November 15, 1994
American Rice, Inc. in Vietnam
From his eighteenth floor office located in the fashionable Westwood area of Los Angeles, Gerald Murphy, Gerry to his friends, gazed over the veterans cemetery towards Beverly Hills, deep in thought. President Clinton had removed the U.S. trade embargo on Vietnam on February 4, 1994. Within 24 hours, Gerry had flown with his son Douglas to Ho Chi Minh City and discussed the details of a planned joint venture between American Rice, Inc. and Vinafood II, Vietnam’s largest rice exporter. Now, four months later, Gerry Murphy reflected on the joint venture and wondered whether it would fulfill its early promise. The agreement that American Rice and Vinafood had signed seemed subject to a process involving constant revisions to accommodate changes and clarifications in Vietnamese law. As president and chairman of ERLY Industries, American Rice’s parent company, Gerry wondered just what the final deal would look like. He was keen to identify and contain any risks associated with the project. How would the benefits derived from the venture be apportioned? How would the rice business in Vietnam develop over the longer term, and what would its effects be on ERLY Industries’ other rice operations? The option remained to commit further resources to the project, but was this advisable? Douglas, the president and CEO of American Rice, had just informed his father that the Vietnamese license for the venture was still outstanding. This was frustrating but, Gerry Murphy thought, in a long-term project such seemingly minor hold-ups and snags would surely have to be accepted. Years of experience in the rice business had made Murphy no stranger to the world of international politics and government bureaucracy that pervaded the industry.
The Rice Industry
In 1994, rice was the primary staple food for more than half of the world’s population. The importance of rice in diets had prompted many governments to take an active role in domestic rice markets. Self-sufficiency and price stability were often major government goals.
Research Associate Quintus Travis prepared this case under the supervision of Professor Ray A. Goldberg as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1994 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
American Rice, Inc. in Vietnam
National programs were also commonly designed to ensure that farmers received a target price for their crop. Although global rice consumption was growing at around 3% per annum, consumption patterns around the world were highly uneven. Asia was the largest rice consuming continent and accounted for 90% of global consumption (Exhibit 1). Annual per capita rice consumption in Asia was approximately 100 kg compared to only 5 kg in Western Europe and North America. Rice formed such an important part of diets in some Asian societies, that the crop held both cultural and religious significance. In 1993, global rice production was estimated at 516 million tons (Exhibit 2), which represented over 27% of the world’s cereal grain crop.1 Global average rice yield had reached over 3.5 tons per hectare, after increasing at an average annual growth rate of almost 3% over the previous 20 years.2 However, like consumption, yields differed significantly between countries (Exhibit 3). Much of the variation in yields was attributable to the prevalence of pests, diseases, and weeds. Over half the potential...