Chiaphua Group Vietnam Case Solution

2. How effective and efficient Raymond Cheng's relationship with the Vietnamese government? What would you have done differently?

Since Vietnam hailed from a communist system, there was no commercial real estate market and consequently, no laws to govern it. In the early years of the last decade of the 20^th century, Raymond recommended an investment in Vietnam, which was soon materialized. He met several government officials to discuss the possibility of forming property laws and allowing foreign investment in the local real estate market. Soon Raymond was able to shape new land laws, which were passed in the Vietnamese National Assembly.

There is not the slightest doubt over the effectiveness of Raymond’s efforts with the Vietnamese government because he changed the entire system. However, had I been in place of Raymond, I would have had done everything in a similar manner except buying some exclusivity for CGV. It might be in a shape of patent or rights that would allow only CGV to invest in Vietnam for some initial years. The primary underlying problem is that Raymond made all the efforts to lay the framework and create a market that did not previously exist, and other foreign firms exploited the opportunity causing problems for CGV later.

3. What did Cheng learn from his initial ventures in Vietnam?

One of the key learnings for Raymond was that Vietnam was administratively very weak. He received his investment license one year after he applied for it and last minute changes in the architecture by the authorities revamped the entire investment structure for CGV. Secondly, he realized that the laws in Vietnam could change anytime. For instance, in 1996 a new law prohibited the foreign investors to build and sell residential real estate in Vietnam. This entailed a trickle-down effect, as CGV had to refund the revenues received from the presales. Thirdly, like any other project, the costs might not catch up with the estimated figures. In the end, the cost of Legavillas exceeded its initial estimates, which forced CGV to buy out the local partner since he could not gather sufficient additional funds required.