comparative advantage commodities (Le Q., 2010). In addition

to commodities trading, Vietnam exchanges workers and experts to works for African development

projects or African firms. Skillful labors are very important import need in Africa because of severe

talent shortages. African labors have low level of technical, scientific and production knowledge

and skills. Experts predicted that Vietnam’s exports to Africa would increase after Vietnam

approved the National Import-Export Strategy for the 2011-2020 period that proposed programs on

promoting exports to Africa (Vietnam News, 2012).

It is understandable that exporting becomes the natural first step of Vietnamese enterprises’

strategy in tapping African markets because the exporting option is the most attractive and simplest

mode of foreign entry (Johansson, 2009, pp. 135-136). Direct exporting and exporting through

intermediary foreign companies are mostly used by many Vietnamese enterprises (Africa Markets

Department of Ministry of Industry and Trade of Vietnam, 2012). Through exporting, Vietnamese

commodities have been increasingly popular in Africa in many years and have placed a good

reputation to African consumers (InfoVietnam, 2008). However, African’s economic growth surge

extends far beyond the global commodity boom and develops into a more market-driven business

environment (McKinsey, 2010). The current state of Vietnam-African business development still

leaves a big room for strategic alliance model as a more strategic step in early entry into African

economies for Vietnamese companies. Especially, strategic alliances is a feasible strategy for

African small and medium enterprises (SMEs) to partner up with other firms in order to compensate

for resources constraints endemic to SMEs (Jorem et al., 2012). Thus, Vietnam-Africa business

alliances can provide big opportunities to create markets, establish brands, shape industry structure,

influence customer preferences, and establish long-term relationships for both parties. With more

collaborative relationships, these alliances can mitigate international trade risks, reduce their

individual obstacles, build trusts amongst partners, and strengthen mutual benefits.

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Joint venture is the current main form of business alliances

Vietnam’s Foreign Investment Agency (FIA) reported that Vietnam’s foreign direct

investment (FDI) outflows to Africa, mostly participating in equity joint ventures reached USD 711

millions since 2002 to 08/2012 (FIA, 2012). Until now, Vietnamese businesses have diversified

their investments to Africa in different areas, and have developed 17 projects in 10 African

countries and regions (FIA, 2012). Oil exploration and production projects are still accounted for the

highest percentage in the total investment capital (FIA, 2012). Examples include three projects in

Algeria (USD 224.9 millions), Madagascar (USD 117.3 millions), and Republic of Congo (USD

15.3 millions) with the total value of 50% Vietnam’s FDI outflows to Africa (FIA, 2012). These

three projects are owned by Petro Vietnam Exploration Production (PVEP) Company, a sole state-

owned limited company (FIA, 2012). The second largest project with the total investment value of

USD 493.79 millions by Viettel Mobile, a state-owned enterprise majoring in mobile network,

wholly owned and operated by the Ministry of Military, has been successfully developed in

Mozambique (FIA, 2012). Other Vietnamese companies investing in Africa can be named such as:

T&T Co., (Ltd), Thanh Do Commerce Co., (Ltd), Huu Nghi Quoc Te Co., (Ltd) in Angola; Thien

Minh Duc Joint Stock Co., Viet Trang Export-Import Co., in South Africa; Binh Hung Investment

Joint Stock Co., in Ghana; An Viet Machinery Co., (Ltd), Thien Phu Commerce Co., (Ltd) in

Tanzania; and Vedic Fansipan Chemical & Medical Co., (Ltd) in Mauritius (FIA, 2012). While

Vietnam’s investment outflows to Africa sharply increase, the inflows from Africa gradually

increase though have lower investment capitals with the total value of USD 67.76 millions or 10%

the outflows (FIA, 2012). Investment projects from Africa mostly major in processing,

manufacturing, retails, wholesales, science-technology, immigrant service and consulting (FIA,

2012). The main motives for the joint venture formation are to overcome government-mandated

barriers, facilitate risk and cost sharing, and to access the domestic market (FIA, 2012). The finding

endorses the second hypothesis that joint venture is more favorable option of creating a strategic

alliance for Vietnamese companies.

However, if a small Vietnamese company signs alliance agreement alone, it cannot afford

high capital requirements for such joint venture investment as big Vietnamese corporations and

even cannot compete with more advanced industrialized countries establishing international joint

ventures (IJVs) with African firms. A study based on the analyses from 76 international joint

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ventures (IJVs) in Sub-Saharan Africa – Ghana provided support for the view that those IJVs with

partners from emerging economies are more likely to focus on operational efficiency (referred to as

a cost leadership strategy) and outperform IJVs with more advanced industrialized countries

implementing the same strategy (Acquaah, 2009). The theory would also apply to Vietnamese and

African joint ventures if these joint ventures will pursue cost leadership strategy, but with the

endorsement of more collaborative and multi-dimensional relationships in their business alliances.

Benefits of such collaborative and multi-dimensional alliances will be discussed in the latter section.

Collaborative relationship and dimension

Africa remains a difficult place for entrepreneurs because barriers to its economic growth.

Africa Progress Panel (2011) highlighted these barriers: widespread infrastructure deficit,

unfavorable global rules, poor market quality, poor regulatory environments and insufficient

access to finance. The continent is plagued by a crippling lack of energy, transport and

telecommunication infrastructure (Africa Progress Panel, 2011). More than one third of the

current estimated annual investment of USD 93 billions is unfunded (Africa Progress Panel,

2011). Bloated subsidy regimes, quotas, as well as high tariff and non-tariff barriers constrain its

potentials to escape unfavorable trading partners and diversify its economics (Africa Progress

Panel, 2011). The majority of African markets are plagued by their small market sizes, ethnic

segmentation, high-percentage of informal activity, significant productivity gaps, skill

mismatches, and low competitiveness (Africa Progress Panel, 2011). Businesses in Africa face

greater regulatory and administrative burdens, and less protection of property and investor rights

than in other regions. Financial market is poorly developed and is rated at a high level of risk

(Africa Progress Panel, 2011). Most African people and small-to-mediums enterprises have very

limited access to finance (Africa Progress Panel, 2011).

The consequences are even extremely significant for Vietnamese enterprises if they are

not a big corporation and solely get into businesses with African companies. Though Vietnamese

enterprises want to invest into African markets, they have to compete with the entrance of strong

foreign investors from China, EU, U.S. and other new players. The field of only extracting

resources in Africa is getting more crowded (McKinsey, 2010); therefore, Vietnamese investors

must go beyond primary trading business to provide for wider economic development through

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the establishment of alliances with African firms. Furthermore, poor understandings of African

markets and international business practices, lack of financing skills to raise fund from third

parties, ineffective communication, lack of support from Vietnamese government, and lack of

skills to manage international operations are difficulties that most of Vietnamese enterprises

faced when they were in single partnership with African firms (Quan Le, personal

communication, November 30, 2012). These disadvantages recommend that Vietnamese

companies can find third parties to enter a multilateral partnership in which the third partners add

capabilities and resources that a bilateral alliance does not have (Quan Le, personal

communication, November 30, 2012).

Another finding is that selecting right partner is a crucial element that Vietnamese

companies must take into account of partners’ attributes in terms of partner complementarity,

compatibility, and commitment (Quan Le, personal communication, November 30, 2012). The

fundamental principle of creating an alliance is to combine non-overlapping resources and

capabilities from two partners. In this circumstance, Vietnamese companies contribute what they

have competitive advantages, not in terms of the needs they seeks to satisfy, but in terms of what

they are capable of. Agricultural manufacturing techniques, technologies, expertise and more

skillful labors are for examples. Meanwhile, African partners are abundant at natural resources

such as land, oil and gas, etc. Local African partners also help Vietnamese enterprises bridge

culture distance, and meet local conditions and regulatory requirements. In addition, lack of

commitment between Vietnamese and African partners is an issue. Due to high volatility and low

consistency of African markets, Vietnamese companies hesitate to commit for an alliance

formation, and show impatience and inflexibility in dealing with African partners.

A more important reason is that partner selection decides how collaborative the alliance

relationship is and based on the degree of this collaboration, two partners will create alliance

governance. In some cases, African partners provide capital contribution to the entire alliances,

whereas, Vietnam partners provide know-hows and human resources by contract based.

VAADCO is an example for this alliance model. Xuan Vo, VAADCO’s Chief Executive Officer

(Personal communication, November 28, 2012) described how this alliance model works through

5-Phase development plan in rice production. The 5 phases are: (1) field survey to agricultural

production sites to formulate action plan, (2) verify technology to be adopted, (3) design

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necessary management system or infrastructures for selected site (such as irrigation system,

water management, agri-machinery, etc.) and appropriate scheme for implementing the systems,

(4) submit investment project endorsed by Ministry of Agriculture for bank loan to fund the

project, and (5) production of rice by African farmers with hand-on guidance of experienced

Vietnamese rice farmers. Overall, VAADCO’s programs started from mid-2006 in Sierra Leone,

from 2008 in Nigeria, and from 2009 in Mozambique and Sudan (Xuan Vo, personal

communication, November 28, 2012). These projects are running well, but two projects are on

hold because of no finance for building infrastructures (Xuan Vo, personal communication,

November 28, 2012). This framework shows a higher collaboration than exporting firms, but the

collaboration is not high and diversified enough to help the alliance totally achieve its goals and

objectives.

Recognizing these limitations of the current Vietnam-Africa business alliances, GMX is

creating a multi-dimensional alliance model that the company helps Vietnamese companies

create projects meeting complementary resources and capabilities that African partners need with

less expensive upfront capital, uses financing tools to raise fund for those projects in the

international markets such as Middle East and United Kingdom, and creates an alliance between

them (Quan Le, Personal Communication, December 2012). The GMX model is considered a

pioneer in this alliance approach for Vietnamese and African businesses (Quan Le, personal

communication, December 4, 2012). This multilateral model would be superior to China-Africa

bilateral trading relations that have been sought as negative impact on domestic economic

development and competitive disadvantage in African marketplaces (Okoro & Oyewole, 2011).

Increasing numbers of Chinese businesses and entrepreneurs with the aim of establishing

strategic partnerships, collaborations, and joint ventures with African companies are questioned

China’s motives in Africa’s markets because it is reflecting imbalance in the structure of

Chinese-African bilateral trade (Okoro & Oyewole, 2011). Instead, the multilateral model would

bring balance in trades, mutual trade benefits and global strategic investments (Quan Le,

personal communication, December 4, 2012).

All of above rationales show the current clusters of Vietnam-African business alliances as

visualized in Exhibit 2. The distribution is subjectively based on the author’s qualitative

analyses. VAADCO is located in type 2 and GMX is located in type 4. A large number of

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Vietnamese companies have not yet begun strategic alliances with African companies. Most

Vietnam-Africa joint ventures are established in terms of bilateral collaboration. GMX is the

only company who has created multilateral collaboration with African partners to date to this

research’s awareness. Reasons for this distribution are summarized in following comments,

which are interpreted and contributed from interviews with the participating companies’

managers. Overall, the findings suggest that GMX model is an optimal strategy for small-to-

medium Vietnamese enterprises seeking to expand their businesses to African markets.

Exhibit 2: Clusters of Vietnam-Africa business alliances

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MANAGERIAL IMPLICATIONS Having acknowledged of Africa as a potential market for Vietnamese international

businesses, experts have urged Vietnamese companies to seek more chances to export materials that

African countries need. But very little strategic plan has been done to create long-term business

relationships with African companies. Thus, the research findings could be used to formulate an

alliance strategy for Vietnamese firms to enter African markets. Vietnamese enterprises could apply

the findings derived therein to achieve successful alliances because African companies are likely to

have different needs and seek different types of strategic partners. For African businesses,

practicing strategic alliances with Vietnamese companies is a way to do international businesses,

to improve their business administration styles and their operations to meet foreign standards,

and to be more active and independent in joining the global economy.

The other managerial implication relates to the manner in which Vietnam and Africa’s

partners attempt to manage the future scope and horizon of their relationship. Selecting partners,

TYPE 1 Comments

• Not applicable for Vietnamese companies at present

TYPE 2 Comments

• Exporting fits most Vietnamese companies as they do business under seller-buyer or supplier-buyer relationships

• Trading is highly competitive therefore profit margin is lower and trending down over time

• Short-term and opportunistic

TYPE 3 Comments

• Joint ventures fits large Vietnamese companies due to their expertise and capital strengths

• State-owned companies collaborate with African governments to establish their wholly owned subsidiaries

• Vietnamese company uses this method to expand to overseas markets

• Vietnamese company retains control

TYPE 4 Comments

• Most Vietnamese companies find this model difficult: Poor understanding of

African markets and international business practices

Lack of financing skills to raise funds from third parties

Communication is an issue

Lack of support from Vietnamese government

Lack of skills to manage an international operations

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creating alliance governance, managing coordination and building trust between partners all serve to

better align partners’ expectations, goals and objectives. These factors all contribute to the alliance

success. The challenge, however, lies in developing a management philosophy for Vietnamese and

African business managers that can engage partners’ contributions for promoting and encouraging

the continued growth and maintenance of the alliance because difference in cultures, operating

procedures, and practice become apparent during the course of the alliance. Effort must be devoted

to the creation and execution of management strategies to overcome the challenge.

Overall, the research has provided a new model of alliance practice based on the

theoretical underpinning of collaborative relationship and dimension fit approaches as well as on

the practical experiences of Vietnam-Africa business alliance managers. The model also offers

insights into how alliance managers in Vietnam and in other developing countries can develop

alliance strategies to meet African markets’ needs. The research offers a good start to the

formation of international business alliances for Vietnamese enterprises, in which Africa can be a

good example. The contributions in the study are important to management scholars and executives

of companies domiciled in Vietnam and in Africa.

CONCLUSION

The research has added to limited empirical research works on the development of Vietnam

– Africa’s business alliances. It provides new insights for business practitioners and academic

research concerning the partnership approach to conduct business in African markets. It also

suggests several future research questions. For example, how do Vietnamese firms identify

prospective alliance partners from Africa that have needed resources and capabilities? Future

research should address how Vietnam’s strategic alliances can be managed successfully to ensure

that both partner’s needs are satisfied through the alliance.

The findings from this exploratory research offer avenues for follow up studies enhancing

our knowledge of Vietnamese and African business alliances. To fill the research’s gaps, the author

believes that future research should be guided toward testing the current proposed model in a wider

scope and examining advantages and disadvantages/pitfalls that Vietnam-Africa business alliances

have faced in order to suggest modifications for the model.

In next periods, Vietnam-Africa business alliances will create more benefits for Vietnam

19

and Africa’s economy in general and for local enterprises in particular. The alliances can bring

more and more positive impacts if there are strategic solutions and strong determinations from

Vietnamese government to reform business environment more favorable to local and foreign

entrepreneurs. The government could be more flexible in using subsidiary tools to support

Vietnam-African business alliances.

In addition to business interests, promoting Vietnam-Africa business alliances have much to

contribute development efforts in Africa. The nature of an alliance is to combine capacities,

expertise, resources, networks and comparative advantages in a way that adds value for the alliance,

but it also allows companies to engage in developments as more than an issue of corporate social

responsibility or philanthropy (Africa Progress Panel, 2011). It is foreseen that Vietnam-Africa

business alliances begin with development purposes essential to their core business and a

promising avenue towards growth, greater market share, increased efficiencies and lower risks

and costs. Growing business alliances between Vietnam and African can help build the Africa of

future.

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APPENDICES

Figure 1: Scope of Inter-firm Relationships

Source: Thompson, J., & Strickland, I. A., (2011). Managing strategic alliances: what do we know now, and

where do we go from here? by Kale, P., & Singh, H., In Academy of Management Perspectives, Vol. 23, No.

3 (August 2009), pp. 45-62. Crafting and executing strategy: concepts and readings global edition concepts

and readings (18th rev. ed., global ed., pp. R55-R72). London: McGraw Hill Higher Education.

Figure 2: The Alliance Spectrum

Source: Simoons, P., (2012). An introduction to the successful 6 step approach for strategic alliances.

Retrieved on December 1, 2012 from: http://www.simoons.com/

Figure 3: Key Success Factors Of A Single Alliance

Source: Thompson, J., & Strickland, I. A., (2011). Managing strategic alliances: what do we know now, and

where do we go from here? by Kale, P., & Singh, H., In Academy of Management Perspectives, Vol. 23, No.

3 (August 2009), pp. 45-62. Crafting and executing strategy: concepts and readings global edition concepts

and readings (18th rev. ed., global ed., pp. R55-R72). London: McGraw Hill Higher Education.

Figure 4: Vietnam’s exports to African countries by 10/2012

Africa Compared to the same period of 2011

% Increase (Decrease)

Export value

In Millions USD

Nigeria 100% 100

Angola 80% 102.4

Ivory Coast 54% 211

Egypt 28% 261.39

Ghana 59% 176

Algeria 35% 110

Senegal -53% 86.45

South Africa -70% 534

Others 30% 503

Source: General Department of Vietnam Custom (2012). Statistics on Vietnam’s export (1/11/2012-

11/15/2012). Retrieved from: http://www.customs.gov.vn

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