Mncs group 6 final samsung motivations to conduct fdi in vietnam

1 NATIONAL ECONOMICS UNIVERSITY ---***--- GOVERNMENT POLICY FOR MULTINATIONAL CORPORATIONS MIDTERM EXERCISE TOPIC: SAMSUNG MOTIVATIONS TO CONDUCT FDI IN VIETNAM & DEPENDENCE ON FDI

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NATIONAL ECONOMICS UNIVERSITY

-*** -

GOVERNMENT POLICY FOR MULTINATIONAL CORPORATIONS

MIDTERM EXERCISE

TOPIC: SAMSUNG MOTIVATIONS TO CONDUCT FDI IN VIETNAM & DEPENDENCE ON FDI OF

VIETNAM'S ECONOMY CLASS: INTERNATIONAL ECONOMICS EEP 62B

GROUP 6: Nguyễn Tuấn Sơn

Ph ạm Đức Minh

T ạ Xuân Sơn

Nguy ễn C nh Quân ả

Nguy ễn Hoàng Tu n ấ

Lê Quang Huy

LECTURER: Ngô Th Tuy t Mai ị ế

HA NOI, 2023

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Table of Contents

I OVERVIEW 4

1 FDI 4

2 SAMSUNG 4

3 SAMSUNG IN VIETNAM 5

II MOTIVATIONS FOR SAMSUNG TO CONDUCT FDI IN VIETNAM 6 1 VIETNAM SIDE (WHY VIETNAM NEED FDI) 6

2 SAMSUNG SIDE 7

2.1 RESOURCE-SEEKING 7

2.2 MARKET-SEEKING 8

2.3 EFFICIENCY-SEEKING 9

III THE DEPENDENCE OF THE VIETNAM ’S ECONOMY ON FDI 10

1 CONTRIBUTION OF FDI TO VIETNAM 10

2 GOVERNMENT SOLUTIONS 13

IV CONCLUSION 14

V REFERENCES 15

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INTRODUCTION

Samsung is one of the largest multinational corporations in the world, and Vietnam is a key investment destination in their strategy However, with the large number of foreign investors coming to Vietnam, the question arises as:

Why Samsung has chosen Vietnam as one of their most important investment points?

noteworthy issue, as FDI can play a crucial role in promoting economic growth and industrial development in Vietnam In this context, researching the motivations and impacts of Samsung on the Vietnamese economy is of great significance

Therefore, the research of Group 6 with the topic "Samsung motivations to

will address the issues and propose government solutions to tackle these dependencies

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I OVERVIEW

1 FDI

Foreign direct investment (FDI) is a type of investment that involves the

establishment of a subsidiary or taking control of another firm by a foreign company FDI entails real investments in factories, capital goods, land, and inventories where both capital and management are involved, and the investor retains control over the use of invested capital

There are four main types of FDI, which are classified based on their objectives:

+ Resource-seeking FDI: Investments made to acquire production chains and other resources such as cheap labor or natural resources that are not available in the investing country

+ Market-seeking FDI: Investments made to enter new markets or maintain existing ones

+ Efficiency-seeking FDI: Investments made to enhance efficiency by leveraging the advantages of economies of scale or scope, or both

+ Strategic-Asset-Seeking FDI: Investments made to prevent the loss of resources

to rival competitors

2 SAMSUNG

<LOGO>

Samsung Group is one of the largest multinational corporations in the world,

headquartered in Seoul, South Korea The company was founded in 1938 and has

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undergone rapid development, from a company manufacturing lamps to a diversified conglomerate with activities in various fields such as technology, electronics, home appliances, energy, finance, and real estate

Currently, the position of chairman of the corporation is Lee Jae-yong (J.Y Lee)

In terms of finance, according to PWC, Samsung Group currently has a total market capitalization of approximately 342 billion USD (as of 2022) The corporation is one

of the largest companies in the world with annual revenue of hundreds of billions of USD

3 SAMSUNG IN VIETNAM

In 2022, Vietnam has successfully attracted over US $21 billion in foreign direct investment (FDI), with Samsung taking the lead as the largest investor thanks to its massive additional investments

With six factories and one research and development (R&D) center in Vietnam, Samsung has established a significant presence in the country's technology and electronics industry The Samsung Electronics Vietnam Complex, which includes SEV (Bac Ninh) and SEVT (Thai Nguyen), are two of the manufacturing factories that produce Samsung's largest mobile phone globally In addition, SEHC (Ho Chi Minh City) is home to an electronics factory, while SVMC (Hanoi Capital) is Samsung's largest R&D center in Southeast Asia

Samsung's sustained investment in Vietnam has contributed to the country's economic growth and created employment opportunities for the local workforce Mr Park Hark Kyu, the General Director of Samsung Vietnam, believes that Samsung's subsidiaries and other global businesses will continue to invest in expansion and development in Vietnam This is a testament to the favorable business environment and potential opportunities that Vietnam offers to foreign investors

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II MOTIVATIONS FOR SAMSUNG TO

CONDUCT FDI IN VIETNAM

1 VIETNAM SIDE (WHY VIETNAM NEED FDI)

Vietnam is an attractive destination for foreign investors due to three main reasons: First, the country has a surplus of labor and a young population, providing a large

workforce for potential investors

Second, Vietnam has recently entered the world market, creating many opportunities for accessing significant investment capital from multinational corporations

Third, despite Vietnam's potential, the country still lacks advanced technology and labor techniques As a result, foreign direct investment is critical in enabling

Vietnamese businesses to learn from multinational companies and foreign countries The presence of companies like Samsung in Vietnam has been instrumental in sharing knowledge and expertise in technology and management practices

Furthermore, attracting foreign investment can contribute to the development of

Vietnam's infrastructure, creating a more favorable business environment for both

domestic and international businesses Foreign investors can also bring advanced

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technology, equipment, and management techniques, improving the quality and competitiveness of Vietnam's economy

2 SAMSUNG SIDE

According to objectives, we divide reason why Samsung invest in Vietnam into 3 motivations:

2.1 RESOURCE-SEEKING

+ Low-cost labor:

Vietnam is being a developing nation with a large population and currently in a favorable economic phase, is renowned for offering low-cost labor In fact, the cost of labor is significantly lower in Vietnam than in China According to an estimate from

2016, the average salary of a Chinese worker was approximately six times greater than that of a worker in Vietnam

In addition, Vietnamese workers are known for their diligent work ethic and innovative thinking

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+ Infrastructure:

Enhancements in infrastructure are also crucial The World Bank reported in 2006 that approximately 9 to 10% of Vietnam's GDP was allocated to investments in areas such

as telecommunications, energy, water, sanitation, and transportation Over the past few decades, Vietnam has made significant progress in expanding and improving its road network, with a length that has more than doubled since 1990 and an overall

improvement in quality Furthermore, from 2021 to 2025, Vietnam's Ministry of Transport plans to invest more than $5 billion to upgrade the country's road

transportation infrastructure (with 22 major traffic projects) 1

2.2 MARKET-SEEKING

+ Vietnam is a country that joined global economic organizations and opened to foreign trade activities recently Therefore, from the perspective of multinational companies, Vietnam market will be newer and more potential than countries that have joined before such as China and India

+ If a company sees an opportunity to generate sales and provide quality customer service, it may choose to expand its operations overseas In the case of Samsung, Vietnam has proven to be a lucrative market, with the company achieving significant success there Due to its large population, there is a strong demand for mobile phones

in Vietnam As per the Asia Pacific Quarterly Mobile Phone Tracker by IDC, Vietnam

1 According To Department of Investment Construction

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had the highest growth rate of smartphones among ASEAN countries, with a rate of 57% in 2014

+ Moreover, Samsung's investment in Vietnam is also driven by the country's strategic location as a gateway to not only the Vietnamese market but also the ASEAN market and other markets within Vietnam's free trade agreements (FTA)

2.3 EFFICIENCY-SEEKING

+ Government Support:

Vietnam has eliminated any regulations that conflict with the TRIMS agreement as part of its admission to the World Trade Organization Additionally, foreign investors

in Vietnam can benefit from various appealing investment incentives For example, according to the Embassy of the Socialist Republic of Vietnam in the United States, international companies are subject to a corporate tax rate of 10% for 15 years from the first year of revenue generation

+ Political stability

+ No extra cost

Vietnamese-made products have a competitive edge as they can be sold without any additional expenses This is due to Vietnam being a member of 15 free trade

agreements that span across over 50 countries worldwide

+ Strong supply chain

Vietnam boasts two international airports, multiple sizable ports, dependable access to

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electricity, and straightforward internet connectivity Furthermore, because of Vietnam's relatively small land area, the majority of suppliers are situated near major airports or seaports, facilitating the transportation of finished products from the factory

to the consumer

In addition, in strategic-asset-seeking: Samsung is interested in investing FDI in

Vietnam because Vietnam is a new market participating in the global economy Therefore, investing as early as possible will enable Samsung to compete more effectively with other multinational corporations This strategic move will give Samsung a competitive edge in the market and provide opportunities for growth and expansion By investing in Vietnam, Samsung can leverage the country's favorable business environment, abundant resources, and skilled workforce to enhance its global position and further strengthen its brand image Overall, Samsung's decision to invest

in Vietnam reflects its commitment to expanding its global footprint and staying ahead

of the competition

Samsung invest in Vietnam is the win-win situation for both parties

III THE DEPENDENCE OF THE VIETNAM ’S

ECONOMY ON FDI

1 CONTRIBUTION OF FDI TO VIETNAM

In overall, Vietnam benefits from foreign trade and FDI, as it creates jobs and upskills the workforce, contributes to tax revenue, and increases workers' incomes FDI projects also facilitate the transfer of technology, management knowledge and labor

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techniques to Vietnam from MNCs, creating a spillover effect through which domestic enterprises are connected with global value chains through FDI enterprises

As of March 2020, Samsung is Vietnam's largest foreign investor with accumulated investment capital of more than 17 billion USD In 2019, Samsung's revenue in

Vietnam was about 68.3 billion USD, equal to about 26% of Vietnam's GDP In 2019, this group exported products worth US$51.3 billion, accounting for 19.4% of

Vietnam's export turnover

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Samsung is also one of the largest employers in Vietnam, with a total staff of more than 110,000 people However, they were overwhelmingly semi-skilled: 89 percent high school graduates, 7 percent with post-secondary vocational qualifications, and just 4 percent with university degrees

In addition, there are currently many Vietnamese businesses associated with Samsung

global suppliers But local firms serve as lower-tier suppliers because they are

constrained by their capabilities and production capacity and fall short of the product and process standards required by Samsung suppliers

Our reliance on exports and FDI makes the economy very vulnerable to external shocks

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Therefore, if Samsung decides to stop or reduce the scale of operations in Vietnam, the Vietnamese economy will be affected, which mainly affects:

However, the effect won't be too severe First, on the export side: the nature of the

large export surplus of FDI enterprises will not bring much added value to the economy This comes from the fact that FDI enterprises that export a lot, also import input materials from countries of origin, not in Vietnam, leading to low domestic value added The reason is that Vietnamese enterprises are not eligible to become direct suppliers of input materials for Samsung's production and have to supply to Samsung's official suppliers In other words, Vietnamese enterprises are second-tier suppliers Second, the numbers of contributions to the Vietnamese economy from Samsung as outlined above are not too large to make the Vietnamese economy dependent on Samsung

2 GOVERNMENT SOLUTIONS

1) Remove & Priority

Remove some of the incentives that FDI enterprises have enjoyed over the years Priority should be given to the FDI sector only on products and

production details that create added value and have high technology content 2) Negotiate

Negotiate with Samsung to strengthen linkages between Samsung and domestic enterprises, especially small and medium enterprises Vietnam government also requires domestic enterprises to change & restructure to meet the conditions of association with Samsung, in order to become the first-tier suppliers

3) Encourage

Encouraging the attraction of FDI projects that create great spillovers

Encouraging increase connectivity with the domestic sector, thereby helping

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Vietnamese enterprises grow up, be able to become partners of FDI enterprises,

participate in deeper in the global value chain and gradually increase its share

in exports

4) Support

Create conditions for the development of small and medium enterprises At the

same time, encourage private enterprises to expand their businesses, especially

into high-tech manufacturing sectors, to strengthen Vietnam's domestic

industry For example: Vin Group, FPT group, etc

5) Diversity & Promote

Diversify and further promote FDI investment categories to prevent risks when

there is a negative change from FDI companies

IV CONCLUSION

In conclusion, Samsung is one of the largest multinational corporations in the world,

and Vietnam is an important destination in their investment strategy Samsung's

investment in Vietnam has contributed positively to the Vietnamese economy by

promoting economic growth, reducing unemployment rates, and making Vietnam one

of the leading technology access countries in the world Despite not having a

significant dependence on FDI, it remains a concern for the Vietnamese economy

Focusing on FDI brings risks to the Vietnamese economy, affecting many aspects of it

To prevent negative impacts, the government has implemented several solutions such

as prioritizing and focusing on FDI capital, enhancing competitiveness for Vietnamese

enterprises, and particularly promoting research and development to produce

alternative materials to reduce reliance on imports and incorporate Vietnamese

enterprises directly into the supply chain Additionally, the Vietnamese government

needs to strengthen policy management and adjustments to create favorable conditions

for domestic businesses to develop and compete with FDI enterprises

Tiêu đề	Samsung Motivations To Conduct Fdi In Vietnam & Dependence On Fdi Of Vietnam's Economy
Tác giả	Nguyễn Tuấn Sơn, Phạm Đức Minh, Tạ Xuân Sơn, Nguyễn Cảnh Quân, Nguyễn Hoàng Tuấn, Lê Quang Huy
Người hướng dẫn	Ngô Thị Tuyết Mai
Trường học	National Economics University
Chuyên ngành	International Economics
Thể loại	Midterm Exercise
Năm xuất bản	2023
Thành phố	Ha Noi

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Số trang	19
Dung lượng	2,02 MB