DEVELOPING DOMESTIC SUPPLIERS OF ELECTRONICS
IN VIETNAM: THE CASE STUDY OF
CANON VIETNAM’S STRATEGY
A Dissertation
Submitted to the Faculty of the
Graduate Studies in Business Southern Luzon State University
Lucban, Quezon, The Philippines in Collaboration with
Thainguyen University, Socialist Republic of Vietnam
In Partial Fulfillment
of the Requirements for the Degree of
Doctor in Business Administration
Name
: Tran Xuan Ngoc
English Name
: Ronaldo
Date of Birth
: 30/03/1975
Hanoi – 2013
i
ii
ACKNOWLEDGMENT
Firstly, I am particularly grateful to my dissertation committee: Dr. Cecilia N.
Gascon, Prof. Nordelina B. Ilano, Dr. Walberto A. Macaraan, Dr. Joanna Paula A.
Ellaga, Dr. Nelly I. Mendoza, and Special thanks to my advisor Dr.Eduardo T.Bagtang,
It is only with their precious assistance, support and guidance that I was able to fulfill
my dissertation. They shared valuable time from their busy schedules to help and give
me critical comments and suggestions.
I gratefully acknowledge Southern Luzon State University, Thai Nguyen
University, Thai Nguyen University of Agriculture and Forestry, International School Thai Nguyen University, International Training Center of Thai Nguyen University of
Agriculture and Forestry, and the staff. I have greatly benefited from good study
facilities, materials, and dynamic academic environment.
I want to express my deep gratitude to Hanoi People's committee, Hanoi
Vocational College of High Technology who has supported to study.
I am greatly indebted to researchers and all my colleagues who have helped me
to overcome many difficulties during the past hard time. They shared their views and
insights on the dissertation as well.
Finally, I wish to thank my family members for their spiritual encouragement and
material support. Thank others who did not participate directly but their works have been
essential to the success of my dissertation.
iii
ABSTRACT
RESEAQRCHER
: TRAN XUAN NGOC
TITLE
: Developing Domestic Suppliers of Electronics in Vietnam: The
case study of Canon Vietnam’s strategy.
SCHOOL
: Southern Luzon State University, Lucban, Quezon
COURSE
: Doctor in Business Administration
YEAR
: September, 2013
ADVISER
: Dr. EDUARDO T.BAGTANG
The general objective of this research is to find out the theoretical reasons and
practical evidence proving that the subsidiaries company (Canon Vietnam) can influence
on the development of local suppliers’ capacity in order to promote the competitive
advantages and expand production. This study focuses on the following specific
contents: 1. Profile of the subsidiaries; 2. Autonomy of the Subsidiaries; 3. Knowledge
transfer strategies; 4. Competitive advantages of the subsidiaries in Vietnam that can
help develop local suppliers; 5. Government policies towards developing local or
domestic suppliers’ capabilities.
The main method employed in the dissertation research is case study, one of
important ways of doing research in social sciences (Yin, 1994; Eckstein, 2000; Strauss
and Corbin, 1998). The documentary analysis and the questionnaire were the main
instruments used in data gathering. 250 sets of questionnaires were distributed to the (6)
managers of Cannon Vietnam and to the (100) employees of Cannon Vietnam and to the
(4) managers of the local suppliers and (140) employees of the local suppliers of Cannon
in Vietnam. Our research also employs archival and general data of electronic
iv
manufacturing industry in Vietnam. The data was gathered from Ministry of Industry,
Ministry of Finance, Ministry of Trade, and Ministry of Public Security. Additional data
were obtained from written materials such as publications, documents, and business
press articles appeared in the mass media.
Researcher use SPSS program to process the data analysis. By statistical
methods, the authors draw conclusions about the key factors affecting the development
of local suppliers’ capacity: Local Strategies of multinational companies; These
competitive advantages of multinational companies in local environment, knowledge
transfer, knowledge transfer methods; capacity of suppliers; ability of suppliers to meet
the demand and policy of the government;
The regression model was checked for errors. After performing the data
processing method, the models are proved to be reliable and be able to explain the
dependent variable based on the independent variables.
After analyzing the data using regression models, the conclusions are generated
on the obtained results. On the basis of these results and conclusions, the authors make
recommendations in order to develop the manufacturing sector, which provides
electronic products in the country.
v
TABLE OF CONTENTS
Page
TITLE PAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
APPROVAL SHEET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ii
ACKNOWLEDGMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iii
ABSTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iv
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
vi
LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
xi
LIST OF FIGURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
xiv
LIST OF APPENDIXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
xv
vi
CHAPTER I: INTRODUCTION
1
1.1. Background of the Study
1
1.2. Statement of the Problem
3
1.3. Objectives of the Study
5
1.4. Hypotheses of the Study
6
1.5. Significance of the Study
7
1.6. Scope and Limitations of the Study
8
1.7. Abbreviations
10
1.8. Definition of term
11
CHAPTER II: REVIEW OF RELATED LITERATURE AND STUDIES .
15
2.1. Subsidiary in local environment
15
2.1.1. The development process of subsidiaries
15
2.1.2. The effects of local environment on the development of
17
subsidiaries
2.2. Local Suppliers of Electronics
22
2.2.1. Some arguments about Supplier Industries
22
2.2.1.1. Supplier Industries
22
2.2.1.2. Suppliers
27
2.2.1.3. Factors affecting the development of Suppliers
27
2.2.2 Suppliers of electronics products
30
2.2.2.1. Technology process to produce electronic products
30
2.2.2.2. The electronics supporting industry in Vietnam
31
2.2.2.3. Vietnam’s electronics suppliers
35
2.2.2.4. Affecting factors of Suppliers of electronics products
39
vii
2.3.International experience in developing Local Suppliers
40
2.3.1. Development policies of Local Suppliers
40
2.3.2. Regulation onlocalization
42
2.3.3. Foreign investment attraction
43
2.4. Conclusion
45
2.4.1. From the government
45
2.4.2. From the local suppliers
46
2.5. Conceptual Framework
46
CHAPTER III: METHODOLOGY
48
3.1. Research Design
48
3.2. Determination of sample size
52
3.3. Sampling design and techniques
53
3.4. Subject of the study
53
3.5. Research instrument
53
3.6. Data processing method
54
3.7. Statistical treatment
54
CHAPTER IV: PRESENTATION, ANALYSIS, AND INTERPRETATION
59
OF RESULTS
4.1. Subsidiary company’s profile
59
4.1.1. Company culture
59
4.1.2. Organizational Structure
61
4.1.3. Operation Scale
64
4.1.4. Operation duration at the local
65
4.1.5. Number of local suppliers
66
4.1.6. Assessment of the Subsidiary Profile that Affects the Capacity
68
viii
Development of the Local Electronics Suppliers
4.2. Autonomy of Subsidiary Company
70
4.2.1. R&D
70
4.2.2. Financial Management.
71
4.2.3. Marketing Strategy
73
4.2.4. Production Strategy
74
4.2.5. Production Process.
75
4.2.6. Supplier Selection. . .
76
4.2.7. Assessment of the Subsidiary’s Autonomy that Affects the
79
Capacity Development of the Local Electronics Supplier
4.3. Knowledge transfer from Subsidiary company to local suppliers
81
4.3.1. Absorptive capacity
85
4.3.2. Responsiveness
88
4.3.3. "Hands-on" approach to transfer knowledge
98
4.3.4.Assessment of the Knowledge transfer from Subsidiary that Affects
104
the Capacity Development of the Local Electronics Suppliers
4.4. Competitive Advantages of Subsidiary Company
106
4.4.1. Production Capacity
107
4.4.2. Capacity of Design and Renewing
110
4.4.3. Technology of production
112
4.4.4 Quality of Management
113
4.4.5. Price policy of Canon Vietnam
116
4.4.6. Assessment of the Subsidiary’s Competitive Advantages that
117
Affects the Capacity Development of the Local Electronics Suppliers
4.5. Government Policies
119
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4.5.1. Protection of domestic production
120
4.5.2. Priority to electronics industry
121
4.5.3. Central Management Unit
121
4.5.4. Set up standards of quality and components
122
4.5.5. Reducing the gap between policies and implementation
123
4.5.6. Assessment of the Government Policies that Affects the Capacity
123
Development of the Local Electronics Suppliers
4.6. Analysis and Interpretation of Data
125
4.6.1. Assessment of the scale's reliability
125
4.6.2. Test the distribution format of the scales
128
4.6.3. Hypothesis Testing
130
4.6.4. Analysis of affecting factors
133
CHAPTER V: SUMMARY, CONCLUSIONS, AND
139
RECOMMENDATIONS
5.1. Summary
139
5.2. Conclusions
140
5.3. Recommendations
141
5.3.1. Recommendations for Businesses
141
5.3.2. Recommendations about the management agency
146
BIBLIOGRAPHY
APPENDIXES
151
160
x
LIST OF TABLES
Table
1
2
Page
SWOT Analysis for the electronics industry of Vietnam
32
The situation of the electronics industry and its supplier
44
industries in ASEAN countries
3
Summary of case studies
49
4
Variables
52
5
Factor loading
55
6
Number of local suppliers
68
Assessment of the Subsidiary Profile by the Canon
7
Managers and the Local Electronic Supplier Managers
8
68
Assessment of the Subsidiary Profile by the Canon
Vietnam Employees and the Local Electronic Suppliers’
69
Employees
9
Assessment of the Subsidiary’s Autonomy by the Canon
79
Managers and the Local Electronic Supplier Managers
10
Assessment of the Subsidiary’s Autonomy by the Canon
Vietnam Employees and the Local Electronic Suppliers’
80
Employees
11
Transferred knowledge between Canon and local
99
suppliers
12
Assessment of the Knowledge transfer by the Canon
105
Managers and the Local Electronic Supplier Managers
xi
13
Assessment of the Knowledge transfer by the Canon
Vietnam Employees and the Local Electronic Suppliers’
105
Employees
14
Assessment of the Competitive Advantages by the Canon
117
Managers and the Local Electronic Supplier Managers
15
Assessment of the Competitive Advantages by the Canon
Vietnam Employees and the Local Electronic Suppliers’
118
Employees
16
Localization of Canon’s electronics
119
17
Assessment of the Government Policies by the Canon
124
Managers and the Local Electronic Supplier Managers
18
Assessment of the Government Policies by the Canon
Vietnam Employees and the Local Electronic Suppliers’
124
Employees
19
Reliability of the independent variable: Company’s
126
profile - CP
20
Reliability of the independent variable: Autonomy of
126
Company - AC
21
Reliability of the independent variable: Knowledge
126
Transfer - KT
22
Reliability of the independent variable: Competitive
127
Advantages - CA
xii
23
Reliability of the independent variable: Government
127
Policies – GP
24
The reliability of the control variable: Capability
128
Development of Local Suppliers – DCLS
25
Statistical description of the scales
129
26
ANOVA (Testing differences between the study groups)
131
27
Correlations
131
28
Variables Entered/Removed
134
29
Model Summary
135
30
ANOVAe
135
31
Coefficientsa
136
xiii
LIST OF FIGURES
Figure
Page
1
Porter’s Diamond
18
2
“Supplier industries” Concept of Japan
24
3
“Players” network of the “Game Theory”
27
4
“Players” Network in supplier industries
28
5
Expanded “Players” Network in Supplier Industries in a
country
28
6
Production Process of Electronic Products
31
7
Export value of Vietnam’s electronics components and
computer units
8
36
Vietnam’s import value of electronic components,
electronic and computer items
38
9
Conceptual Paradigm
47
10
Performance Results of Canon Vietnam
65
11
Characteristic of local suppliers
97
12
Environment change and Canon response
107
13
Definition of supporting industries
111
xiv
LIST OF APPENDIXES
Appendix
Page
A
Canon’s evaluation on supplier capabilities
159
B
Characteristics of newly established enterprises
160
C
Canon Vietnam Organization
161
D
Questionnaire for Canon
162
E
Questionnaire for Suppliers
165
F
Curriculum vitae
168
xv
CHAPTER I
INTRODUCTION
1.1. Background of the Study
After 25 years of reform, Vietnam's economy has grown stronger and integrated
deeper into regional as well as global economies. A number of industries have
experienced the fast growing; there are also the first Vietnam businesses involved in the
supply chain of the global value. Vietnam has become an emerging market that is very
attractive to international investors and economic researchers.
Practice has proved that the emerging markets could bring the businesses the most
important investment opportunities and growth. The emerging markets are the place to
test the concept, model, and existing theories. At the same time it also creates
opportunities for researching and developing the new theories in the field of business
administration.
Among the emerging markets, Vietnam is an obvious example of the great and
profound changes in attracting foreign investment to develop domestic industry. However,
the industrialization of Vietnam today is facing a huge challenge: we must carry it out
under the conditions of trading liberalization with other countries all over the world.
Meanwhile, the competitiveness of Vietnamese industrial products in general is weak,
especially those manufacturing machinery, equipment’s, components and materials. We
could say that the most basic weakness of Vietnam's industry stems from the weakness of
the supporting industries. This involves the "survival" of the Vietnam industry, closely
associated with the issue that whether the economy of Vietnam can be internationally
competitive enough to develop or not. On the other hand, that the weakness of
fundamental facility have contributed to the deficit of trading balance in Vietnam.
1
Because we have to import a lot of components, raw materials for export production so
that the more we boost the exports, the faster the demand for inputs increase, which
causes the trade deficit surged
Currently, the development of the domestic market fraught with spontaneity, lack
of sustainability. Local businesses are numerous yet not strong, the majority belongs to
the types of small and medium businesses, which are few, backward, under a poor
condition of fundamental and technical facility, lacking developing strategy, capacity and
of weak position. The implementation of regional and international commitments of VN is
still passive, Quite a few of businesses is now still expecting an extension of protectorate;
The slow application of international standards in the production and trade has caused
some businesses VN difficulties when joining the production cycle in the local market.
In the manufacturing industry, Electronics industry is highly representative for a
developing country with a large population as Vietnam. In the context of scientific and
technological progress and globalization today, the situation of developing electronics
industry in Vietnam has revealed a number of problems. On the domestic market, the
supply businesses in Vietnam are of much weaker position than firms with foreign capital
investment. On the other hand, the electronic products of Vietnam are put under a huge
competitive pressure of China. In terms of the value chain, the electronics industry of
Vietnam mainly assembles consumer products, focusing on the stages with low added
value. Very few companies produce detailed parts and accessories in electronics. Foreign
investors in this sector are mainly export-oriented, not oriented to promote connectivity
supporting industries in the country to create a shift in the value chain. This limits the
ability to develop this sector and limit the impact of technology transfers as well as
scalability to attract FDI. The assembling phase is mainly toward cheap labor, but this is
not possible advantage to gain a long-term health.
2
Finding out the solution to promote the development of the domestic suppliers is
the major concern of many managers and economic researchers. In order to specify and
realize the study content, the subject is limited to the domestic supply of Electronics, as a
typical study case.
In the context of a group of electronics manufacturers closed their plants in
Vietnam, Canon Vietnam is a different case. For over 10 years, Canon Vietnam has been
continuously expanded their production, especially effectively building a network of local
suppliers.
The topic of "Developing Domestic Suppliers of Electronics in Vietnam: The
case study of Canon Vietnam’s strategy" is meaningful and useful for managers of multinational companies in electronic field when considering invest or now operating in
Vietnam, the firms who are now providing electronic domestic products the Vietnam
Policymakers.
1.2. Statement of the Problem
The recent state of electronics industry in Vietnam revealed problems of
competition of local suppliers with foreign suppliers. Local suppliers of Vietnam are
much weaker when compared to the foreign suppliers.
Foreign investors import most of the components of the electronic products;
hence, the local suppliers can no longer compete with them even with their cheap labor.
This situation limits the development of electronic industry in Vietnam.
To make the local suppliers of Vietnam competitive there is a need therefore to
develop their capabilities.
This study aim of the following objectives:
1. Identify the existing condition and operation of Canon Company in Vietnam in term of:
3
1.1. Company culture
1.2. Organizational Structure
1.3. Operation Scale
1.4. Operation duration at the local
1.5. Number of local suppliers
2. Find out the extent of autonomy of Canon Subsidiary in term of:
2.1. R&D
2.2. Financial Management
2.3. Marketing Strategy
2.4. Production Strategy
2.5. Production Process
2.6. Supplier Selection
3. Determine the extent of knowledge transfer from Subsidiary company to local supplier
in term of:
3.1. Absorptive capacity
3.2. Responsiveness
3.3. "Hands-on" approach to transfer knowledge
4. Identify the Competitive Advantages of Subsidiary Company that can help develop
local suppliers in term of:
4.1. Production Capacity
4.2. Capacity of Design and Renewing
4.3. Technology of production
4.4. Qualifications of Management
4.5. Price policy
4
5. Find out the extent of Government policies towards developing local or domestic
suppliers’ capabilities in term of:
5.1. Protection of domestic production (import tax…)
5.2. Priority to electronics industry (incentives, production tax…)
5.3. Central Management Unit
5.4. Set up standards of quality and components
5.5. Reducing the gap between policies and implementation
1.3. Objectives of the Study
The overall objective of the study is to determine factors that can help develop the
capabilities of local or domestic suppliers in Vietnam. Specifically, the study aimed to
determine the current operation of Canon Vietnam following objectives:
1. To determine the profile of the Canon Vietnam in terms of the following:
1.1. Company culture
1.2. Organizational Structure
1.3. Operation Scale
1.4. Operation duration at the local
1.5. Number of local suppliers
2. To determine the extent of autonomy of Canon Vietnam in terms of the following:
2.1. R&D
2.2. Financial Management
2.3. Marketing Strategy
2.4. Production Strategy
2.5. Production Process
2.6. Supplier Selection
5
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