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Chiaphua Group Vietnam Case Solution

Solution Id Length Case Author Case Publisher
1261 678 Words (2 Pages) Nicolas P. Retsinas, Michael Shih-ta Chen Harvard Business School : 207090
This solution includes: A Word File A Word File

Towards the end of 1980’s the instability caused by the Tiananmen Square incident and the chances of Hong Kong reuniting with China, forced CHG to spread their risk by expanding into newer, untapped, markets. Raymond Cheng and his cousin found Vietnam as the most suitable alternative to their investment in China due to its potential long-term economic growth.

Since CHG had been operating in the manufacturing industry since its inception, it looked for similar opportunities in the new market. However, they found out that the Steel Rolling and aluminium extrusion industry was very highly regulated and the energy costs were very high, which translates into a hostile environment for foreign investment. With limited options available, Raymond found an opportunity in the property market as it was very under-developed. He later discovered that abundant young labour was available which was willing to learn new skills and work. He also believed that economy would soon recover from the embargos applied by the US.

Following questions are answered in this case study solution

  1. Why did the Chiaphua group decide to enter Vietnam as a real estate venture instead of exploring more manufacturing operations? How did Raymond assess the real estate market in Vietnam?

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

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

  4. How can Chipahua sustain a competitive advantage in Vietnam in light of increased foreign investment?

Case Analysis for Chiaphua Group Vietnam

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 20th 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.

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.

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