Posted: April 17th, 2015

joint venture

Introduction

SYNTHENIA was considering the opportunity to get involved in a joint venture with the group VIETCHEM of Vietnam for setting up of a polymer plant in Vietnam because his chemical division is facing serious difficulties in Europe due to competition from Japan and the third world. These polymers are the basic components for glues dedicated to bond, textile, wood, plaster, non woven products (such as baby diapers…) paper, cardboard, buiding industry products.

 

The Companies

 

1) Synthenia

SYNTHENIA is one of the largest chemical groups in France, operating in various product lines. (Basic chemicals, fine chemical, pharmaceuticals, textiles, agro-chemical and fibers).

 

• They are since about 10 years working in the Asian area thru either agents or distributors but without any direct investment.

 

• The polymer division had developed recently a new process of polymerization named the “Continuous process”. This new process is better than the “Discontinuous process”; it offers the advantage of being less labour intensive and more productive.

 

• The new plant will offered a capacity of 20 000 tons/years for a total cost of 12 Millions EUR

 

2) VIETCHEM group

This group belongs to Mr Bichlien who is one of the few magnates in

VIETNAM. His core business is the distribution of chemicals in VIETNAM but also in Singapore and Indonesia He controls approximately 40% of the Vietnamese market and owns and controls more than 15 companies, some of them with foreign partners.

This company is managed through various members of the family of Mr.Bichlien. VIETCHEM group cannot speak English but has also an interesting relationships network with the Chinese Diaspora and some PRC officials.

 

 

The environment

1) VIETNAM

The total Vietnamese population is estimated around 90 millions, 3 millions of whom are living in Hanoi and 9 millions in Hochiminville. Among them, around 12 millions of the population are working in industry or industrially-related jobs.

 

Buddhism is the major religion, but the influence of Confucianism, more materialistic, modern and pragmatic, is increasing in industrial and urban contexts.

 

 

 

 

 

2) The Vietnamese Market

Even though the Vietnamese market is growing very fast,( 5,42% in 2013) it is extremely price sensitive. That means that the joint venture will have to face this issue..

There is only one producer of polymers in Vietnam, called Polyviet Company

Limited, in which the Vietchem holds a small interest of 5%. Polyviet Company is a

Japanese investment about 80% of the Polyviet Company Limited output is sold in

Vietnam.Polyviet Company is producing polymers and their customers are mainly the formulators of building and textile glues. In this respect they are looking for a reliable polymer supplier with a good R+D department.

 

Moreover, labour is very cheap and abundant in Vietnam.

The POLYVIET Japanese firm is using the discontinuous process with a capacity of 15 000 tons/years which covered only 70% of the market needs. Besides the price of polymer in Vietnam is higher by 20 to 30% than worldwide price

 

 

3) The Chemical industry priority status

Nationalization and creation of state operations in the same sector are to be excluded. Besides customs duties on imported raw materials and equipment have to be reduced or eliminated. Also foreign investors should have the right to repatriate profits.

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Discounts on water, electricity and transportation costs should be done.

The Vietnamese government looked favorably at the non-Japanese investment and was ready to give to pioneer status to foreign venture. The pioneer status world would imply a tax-free position for at least five years.

 

The project

After negotiation between SYNTHENIA and VIETCHEM, one solution was considered: a 49/49 joint venture, the rest of ownership being in the hands of Vietnamese minority partners. The joint venture company referred to as “The Vietnam Polymer Company”.

 

This company would be constituted for manufacturing and marketing of polymers, with a capacity of 20 000 tons/year. This company will use a new process of polymerisation from SYNTHENIA.

 

The raw materials for this plant would not raise any problem.

The total investment would cost approximately 12 millions EUR. The financing would be:

– Equity: 4 million EUR,

– COFACE guaranteed export credit: 6million EUR,

– Banks: 2 million EUR (7% interest)

 

 

 

 

 

 

 

Questions to be answered:

1) Based on the text but also updated information you can find by yourselves please give the favorable and the risks factors for Synthenia to invest in

Vietnam

( I need statistic and facts for this question, such as labour force, tax rate, and growth rate)

 

2) Analyze the favorable factors and the risks for Synthenia to invest in a joint venture with Vietchem

 

3) Analyze the favorable factors and the risks for Vietchem to invest in a joint venture with Synthenia

 

4) Based on your reflections give 3 main recommendations to Synthenia and Vietchem for a successful JV.

 

I need 10 pages that include facts and numbers. Thank you