Class: BEN10 1

Student: Nguyen Manh Ha
Class: BEN 10
International Business
LILAMA: Lessons of experience from international business cooperation expanding
in the Middle East market.
Lilama Corporation was established in 1960 as a state-owned company with the
major career is mechanical fabrication and installation. Through 50 years of non-stop
development, Lilama has grew up with the permanent employees of around 20.000. At
present, Lilama is the leading EPC contractor in Vietnam with many national major
projects such as Uong Bi Extension Thermal Power Plant, Dung Quat Oil Refinery, Son
La Hydro Power Plant….
One of the strategic orientation and development goals is standardize and
consolidate in order to lead Lilama to become a large industrial corporation in Vietnam
and Asia, professional EPC contractor and manufacturer of mechanical equipment, has
brand-name in the world and participate in the global product chain.
The Middle East’s market is very huge, especially this market includes many big
corporations such as Technip, Samsung, Hyundai, Bechtel, SK… Although financial
crisis happened in 2008 but the owner of oil refinery plants in the Middle East still
invested billions of dollars in upgrade, innovation, new plants construction.
To realize that Lilama is the partner who has reality qualification, professional
project management according to international standard, thus, in 2009, on the occasion of
official visit of the Prime Minister in the Middle East countries, Lilama signed the
cooperation agreement with Technip (French Contractor) in the Middle East market when
Technip has contract.
In October, 2009, Technip won 02 EPC contract belong to Jubail Oil Refinery
Project in Saudi Arabia due to Saudi Aramco is the owner. In order to turn the
cooperation agreement into the truth, Technip invited Lilama for participate in fabrication
and equipment installation of the main package. To do this, Lilama deployed many works
prepare for project execution. Therefore, Lilama sent delegations to fieldwork as
accommodation, essential commodities, port which receives equipment from Vietnam,
negotiate with the services supplier about electricity, water… for determine direct cost,
indirect cost, commercial condition. Besides, according to the law of Saudi Arabia,
overseas contractors want to execute project in their country must have legal status, this
one may be joint venture company, representative office, branch,…
In order to satisfy requirements of the host country, Lilama completed many
procedure to receive license for branch establishment, issued by Saudi Arabian General
Investment Authority. On the other hand, governmental institutions also issued many


Class: BEN10 2

other licenses as Law of Vietnam. In spite of received the acceptance license of the
owner and contract award notification of general contractor but Lilama still has not
enough condition to assert brand-name in the Middle East as a fully potential market.
One of the main reason is not qualification, experience, that is financial ability of
Lilama in the part of commercial condition. Normally, when a international EPC general
contractor wins the contract, they must have the performance guarantee according to
international procedure, thus, Technip is not an exception. Similar to Lilama too, besides
terms and conditions of the contract about technical, schedule and quality which Lilama
agreed with Technip, Technip required that Lilama must has the performance guarantee
from international banks as HSBC, ANZ, CITI Bank, BNP Paribas…, meanwhile, in
Vietnam, when Lilama awarded a EPC contract from the big owner as PVN, EVN or
TKV, domestic banks issued performance guarantee letter through “credit” form. In this
case, if Lilama had required international banks to issue the performance guarantee,
Lilama would have deposited the amount of money equivalent to the cost of guarantee
letter. It is very difficult for Vietnam companies in general and Lilama in particular to
execute. For this requirement, Lilama could also execute but at that time, economic effect
was not growth, contained many risks due to financial spending too high, expectable
benefit did not enough for warranty letter issue expenses. As a result, Lilama skipped the
huge opportunity in the Middle East market.
Furthermore, one of the reasons until present is the lack of experience for project
execution in severe weather zone, work discipline is put on the top, “Zero Accident”
Index is significantly norm when appreciate the success of project. This one is very
difficult to undertake the direct works in foreign countries in the first time.
Because Lilama has not really deployed project in the Middle East market yet, so
the loss of finance is not much, the main spending expenses is survey cost, project
appreciation. However, Lilama also has learnt lessons of experience from this case, it is:
Firstly, financial qualification must really good, must be satisfied according to
international standard for the contractor.
Secondly, through the survey, agency expenses in the Middle East market is very
popular and very high, not depend on the success of transaction (for Lilama, the expenses
is not lose due to Technip directly proposes a cooperation).
Thirdly, Islam is the sole official religion of the Kingdom of Saudi Arabia. So local
people as well as foreigner must obey severe regulations.
Finally, in the plants or big sites in Saudi Arabia, there are many different
nationality labour. To manage effectively, Vietnam companies would be best to combine
together for each zone, each factory, each site in order to mutually support in
management, cost saving.

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