American Rice, Inc in Vietnam Case Study In the early 1980s, Vietnam was still struggling to make its

centralized planned-economy work. Vietnam's effort to reform the agricultural sector

through collectivization as done by of many socialist countries failed miserably. In 1981 an initial step away from the socialist way of farming was taken when farmers became incentivized to cultivate land individually. The results were impressive and it contributed to the creation of a larger base of support among the socialist party members to adopt more economic reforms. In 1986, Doi Moi ("renovation") was adopted and a central element of Doi Moi was that the government would take a step back and allow the development of a private sector and stimulate competition among food companies. The opening up of Vietnam offered foreign companies such as ARI the opportunity to get a foothold in a potentially major player in the international rice business. For Vietnam tying up local companies with foreign experienced players would help Vietnam modernize its agricultural sector. This was important as there were significant opportunities to increase the yield and quality of planted rice and enhance the efficiency of the processing of harvested rice (drying, milling, storing, transporting and marketing). One way of working with foreign companies would be through jointventures (JV). JVs could facilitate the transfer of knowledge and technical expertise and that both parties (local and foreign company) would benefit. This could be a better option than just attracting totally foreign-owned companies as under such a scheme not only would the full profits but theirs (the foreign owned

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American Rice, Inc in Vietnam Case Study company) but it could also result in a minimal extent of technology transfer to local players. However, due to the supply chain of rice it would have been likely that foreign-direct investments would also require significant collaboration with farmers who would benefit from training and access to more effective farming techniques. The JV option would provide more guarantees that Vietnamese companies would directly benefit from the inflow of more efficient ways of running the rice commodity value chain. The Vietnamese players in the rice sector and other sectors were generally cash-strapped and the JV option would moreover increase their access to additional financial resources. Furthermore, the JV could result in the upgrading of facilities and also provide local players direct access to the know-how and more expansive network of the foreign JV partner. Beyond the direct benefits for JV partners there were potential positive externalities. In the agricultural sector these benefits ranged from an increase in productivity and income of involved farmers, to increased competition among local rice processers and a way to restock Vietnam's depleted foreign reserves. Risks and disadvantages of a JV are significant as trust is the corner-stone of a JV. It is of the utmost importance that all responsibilities are clearly stipulated and that it is clear who carries what burden when less than favorable initial outcomes of the joint-venture are experienced. From a game-theory perspective, there is a significant chance that one of the parties will be faced with a situation in which defection becomes a more profitable option. For example

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American Rice, Inc in Vietnam Case Study once a big chunk of the technology and financial assets have been transferred the local party would have an incentive to 'cheat'. In the case of ARI it had

chosen a JV over establishing a totally foreign-owned (100% ARI-owned) company. Key motivations why not to go this way were likely to have been the lack of poltical certainty, the inadequacies in the legal framework, the expected long-duration of the whole process to be finished and the absence of a network that would be instrumental in staffing the new entity. Perhaps an even more prevailing argument was that ARI was under the impression that it needed a firstmovers advantage. The whole process from the first visit to final signature took only around 6 months and relied heavily on the inputs and analysis of just one ARI employee. Taking into consideration the major linguistic, cultural and administrative differences between the two-parties this might have been too fast to build a healthy foundation for mutual trust. For ARI the JV would mean access to the third most populous country in the Southeast Asian region and due to the relative nascence of the Vietnamese export rice supply chain there were considerable growth opportunities for ARI. In addition for the transfer of knowledge and technology, ARI would also contribute a larger share (55%) of the required capital to make the joint-venture operative. Vinafood II on its turn would be responsible for liaising with the Vietnamese government and ensure that the joint-venture would not encounter any unexpected legal and administrative hindrances. Vinafood II furthermore was responsible for the purchase and sell of rice to the joint-venture. This placed

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American Rice, Inc in Vietnam Case Study Vinafood II in a slightly awkward position as it could possible benefit from selling its rice to the joint-venture with a margin that would make the product the jointventure sold less competitive. After the joint-venture agreement was signed ARI faced another choice namely whether to invest in a parboil facility. The investment would be a direct investment and thus ARI would own the facility. By considering this, ARI actually signaled that it was not sure to what extent the joint-venture would fulfill its in Vietnam. If ARI had full confidence in the joint-venture and trust in its partner it would have tried to have to make the parboil facility an integrated part of the joint-venture. Though Vinafood II would be able to benefit from the more modern rice processing methods, ARI's exploration showed it that the jointventure would be just one of ARI's strategic moves in the Vietnamese market. The size of the investment (8 million USD) was double of the ARI's fixed capital contribution to the joint-venture. If ARI was willing to go in that big in the Vietnamese market it might have made more sense to establish a venture of which ARI would be fully in control of. ARI's decision to move in so quickly into the Vietnamese market seems to me to be too opportunistic. The sense of urgency and the determination to move asap into the Vietnamese market did not contribute to healthy decision making. ARI lacked a long-term plan for its business in Vietnam and did not give itself the chance to build up more local expertise and expand the company's knowledge and understanding of the Vietnamese market beyond one person. The extent of

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American Rice, Inc in Vietnam Case Study administrative and legal uncertainties regarding the JV warranted ARI to explore in more detail the opportunity to establish solely a fully-owned ARI business in Vietnam. Though ARI would not have been able to do so in six months time but at least it would haven given the company a longer lead time to enhance the chances that that ARI's venture to Vietnam would be sustainable, profitable and equally mutually beneficial to all Vietnamese stakeholders.

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