RISK MANAGEMENT ADOPTED BY FOREIGN FIRMS WHEN UNDERTAKING CONSTRUCTION PROJECTS IN VIETNAM

Abstract

Vietnam’s economy keeps growing over the past decade, and this growth has resulted in a high volume of construction activities. The vast need of infrastructure, residential and commercial buildings, and hi-tech parks to meet the demand for continuing economic development brings enormous opportunities for foreign construction architectural, engineering and construction (AEC) firms that choose to operate in Vietnam. However, contracting overseas construction projects is usually considered a “high risk business”, mostly because of a lack of adequate overseas environmental information and overseas construction experience. This study focuses on: (1) investigating current situation of construction industry in Vietnam; (2) identifying various risk factors that foreign AEC firms face when undertaking construction projects in Vietnam; and (3) uncovering useful risk response techniques for foreign firms to alleviate risk. To achieve these objectives, in-depth face to face interviews were conducted with 11 foreign experts who were involved in construction projects in Vietnam. The data collection instrument was a questionnaire which had open ended questions. In addition, a case study was also carried out based on an actual project in Vietnam that had foreign participation. Findings show that political instability, bureaucratic administrative system, insufficient laws and regulations, high inflation rate, credit worthiness of local partners and cross culture issues are significant factors that will severely impact on the success of any venture into Vietnam. Joint venture with a local partner is recommended as a mode of entry for foreign investors, since they can transfer the risk and administrative work to their local iii partners. Foreign firms when operating in Vietnam are advised to be well-equipped with negotiation skill and be flexible in solving problems. Foreign AEC firms could use the findings to identify the most critical risks in Vietnam market and choose the most appropriate measure to adopt to overcome those risks that they face when operating in Vietnam’s construction industry.