Abstract Number: 002-0060

Title of the Paper: Internationalization: Experience of an Italian candy producer and its

production plant in Viet Nam

Name of the Conference: Second World Conference on POM and 15th Annual POM

Conference, Cancun, Mexico, April 30 - May 3, 2004.

Authors:

Prof. Enrico Zaninotto

Institution: Faculty of Economics, University of Trento

Address: Via Inama, 5, 38100 Trento, Italy

E-mail: ezani@cs.unitn.it

Phone: +39 461 882270

Fax: + 39 461 882124

Le Hieu Hoc (MBA)

Institution: Faculty of Economics and Management, Hanoi University of Trento

Ph.D Candidate, University of Trento

Address: Via S. Cosma e Damiano, N87, B1-13, 38100, Trento, Italy

Email: lehieu.hoc@soc.unitn.it

Phone: +39 0461 420574

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INTERNATIONALIZATION: EXPERIENCE OF AN ITALIAN CANDY

PRODUCER AND ITS PRODUCTION PLANT IN VIET NAM

Abstract

The interpretation of the role of organizational variables in production management follows

two main lines. One stream stresses a deterministic relationship between structural factors

(markets and technologies) and organizational choices. Another stream of literature, describes

organizational choices as dictated by the necessity of buffering structural constraints with

factors having impacts on the working of technology in a specific environment. A global

environment puts new light to the debate: Does a global production environment imply a

global organization? Or does a global production need local organizations?

This paper aims at providing a further empirical evidence to understand how firms

internationalize their production process. Comparing the practices of an Italian candy

producer’s home factory and its manufacturing plant in Viet Nam, we examine which

circumstance firm internationalizes production process: (1) either transferring their

production process and organization to other countries; or (2) making adaptation as local

conditions play significant roles.

Keywords: globalization, international production, local adaptation, coordination.

1 Introduction

In globalization context, where firms expand their production activities abroad, the building

up of organization and manufacturing plants abroad is inevitable, and the local factors are

sometimes completely different, thus how firms do this job is an interesting topic. The

authors propose two contrast circumstances in which:

• C1: firms can transfer totally their production process and organization to other

countries as the local market has little impacts on firm’s goals, technology usage, and,

therefore, organization coordination.

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• C2: firms have to make adaptation as local conditions play significant roles in the

decisions of firm’s goals, technology, and organization coordination.

To testify which context international firms expanding production process to other countries,

one must answer following questions:

• Do firms develop the same goals and objectives in its global network?

• Do firms use the same technology and organize it in the same production process at

their home and international plants?

• How firms construct organizations and coordination system at their home and

international plants?

• To what extent do local factors influence the above decisions?

Although the papers of Bolisani and Scarso (1996), Cunnungham et al (1996), Cusumano and

Elenkov (1994), Gaither (1996), Grant and Gregory, (1997), Hill and Jones (1998),

Karagozoghi and Lindell (1998), Mair (1998), Meijboom, (1999), Mejboom and Vos Bart

(1997), Prasad and Babbar (2000), and Tatoglu, E. (2000) and Zhang and Goffin (1999) etc.

discussing the motivations of internationalization, the transfer and adaptation of production

process in international context, and the difficulties of internationalization, respectively in a

comprehensive way, the authors found some gaps in the literature: (1) lacks of a thorough

discussion on how manufacturing techniques and production technology are localized to host

plants; (2) the degree of production technology transfer has not been clearly described; (3)

production, supply, quality control, human resource management, and organizational culture

issues have been discussed separately, while they are really interrelated; and (4) focused only

on practices in developed countries, or in the biggest country (China), or practices at well-

known companies only, but there are lots of joint venture and wholly-owned companies

operating in other developing countries.

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The authors expected that instead of conducting a large survey, or focusing only on host

production plants, a comprehensive study comparing the practices at manufacturing factories

of a firm’s home and international plants might help building up the whole picture of

internationalization at a company and its manufacturing plants. Perfetti Van Melle Group

being based in Italy and producing chewing-gum and candies, and having production plants

in several countries, including Viet Nam is therefore selected for the study.

The empirical research includes plant visits and interviews with top manager and functional

managers (production manager, quality control manager, purchasing manager, and human

resource manager) of both manufacturing plants in Italy and in Viet Nam. Studying the

company’s manufacturing plant in Italy will help us to understand what is happening at the

country of origin, while conducting research at the plant in Vietnam is to uncover the

adapting and localizing activities and problems underlie.

The paper consists of five parts, of which the next section will be devoted to analyze the

internationalization practices of PVM at its manufacturing plant in Viet Nam. Section 3 will

discuss the Headquarter’s coordination in the internationalization process. Section 4, then

briefly summarized the difficulties of operating in Viet Nam that PVM faced. Finally, the

conclusion part will discuss the context of PVM’s internationalization process, and indicate

the needs for further research.

2 Case analysis

Perfetti S.p.A., based in Lainate, Italy, is a privately owned and integrated international group

operating in the confectionery sector. Perfetti has sales of over EUR 700 million in

approximately 50 countries worldwide. It operates with its own manufacturing units located

in Italy, Germany, Belgium, Brazil, Turkey, India, China, Indonesia, and Vietnam, and a

large number of sales and distribution offices. The Perfetti Group is currently undergoing a

process of expansion into the international arena which will see the name of this prestigious

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enterprise extended to the world’s most important markets. As an effort to globalization,

Perfetti Group merged with Van Melle Confectionery Group - her long-standing partner in

the Netherlands - then has been becoming Perfetti Van Melle (PVM) Group since 2001. The

Group mainly concentrates on the chewing-gum, candies and lozenge segments, and the main

brands include Brooklyn, Vigorsol, Vivident, Happydent, Day Gum Protex, Big Babol, Golia,

Alpenliebe, Cofitos, Frisk, Morositas and Mentos (Appendix 1).

Pefertti Van Melle Viet Nam (PVM Viet Nam) was established in August 1995 under a joint

venture contract with Saigon Foods Stuff Company (SAFOODSCO), in which Perfetti

contributed 70% of capital. The remaining 30% was invested by Vietnamese partner in the

form of land use right. Initially, the joint venture was named Perfetti Confectionery Viet Nam

Ltd. The reasons for selecting partner were government’s force at that time, and partner’s

capability in producing glucose - one of the major raw materials for Perfetti’s operations.

The only motive to operating in Viet Nam is to expand PVM’s market to a country where

young population is significantly increasing.

In May 2002, the company switched to a 100% foreign invested enterprise in order to

respond to the needs of development, but PVM Viet Nam is still maintaining a good

relationship with the ex-partner. Currently, the local plant offers the market its products under

the brands of Happydent, Alpenliebe, Golia, and BigBabol. PVM Viet Nam is directed by an

Italian expatriate General Manager.

2.1 Products and Process descriptions

2.1.1 Product variety

Bearing a variety of brands, the PVM’s products are different in terms of tastes, ingredients,

sugar contents, and packages.

Chewing-gum sector includes three types: bubble gum, drageè, and Brooklyn. The bubble

gum targets to young people. Its characteristics include softness, juiciness, the richness of its

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flavors, and the chance to play by blowing big bubbles. Bubble gums have strawberry, cola,

and juicy fruit flavors. Coated chewing-gums (Daygum, Happydent, Vivident, Air action, and

Chlorit), on the other hand, are in drageè form and covered by different flavors. Coated

chewing-gum can be sugar or sugarless (artificial sugar). The final product in this group -

Brooklyn chewing-gum - has classic form inherited from United States of America.

Candy sector consists of three groups: deposited candies, candies with soothing syrup centre,

and soft candies. Deposited candies are milk and cream, strawberry and cream, and chocolate

based candy drop with a smooth, rounded form. Candies with soothing syrup centre are hard

sugar or sugarless candies filled with balsamic syrup, which includes fruits, lemon ice,

liquorices, mint, caramel, citrus and currant. Finally, soft candies are chewy sweets with

either squared or rounded shapes. They are very tasty with real fruit juice, eucalyptol,

peppermint, lemon, raspberry, strawberry, and liquorices.

The difference within each product lines is only in flavors and sugar contents; they are,

therefore, produced by similar production processes.

2.1.2 Production process

Each of the above product groups are produced in separate process. The most complicated

ones are drageè coated chewing-gum and deposited candies (Alpenliebe).

In principle, drageè coated chewing-gums are produced sequentially through processing steps

from mixing, extruding, to coating, and packaging (See Appendix 2). At mixing step,

ingredients (gum base and sugar) are mixed together at a relatively high temperature to form

the basic mixture of chewing gum. Then, extruding step helps smoothing the mixture,

creating the basic form of chewing-gum, and cutting into small pieces of 2x1x0.5cm, which

are so-called drageès. Next, at coating step, drageès are coated by a thin layer identifying the

flavors and colors of final products. Coated drageès are cooled, and transferred to the final

step to be packed in appropriate packages.

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Alpenliebes, instead, are produced through melting, cooking, vacuum cooking, depositing,

and packaging steps (See Appendix 2). Ingredients (powder milk, butter, cream, flavors) are

melted at very high temperature in a period. Then the mixture is cooked maturely with

additional sugar (if necessary) and glucose in the cooking step. At vacuum cooker, all airs

inside the mixture are removed to make it homogeneous and condensed. Next, through an

arm on the vacuum cooker, the condensed liquid mixture is deposited (or dropped) into metal

moulds, which are fixed on a metal conveyor. The conveyor with these deposited candies

runs into a cooling tunnel, and then the candies are dropped into containers and conveyed to

packaging machine, where they are wrapped individually with nylon wrappers, and finally in

appropriate packages.

The production process of other products is similar to these two, but simpler. For bubble

gums, the process is quite the similar to those of coated chewing-gums, except coating step.

And at cutting machine, the bubble gums are cut with different section since they have

different shapes. For Brooklyn chewing-gum, the production process is also the same from

mixing to extruding steps. Then, instead of being cut into drageès and coating, the mixture is

rolled to spread-sheet, and then cut into smaller pieces with standardized size. The cut pieces

are transferred to packaging machine, where they are packed in a single box of ten sticks or a

package of four boxes. For candies with soothing syrup centre (Golia), the production process

is like Alpenliebes, except that the candy liquid is not vacuumed and deposited in starch –

removable moulds, and the syrup is pumped into the centre of each candy. Finally, the gum

candies are produced similarly to drageè chewing-gum, from mixing to extruding. After

extruding step, the semi-finished products are shaped by a pressing machine. Then, they are

coated in coating machine as drageès.

In shorts, all production processes of PVM Group characterize as line flow, placing between

batch and continuous flow in process spectrum with some standardized products (Schmenner,

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1998). Raw materials are inputted either in continuous flow (sugar and glucose at Melting

Tank of Candies production processes) or in batches (gum base, flavours, sugar, glucose and

additives at Grinding machine of chewing-gum production processes). The weights of each

batch are different according to the product types. During production process, there are

“stops” at certain workstations like Melting tank, Cookers, Blending, Mixing machines, and

Cooling room etc., but these are the process requirements. The production process can be

switched to produce different types of the basic products (chewing-gums with different

flavours, shape, size and packages; candies with different flavours and packages) depending

upon production orders.

2.2 Localization process: transfer vs. adaptation

2.2.1 Internationalization of products

Regarding the acquisition and merging history of the Group, PVM’s products can be

classified into three groups: Perfetti, Van Melle, and Frisk. Perfetti’s products are all

chewing-gums, deposited candies (Alpenliebes), candies with soothing syrup centre (Golia),

and soft candies with Fruitella and Bloops names. Van Melle’s products, meanwhile, include

all Mentos and Morosistas brands. Currently, they are produced only at Van Melle’s

production plants worldwide. And Frisk brands are produced by FRISK INT. NV in Belgium.

Mentos, Morosistas, and Frisk brands are distributed to worldwide market through PVM’s

international sales offices. Appendix 1shows the products and brands produced in respective

manufacturing plants.

Nearly all PVM’s brands (37) are produced in Italy, from traditional products like Brooklyn,

Mega Big Babol, Happydent, Daygum, Alpenliebes, Golia Active Plus to the newest ones

such as Vivident Xylit, and Vigorsol. Most of new products are usually invented in the

Headquarter, and later expanded to international plants. On the other hand, international

plants produce only some of these brands. PVM Viet Nam produces only 12 brands of bubble

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gum, coated chewing gum, deposited candies, and candies with syrup soothing centre, which

have been made in Italy for a long period of time. However, in responding to local market,

international plants have produced some typical products. PVM Viet Nam has soft bubble

gum Big Babol with Pineapple flavour and candy with soothing syrup centre Golia Energy

that have never been produced elsewhere in Group’s manufacturing plants. The only reason is

Vietnamese people like pineapple and energy drinks, and the raw materials (pineapple) is rich

locally. PVM Viet Nam has been the first and only producer offering energy candy to Viet

Nam market. This also helps PVM Viet Nam to conform to the Group’s vision of enhancing

the world leadership in confectionery.

Another highly diversified characteristic of PVM product is the product’s packages. In Italy,

soft bubble gums are in square forms and wrapped in square sticks; the coated chewing-gums

are packed in rectangular box, blisters, and ten-piece sticks. Those are boxed and blistered

can be flexible in size; while those are wrapped in stick must conform to standard measure.

Similarly, candies with syrup soothing centre are packed in boxes and sticks. In contrast, at

PVM Viet Nam plant, bow-tie wrappers are used for all products. In addition, chewing-gums

are also packed blisters; deposited candies and candies with syrup soothing centre are

wrapped in sticks; and soft bubble gums are wrapped in rectangular sticks.

Furthermore, the display packages are also localized. In Viet Nam, most of products are sold

in retailers, which are nearby the street and affected directly by climates (sunshine and high

humidity), the display packages are therefore usually in 50-piece nylon bags or in 80-piece

cups. While in Italy, the points of sales are supermarkets, and retailers with air conditional

system and low humidity climate, thus no display package is required.

In brief, PVM Group aimed at producing and introducing its standardized products (types and

brands) in worldwide market. The “localized” characteristics are only at the flavours and the

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packages, which are the results of market preference and local climate. This is also the reason

that not all brands are produced at every production plant.

2.2.2 Localization of production

As the products in each group are similar and only different in flavours and sugar contents,

and even one manufacturing line can produce all products in a certain group, the production

process is rather standardized and similar between manufacturing plants as described in 2.1.2.

However, there are differences in the usages of equipment and the level of automation,

modernization, and capacity. The equipment and machines were different, but perform the

same functions.

The Appendix 2&3 describing chewing-gum production process at PVM Italy and Viet Nam

shows a difference between the two plants - that is coating machine used at PVM Italy and

coating pan at PVM Viet Nam. Though these two machines have the same purpose, the level

of automation and the process are not the same. At coating machine, there are four sequential

steps: spray-coating, wetting, drying by air, and spraying again. These steps are automated

and programmed and able to give the final products a smooth coat. Meanwhile, at Coating

pan, all drageès are also coated three times, but the syrup (of baking soda, herbal, menthol or

honey-lemon) is poured manually while the pan is rotated continuously. As a result, the

drageès in Viet Nam have to be cooled twice, before and after coating step. In addition, since

the packaging method is different (blister and bow-tie wrapper) the packaging machine used

in Viet Nam is also various from those in Italy.

Similarly, at deposited candy’s production, both manufacturing plants used the same purpose

machines, but those in Italy are more advanced. At the upstream, ingredients were melted,

homogenized, and matured all together in Melting tank. While in Viet Nam, this process

involved Soren tank, Homogenizer, and Maturation tank. This resulted in a more complicated

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and less efficient production process. Nevertheless, both plants employed similar equipment

at downstream as shown in Appendix 2 & 3.

In addition, because PVM Italy’s demand was much larger (ten times) than those in Viet

Nam, production capacity between the two shows significant differences. This led to the

difference in the number of production lines and the number of employees. There were three

production lines for deposited chewing-gum at plants in Italy, while only one line existed in

Viet Nam. Even the other products had only one production line for each at both plants, the

capacity in Italy was still much higher. Consequently, the plants in Italy recruited 600

employees, while its branch in Viet Nam employed only about 100 operators, with about 100

temporary workers during peak season. But the labor intensity of the plant in Viet Nam is

higher than those in Italy, since it had lower level of automation and worker’s task variety.

Finally, regarding production layouts, although plants were different in capacity, both

installed equipment and machines in sequential and parallel direction. Moreover, because

machines were highly automated, the spaces were mostly devoted for locating machines.

Upstream and downstream were linked by conveyors and pipe systems. Nevertheless, there

were still corridors large enough for operating workers doing the task, for internal

transportation of raw materials and finished products, and for raw materials stores. Raw

materials warehouses usually located nearby initial stages of production process, like

Grinding/Heating machine and Melting tank, where they are inputted in production process.

2.2.3 Localization of production management

Production process is considered as the “hardware” of localization process. It seems that this

ware is easily and totally transferred. In contrast, coordination practices - the “software” -

requires more localization, especially the coordination of the Headquarter.

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a) Technology acquirement

PVM Group focuses on product innovation rather than process innovation, thus all

production equipment and machines used in PVM Italy were bought individually from

external suppliers in Italy, where the confectionery and machinery industries are highly

developed. The equipment can be similar to those in other companies, but the Group

installed, fixed, operated, and maintained in its own way.

Similarly, ninety percents of equipment in Viet Nam’s plant were also bought in Italy, but the

technicians at PVM Italy and General Manager of PVM Viet Nam decided the type and

capacity of equipment, and the installation approaches. The installation was carried out by

Vietnamese technicians under the instructions of local Production Manager, who frequently

kept contacts with experts in the Headquarter during installation period.

Nevertheless, not all equipment was newly bought for PVM Viet Nam. Typically, the

packaging machines were transferred from other manufacturing plants of Perfetti Van Melle

worldwide. They were sent to Viet Nam and updated for local usage, as these plants

increased their production capacity or changed the packaging methods.

Obviously, these machines were appropriate to demands in Viet Nam’s market at the initial

phase. Time to time, the growths require the company to upgrade its production technology.

The upgrades were usually carried out locally with the advices and approvals of the

Headquarter. An example is the packaging machine of bow-tie packages, which was

developed uniquely in Viet Nam in order to protect the candies from the highly temperature

and humidity climate - the condition in which candies are usually sold (retails along the street

with direct sunshine and rains), and to respond to market preference. The machine was

bought and redesigned locally by adding new feeding disc, gear-box, and driving chains, etc.

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In short, the production process at PVM Viet Nam is imported from the Headquarter, but all

physical equipment installation and technological development issues are carried out locally,

with the guidance and control of PVM Group’s expertise. A strong coordination between the

local plant and the Headquarter existed.

b) Quality control

In conformance to the vision of the Group, the quality of products aimed at achieving the

highest satisfaction of customers, employees, shareholders, and society. This objective can be

achieved by a corporate policy, which is to assure that all activities conform to ISO9001

documentation system.

In general, the quality control practices are transferred to local plant, including product’s

quality standards, which were linked to customer perception (flavor, sugar or sugar less, and

the long lasting of flavor), as well as the conformity of company production standards

(humidity, weight, dimension, color, and image of packages). In addition, the Headquarter

required its local plant to apply ISO 9000 QMS system, which ensuring the quality of

product, production process, and Hazard Critical Control Point (HACCP) system, which is

focused on the assurance of hygiene and safety. These systems specifically include

procedures, through which raw materials, equipment are tested prior to production process

(Hygiene Operational Instructions – HOI, Equipment Operational Instructions – EOI);

production processes are monitored and controlled at critical control points (Mixing machine,

Melting machine, Cooker, Vacuum cooker, Cooling tunnel, Metal detector, and Selecting

machine, etc.) along production process; and final products’ humidity and shelf-life are

testified after production process. Moreover, types of defects and corrective actions are

clearly described and updated according to daily operations in the document system as well.

The Headquarter imposed its influence on quality control practices of manufacturing plant in

Viet Nam by assigning Italian Quality manager, who had accumulated working experiences

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in Italy, to local factory. Local Quality Control manager had close contact with the

Headquater’s Technical Department, of which the Director was responsible for overseas

plants’ quality and technical issues. However, the practices at PVM in Viet Nam were

adapted somehow:

• In Vietnam, the humidity of final products was controlled to be in the range from 2% to

4%, due to high humidity climate. This factor was also taken into consideration in

monitoring raw materials in inventory.

• The quality control of raw materials, semi-finished products and final products was

adapted to local plant’s conditions, which are characterized by a less technical skill,

less advanced laboratory and equipment (Climate Chamber and Rheometer in Viet

Nam vs. Karl Fischer and Vacuum Oven in Italy).

• No micro-biological tests were applied to raw materials, semi-finished products, and

finished products to monitor hygiene and environment like they are done in Italy.

• Not be able to recognize the benefit of bargaining power in dealing with suppliers,

especially in quality control because of buying fewer raw materials in terms of quantity

and variety. In contrast, PVM Italy production required about 250 types of raw

materials and 6000 packaging items. Thus raw materials are classified in three groups

based on their proportion of total purchasing expenses, and monitored by sample check

at every delivery and the usage of such raw materials in production process is permitted

only by receiving the quality confirmation of the laboratory, upon receipts of supplier’s

ISO9000 certification, and supplier’s certification of conformity respectively.

• Though PVM Viet Nam has been implementing HACCP system, the system is not

certified as a result of not only lacking of understanding the system, but also of low

recognition/pressures of the public.

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• PVM Viet Nam had to monitor the quality of its finished products at points of sales

(retailers), based on the way to display the goods, storage conditions, and the period of

goods display at the POS, etc. This is not required in Italy because products are

distributed mainly in supermarket with air conditioners, and less affected by the

climate.

c) Purchasing management

All PVM manufacturing plants shared common objectives of purchasing management: to

assure the satisfaction of production needs and the continuity of production, and to make

purchase at economic prices. But the Headquarter only provided purchasing supports to its

manufacturing plants in Italy and Europe due to proximity. Purchasing in PVM Viet Nam is

relatively independent. They had to select their own suppliers, with the suggestion of

Purchasing Manager at the Headquarter on critical raw materials.

Nonetheless, the Headquarter’s purchasing practices were still transferred to its local plants in

the way to assess suppliers (based on quality, price, service, and capacity), the flow of

purchasing process, and the application of Bill of Materials and Material Requirement

Planning software (though developed locally). This was also an outcome of the ISO9000

implementation.

Obviously, due to different production capacity, the scale of purchasing activities in Viet

Nam is much narrower and simpler than those in Italy and did not allow PVM Viet Nam to

benefit from bargaining power in dealing with suppliers like PVM Italy did, such as receiving

suppliers’ involvement in the Company’s production planning, quality control, utilizing

supplier’s warehouse, and requiring suppliers to certify for ISO9000 system, or considering it

a criterion of selection.

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d) Workforce allocation

Once again, difference in production scale leads to difference in practices between plants,

especially in workforces. The production plants in Italy demanded 600 permanent workers,

while in Viet Nam the plant recruited only about 90 long-term contracted workers. In

addition, production at PVM Viet Nam is affected by seasonality. The Company, therefore,

had to hire temporary workers for carton packaging (about 100 workers) during peak season

(December and January).

In general, the organization of workforces was similar between plants. Workers were

allocated to manufacturing process in three 8-hour shifts. Each shift had a shift supervisor

monitoring all production lines. In turn, each production line has one line leader. Job rotation

was also applied to increase the task variety of operators and to maintain optimal number of

workforces.

In detail, the technical skills and ability of employees affected the transferring process. In

Italy, workers had a larger variety of task. Each operator could run two or three machines at a

time. As consequence, there were two operators during each production shift working at

preparation step, running all grinding, mixing machines, pre-extruder, and extruders at three

production lines. Meanwhile in Viet Nam, the tasks were highly specialized into individual

workstation like Mixer, Extruder, and Soren tank, etc. Each machine was operated by only

one worker. In a production line, there were four to five operators. At both plants, packaging

workers are able to run all kinds of packaging machines.

In addition, manufacturing plants in Italy has various types of packaging methods, so the

packaging workers were assigned to appropriate packaging machines according to production

demands. This is simpler in Viet Nam as there were only two major wrapping methods

(blisters and bow-tie wrappers).

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Finally, as Vietnamese workers had lower technical skills, the rotation cycle was longer (one

or two years) in Viet Nam, and only one member was rotated at a time to avoid the disorder

and confusions within production line. Before moving to another workstation, an operator

has to apprentice at the new position in six months.

2.2.4 Localization of Human resource management (HRM) practices

Human resource management functions at both plants are responsible for all HR practices as

described by Werther and Davis (1996). Generally, PVM Italy’s influence and supports to

PVM Viet Nam in human resource management represented in providing recruitment and

selection procedures, training middle managers and technicians to assure the transfer of

know-how, designs of job descriptions, evaluation of performance, issuing salary standards

and encouraging internal promotion. But at the lower level, the local plant is independent in

recruiting, training, developing, retaining, and promoting its own workforces; and they had to

adjust some practices due to differences in local regulations, policy and the plant’s own

operations. The adjustments of PVM Viet Nam’s HRM department include:

• Recruitment criteria for managerial positions at local plant preferred the experience of

and attitudes toward working in Viet Nam to those in international context.

• The region for recruitment in Viet Nam was limited to Thu Duc - Ho Chi Minh City’s

outskirts - where the factory is located because the public vehicle service is poor in

Viet Nam, so that people cannot work far away from their residences. In Italy, the

recruitment opportunity is opened to nation-wide market.

• As regulated by Vietnamese Labour Codes addressing to foreign direct invested

companies, PVM Viet Nam had employed its both permanent and temporary workers

through local Labour Department in Thu Duc, instead of an open-recruitment pool

like Italy. Finally, as the list of candidates was provided by local Labour Department,

PVM Viet Nam had to organize a large scale test in mathematics, chemistry, and

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physics to qualify the general knowledge of worker candidates in addition to resume

screening and interviewing like in Italy.

• As Vietnamese workers are less disciplined, the seminars introducing mission and

vision of the Group, the implementation of ISO9000 procedures, and regulation of the

Company were repeated regularly to remind and enforce them.

• PVM Viet Nam’s HR department had to issue a special salary policy for temporary

workers.

• PVM Viet Nam had to pay social and health insurances partially for all employees as

regulated by local Labour Codes. On contrary, all Italian employees have to pay for

their own health insurances as foreseen by the law. Only managers received

company’s support in this service, but in a joint-paying mode.

e) Localization of corporate culture

PVM Group has tried to maintain its corporate culture at all plants by an overall philosophy,

even though the local plants can expand and achieve it by their own way.

The local plant shared common mission and vision of the Group, which were stated in ISO

quality manual and placed everywhere in the plants’ office, factory, meeting rooms and so

on. According to this, the Group respects customers, society, environment, and its people.

As a manufacturing company, the organizational structure of PVM was rather simple and flat,

with few hierarchical levels and very strong functional links. This encouraged quick action,

direct communication, and innovation. The flexibility, two-way communication, and

participative decision making, however, took place only at managerial and functional level.

Front line workers were required to carry out their job according to instructions guided in

ISO9000 procedures and obeyed managerial decisions. Internal communications are mainly

through internal mailing system, telephone, print-out documents and meetings. Teamwork

was encouraged at every section in the Group. There was Perfetti Van Melle newsletter

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(PEOPLE) issued every two months in the whole Group to communicate new product

development, the Group’s image, policy and future plans to employees.

Due to the Group aimed at offering innovative products to customers, there were many

frequent changes and updates in products, which required quick learning ability and

adaptability from workers. In addition, the Group also values its employees. Besides

assigning employee in the right position and offering the best working condition, and free-

lunch, so that employees achieve their best, training and development are offered to the

workforces. This fact was visible at both plants.

Finally, the relationship between managers, staff and workers were enhanced by a company

dinner and outing together.

In reality, the transfer of corporate culture to PVM Viet Nam firstly represented in the

allocation of an expatriate General Manager, as leadership is considered as the most

important factor influences organizational culture (Hatch, 1997). But the way PVM Viet Nam

built up and maintained its own culture was adjusted as below since Vietnamese workers are

less discipline, lacked of team spirit, and favoured formal meetings and official-written

decision:

• PVM Viet Nam developed and shared the philosophy of “TEAM PLAY WINS”

(ĐỒNG ĐỘI CHIẾN THẮNG - in Vietnamese), which means all employees work

with a team spirit, for the team, and aims at the same goals.

• All production orders and other related issues are communicated between shift

supervisors at the Production Diary.

• Strict supervision and frequent meetings (at three-month base) to disseminate all

aspects including production performances, operation problems, and behaviours of

worker.

19

• The company outing was combined in a three-day training campus and organized

yearly to introduce the vision, mission, and present the performance of the company,

new proposal, and new ideas, etc.

• Finally, in Viet Nam the organization culture is also characterized by the existence of

trade union, which was not considered as significance by PVM Italy. The

establishment of trade union is required by Labour Codes, and aims at the issues

related to employee’s lives. Trade union did not involve in the development and

implementation of company’s strategy, but it played an important role in helping the

company to disseminate policy, strategy, and performance to workers through yearly

meetings.

3 Headquarter coordination

Being a wholly subsidized enterprise, in daily operations PVM Viet Nam was under the

supervision and received the coordination of the Headquarter. The control of the Headquarter

firstly represented in the assignment of Italian General Manager at Viet Nam plant. His

responsibilities are:

• Set up the objectives and directions for the company in consistence to the Group’s

strategy.

• Report all plans to the Headquarter and the Business Unit at Regional Office in

Singapore.

• Coordinate the activities of all departments: financial and logistics, sales and

marketing, technology and quality control, industrial and operations, and human

resources.

• Guarantee all activities carried out following the strategies and plans developed

conforming to vision, mission, and value.

• Assure the achievement of volume, sales, and income from operations budgeted.

20

General Manager is responsible for overall performance of PVM Viet Nam. The short and

medium-term objectives are developed locally, while the long-term ones are communicated

to the Business Unit Manager, who located in Singapore and accountable for the performance

in Central & Easter Asia and Pacific region.

In addition, technological and manufacturing issues were also communicated to the Technical

Department in Italy, which is responsible for technological and quality control issues at all

operation plants. Quality control manager at the local plant can communicate directly to the

Technical Director for any solution and consultation.

At the initial phase, the Headquarter supported local plant in Viet Nam in marketing strategy,

technology and new product development, and providing suppliers list. The Headquarter also

decided technological issues, like how to produce, what kind of equipment needed, and the

sources of such equipment even though the installation was performed by local Production

Manager and his technicians. All products were originally developed and launched in Italy.

All packages were also developed in Italy by an Advertising Agency within PVM Group and

required to apply in Viet Nam. Not all characteristics of packaging were standardized, but

there were some rules that are not allowed to change.

At the later phases, the Headquarter has less influence on local performance like providing a

formula to calculate the yearly finished product demands, monitoring the financial figures

(turnover, profit, stock level, and prices), human resource issues (recruitment of middle

manager, salary policies) and suggesting material suppliers. But the implementation and

decision belongs to PVM Viet Nam.

To some extents, PVM Viet Nam still has flexibility in its operations. It has the right to

develop new product (Golia Energy), to change the packages (inner protection, bow-tie

packs, and cups), to develop its own supplier network and to enhance its own technological

capabilities in response to local market preference and climate condition. Bow-tie wrapper

21

machine mentioned above is an example. Nevertheless, any proposal of these changes was

compulsorily approved by the Headquarter.

The coordination of Headquarter also existed in training local personnel by offering training

programs, seminars, workshops, and internships to local managers and technicians. Finally,

together with all above aspects, PVM Group attempted to build up and maintain

organizational culture at the plant Viet Nam through other activities like company dinner and

outing.

4 Difficulties of operations in Viet Nam

Operating manufacturing plant in other country, the company faces many difficulties (Quang,

1998, 1997; and Swierzeck, 1997). PVM is not an exclusive! Started by making joint venture

with local partner in August 1995, and initiated the plant construction in March 1996, it took

the company one year to manufacture the first production batch because of inhibitors in legal

and economic conditions, and governmental policies. At that time, it was hardly even to find

appropriate raw materials for production process.

Afterwards, the local conditions has been improved and supported the operations of PVM in

Viet Nam, and the company switched the ownership to become a 100% FDI enterprise, but

difficulties still exist in the company’ operations in Table 1 below:

Difficulties of operations in Viet Nam Cultural aspect

• It is hard to combine and integrate Western and Vietnamese managerial styles and skills (opened for communication vs. respectful and afraid of people at higher level; action-oriented in decision making and implementation vs. official meetings; and verbal orders vs. written orders etc.)

• Language barrier hindered the communication and transmission of Western managerial concept.

• Lack of cooperation between people. Vietnamese people always see and criticize the weakness of other people instead of trying to help them to improve.

• Local workers have low level of experience, skills, knowledge, understandings and a poor consciousness toward safety, and hygiene, which result in low ability to learn technology and changing bad habits.

• Local middle managers also lack of education and background.

22

Operational aspect • Late delivery of raw materials due to the Company places sudden orders, being dependent

on imported raw materials from abroad; and as a trade-off of retaining low cost inventory.

• Low production capacity led to being unable to satisfy market needs. • Machines broke down sometimes because the Company reserved low budget for

maintenance, the equipment are rather old and transferred from other plants • Unattractive salary inhibited the recruitment and retaining of qualified staff

• Lack of staff in functional departments, which made them overloaded to carry out daily operations.

Table 1: Difficulties of operations in Viet Nam

5 Discussion and conclusion

5.1 PVM internationalization process

Table 2 below summarizes the practices, either “hardware” or “software”, that totally

transferred and those adapted from PVM Italy to its local plant in Viet Nam. The third

column of the table represents the influential factors of the adaptations.

“Transferred” from Italy Adjustment in Viet Nam Influential factorsProducts Product lines Produce a part of product lines and

“develop” new product Market demand

Product packages Use and develop those packages accepted by local market and appropriate to local climate (bow-tie wrapper, cup).

Market demand, Local climate

Production process Production processes: “Know-how” is totally transferred from Italy.

Process is adjusted as using different equipment: Coating pan; Soren tank, Homogenizer, and Maturation tank; Bow-tie packaging machine.

Technological skill; Production capacity.

Level of automation High labour intensity at coating phase, packaging in cup, and carton packaging.

Technological skill

Production capacity Much lower, affected by seasonality. Few production lines, less workers (90 operators + 100 temporary workers).

Market demand; Production capacity.

Production layout Locate in a small area. Local condition Production management Technology acquirement approach

Redesign equipment for local usage (bow-tie packaging machine).

Local market demand.

Quality standard, product quality parameters

Adjust humidity as affected by climate. Local climate.

Implementation of ISO9000 QMS

Develop its own based on the Headquarter’s document.

Local equipment, process, and skills.

Certification of HACCP system

Have not been certified yet, but following the system.

Technical skill and local demand.

23

Production Control system: prior to, during and after production process.

Use less advanced laboratory equipment to test raw materials. Monitor the quality of finished products at points of sales (retailers). Not be able to benefit from bargaining power in dealing with suppliers.

Technical skill Local climate. Production capacity

Purchasing objectives Relatively independent: select and develop its own supplier network.

Headquarter coordination

Purchasing procedures in conformance to ISO9000 system.

Smaller scale due to lower production capacity.

Production capacity.

Workforce allocation to production process: three 8-hour shifts, teamwork by production line, and job rotation.

Task variety is lower; tasks are specialized at individual workstation, more operators in a production line, job rotation cycle is longer. Operator allocation to packaging machine is less sophisticated (blister and bow-tie wrappers)

Technological skills. Different machine as a result of market demand.

Human resource management All HRM practices including internal promotion.

Limited region for recruitment. Recruitment was conducted through a local agency. Recruitment test for worker candidate.

Local condition (infrastructure, economic, legal) Knowledge.

Training on ISO9000, and regulation are more focused and repeated.

Low discipline.

Pay healthcare insurance Local law Organizational culture Corporate mission and vision. The flexibility, two-way communication, and participative decision making, at managerial and functional level

Develop and share the philosophy of “TEAM PLAY WINS” Top down communication. Use the Production Diary Strict supervision, frequent meetings The involvement of trade union.

Local employee’s attitude toward team spirit. Low technical skills and experience, and discipline. Local law.

Table 2: “Transfer” and “Adaptation” to Viet Nam

We have learnt from this case that that PVM transferred all technical parts to Viet Nam (even

though there were some changes in comparison to the home plant), but the organizational

aspects required adaptation with the aim to achieve and maintain the global structure. The

adaptation was carried out with the crucial and close coordination of the Headquarter, which

represented in the efforts of unifying mission, vision and goals, assignment of expatriate

manager to local plant, influence the long-term strategy development, close communication,

24

and provision of supports in technology, quality control, purchasing and training, and human

resource management issues.

The authors, therefore, would like to stress that PVM Group’s internationalization process

lies in the mix of adaptation and transfer, in which the adaptation is related mainly to minor

aspects due to the choice of using old technology, which is affected by firm’s goals and

technological capability.

There are different reasons to install a plant abroad: to cope with a local demand or to cut

labour costs, or raw material costs (Hill, 1998, and Hill and Jopnes, 1998). The problem with

local demand is how much the companies have to adapt to local needs. In the case of PVM,

the main reason for having a foreign plant lies on demand, but this is due mainly to the

prospect for a future growth. As the demand for candies is global, and the local needs are

rather small, presently adaptations on this side are minor, in terms of product variety and

volume. Thus, not up-to-date technology with low production capacity was selected.

In addition, as the firm faces a smaller demand and lower labour costs in Viet Nam,

technological choices are towards less automation and probably an inferior Capital/Labour

(K/L) rate. In few words, as underlined along this paper, PVM transferred to Viet Nam an

older plant. Nevertheless, both plants in Italy and in Viet Nam have the same nature because

the coordination is in large measure embedded in the production process. They have to make

some organizational adaptations, but this is mainly due to the fact that the older technology

requires a different use of manpower, and to the different labour skills prevailing in Viet

Nam. PVM Viet Nam has to adapt some machinery, to place more control on raw materials,

to adjust product quality parameters, and revise ISO9000 procedures due to applying

different quality control equipment and production machines, etc. But there is nothing

radically new.

25

In short, from both market and technology sides, the variability that the production system at

PVM Viet Nam has to manage is low, and organizational factor has little influence on

buffering variability and managing the coordination.

5.2 Needs for further research

At this final stage, the authors would like to recall the hypothesis of contingent theorists

represented by Woodward (1965) and Thompson (1967). Their point is that firm has a

technical core that embeds a coordination model. However, the degree of embedment of

coordination model in technology is various, depending on the scale of technology, which

then lies on technical and market choices. A continuous plant, like chemical one, has a large

technical core with fixed relations among parts. Moreover, a large and uniform demand of the

market makes production choices less sensitive to external environment, and permits to adopt

a tightly connected technology. On the other side, a small technical core plant, like job shop,

is normally more sensitive to external and internal conditions. In this case, coordination is not

embedded in technical choices, but it, instead, depends on organizational choices (plans,

schedules, and workforce management, etc.).

Moreover, organizational choices in some sense buffer the variability and protect the

technical core, i.e. the embedded coordination. Thus, we might expect that a tightly technical-

connected system has to buffer uniquely external variability. In contrast, a technically less

constrained system (whose technical core does not embed coordination) has to coordinate

units, managing variability that enters into the system: much of its performance depends on

organizational choices that affect the production system. These ideas were empirically stated

by Woodward (1965), by comparing plants with different technologies. These arguments can

be also found in the papers of other authors, such as Porter (1989, 1986), Ramanathan (1996),

and Hatch (1997). These interrelations between technology, firm’s goals, and organization

coordination appear in the figure 1 below:

26

Figure 1: Interrelation of Technology, Firm’s goals, Organization coordination, and Local factors.

In a global context, where firms locating manufacturing plants worldwide, local factors are

variables demanding the adaptation of both technology and coordination, then make the

interrelation more sophisticated and put new light to the debate: Does a global production

environment imply a global organization? Or does a global production need local

organization?

However, the only additional contribution of this case analysis is that the authors can

compare plants of similar nature in different countries, and that it permits to disentangle the

role a single variable plays in designing organizational choices for similar plants. It is not

sufficient to justify the Thompson’s and Woodward’s hypothesis in global context. Then,

other stories employing the same approach are obviously demanded.

ORGANIZATION STRUCTURE AND COORDINATION

(Production, Quality control, Supply, Human resource)

LOCAL FACTORS (Culture, Economics, Social, Legal, and Political issues)

TECHNOLOGY (Equipment.

machines and production process)

FIRM’S GOALS (Customer

satisfaction in cost and demand)

27

Appendix 1: PVM’s product brands, characteristics, and factory

Products Brand name and flavours Country of origin

Packages

Chewing gums Big Babol: Fruits, Strawberry, and Pineapple VN Bow tie-wrapper,

stick, pack, cup Mega Big Babol (Extreme Cola, Strawberry Cream, Real Red, with Fruit flavour)

ITA Stick

Soft bubble gum

Bloops Aroma (Strawberry, Fruit & Creams) ITA Bow tie-wrapper Coated chewing gum Happydent Defensive ITA Box Chlormint with Herbal VN Blister, bow-tie

wrapper, cup Air Action (mint, honey-lemon with Vitamin

C) VN Blister, bow-tie

wrapper, cup Daygum Microtech, Daygum Protex,

Daygum Protex Junior ITA Box

Sugar

Vigorsol real fruit ITA Box Happydent White with baking soda ITA, VN Box, blister,

bow-tie wrapper, cup

Chloralit Chewing gum ITA Box Xylit: Sugar-free VN Blister, bow- tie

wrapper, cup Vigorsol Original ITA Stick

Sugarless

Vivident (Mountain Ice, White, Xylit, Xylit Bambini); Air action Vigorsol

ITA Box, Stick

Brooklyn Brooklyn Ice Crash, Spearmint ITA Stick Candies

Alpenliebe Original, Strawberry and cream ITA, VN Stick, bow-tie wrapper, cup

Cofitos VN Stick, bow-tie wrapper, cup

Deposited candies

Chocolate Alpenliebe ITA Stick Golia Activ plus, Fruit C with citrus flavour ITA, VN Sitck, box, bow

tie wrapper, cup Golia Activ blue ITA Stick Golia Energy, Ativ plus lemon ice VN Stick, bow-tie

wrapper, cup Golia with liquorice, Bianca ITA Stick Golia Fruit C Green Apple, Green Tea, Citrus flavour, citrus and currant

ITA Box

Candies with soothing syrup centre

Vivident Xylit Caramel; Chloralit tablets ITA Box Fruitella with fruit flavours ITA Stick Mentos Fruits, with menthol, Strawberry fresh, Fruit flavours, liquorice flavour

NL Stick Soft candies

Morositas Pulp NL Cup

Frisk Frisk Eucaliptolo and Peppermint BELG box

28

MELTING TANK

COOKER 1 VACUUM COOKER

RIDENTINFO

COOKING TUNNEL

PACKAGING MACHINE

FINISHED PRODUCTS

INGREDIENTS • powder milk • butter, cream • flavors

Sugar and glucose

Appendix 2

Production process of coated (drageès) chewing-gum at PVM Italy

Production process of deposited candies (Alpenliebes) at PVM Italy

MACHINE MIXING MACHINE

SELECTING MACHINE

PACKAGING MACHINES

FINISHED PRODUCTS

COATING MACHINE

METAL DECTECTOR

PRE-EXTRUDER

CUTTING MACHINE

COOLING TUNNEL

Weighting scale

EXTRUDER PR

EPA

RA

TIO

N

CO

ATI

NG

PA

CK

AG

ING

29

Appendix 3

Production process of coated chewing-gum at PVM Viet Nam

Production process of deposited candies (Alpenliebes) at PVM Viet Nam

PRE-PRINTED WRAPPERS

GUM BASE HEATING CABINET

MIXER METAL DETECTOR

EXTRUDER COOLING ROOM

COATED CHEWING GUMS

SUGAR, GLUCOSE, FLAVORS ACIDS AND ADDITIVES

COATING PAN

Weighing

PACKAGING MACHINE

CALIBRATING MACHINE

INGREDIENTS: • Powder milk • Flavors (caramel, coconut

oil, etc.) • Water

SORENTANK (MIXER)

HOMOGENIZER MATURATION TANK

SOLVOMAT COOKER

DEPOSITED CANDIES

SUGAR & GLUCOSE

VACUUM COOKER

Weighing

PACKAGING MACHINE

COOLING TUNNEL

DEP

OSI

TIN

G

PHASE

30

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