INTRODUCTION
Research Background
Foreign direct investment (FDI) plays a vital role in fostering an open international economic system and is a significant growth driver, especially in developing countries Attracting FDI is a top priority for many governments, supported by various studies Mamingi and Martin (2018) highlight the beneficial effects of FDI on the developing nations within the Organization of Eastern Caribbean States Additionally, Sarumi Adewumi (2006) notes that FDI's contribution to growth is generally positive across most African developing countries Furthermore, research by Tran Dinh Ly and Le Hoang Anh demonstrates the positive impacts of FDI in the ASEAN + 3 region.
(2017) According to the statistics of OECD (2022), the global FDI inflow upsurge 88% in 2021, reaching USD 1 815 billion, surpassing their pre-pandemic levels by 37%
Numerous studies have explored the impact of the stock market on foreign direct investment (FDI) inflows into a country It has been noted that fluctuations in the stock market serve as a crucial factor influencing both FDI and portfolio transactions (De Santis and Ehling).
Research by Otchere et al (2015) indicates that a well-functioning stock market can effectively channel foreign direct investment (FDI) into productive sectors, enhancing value for investors and increasing a country's attractiveness for FDI While FDI enterprises in developed nations actively engage in stock market activities, their impact in developing countries, such as Vietnam, remains limited According to the State Securities Commission, FDI enterprises do not significantly influence the stock market in Vietnam.
2 enterprises listing or registering for trading on the Vietnamese stock market currently accounts for a very small contribution
Vietnam's stock market currently shows a significant gap compared to other markets for foreign direct investment (FDI) enterprises, as the conditions for attracting FDI to the Vietnamese stock market are proving ineffective, reflected in the low number of listed companies If this trend continues, FDI enterprises may consider relocating to markets that offer better listing opportunities, posing a risk of foreign investment capital potentially "flowing" out of Vietnam.
This study analyzes data from a Japanese FDI company to highlight the benefits and challenges faced by foreign direct investment enterprises during the listing process on Vietnamese stock exchanges It also provides solutions for these enterprises to effectively navigate these challenges and successfully achieve their goal of becoming publicly listed organizations.
Significance of the Study
This research highlights the advantages and challenges faced by foreign direct investment (FDI) enterprises during the listing process, supported by an empirical case study The findings serve as a valuable reference for FDI companies, securities firms, and legislators navigating similar situations.
The solutions presented in this study are beneficial for certain foreign direct investment (FDI) companies, offering time-saving advantages for securities firms in their investment banking services Additionally, these solutions may align with future government policy changes, promoting an increase in FDI enterprises pursuing public listings.
Research Purposes
This research aims to explore the background of foreign direct investment (FDI) enterprises on global and Vietnamese stock exchanges It seeks to identify the benefits and challenges faced by these FDI enterprises during the listing process, with a specific focus on a case study of a Japanese company Additionally, the study intends to offer practical solutions to facilitate the participation of FDI enterprises in Vietnam's stock exchanges.
Research Questions
To achieve the purposes mentioned above, this paper seeks to address the following research questions:
Question 1: What are FDI enterprises and Stock Exchange?
Question 2: What is the current background of FDI enterprises on stock market in the world and in Vietnam?
Question 3: What are the benefits and challenges for FDI companies' access to the Vietnam Stock Exchange?
Question 4: What are the possible solutions to improve FDI companies' access to the Vietnam Stock Exchange?
Research Schedule
This research was conducted over a three-month period, from March to May 2022, under the guidance of Mrs Le Thi Minh Que (MA), a senior lecturer at the Faculty of Foreign Languages at the Banking Academy.
Research Structure
This thesis is divided into 5 chapters:
Chapter 1 gives an introduction to the research It includes research background, the research significance, research purposes, research questions, research schedule, and research structure
Chapter 2 is Literature Review section It discusses the definitions of the key terms, presents the previous research results, an overview of FDI enterprises on the world’s stock exchanges and the conceptual framework
Chapter 3 of the study shows the methodology of the study It presents the information of participants, research instruments and how data is collected and analyzed
Chapter 4 analyzes and discusses the findings of the study It focuses on the research on the benefits and challenges that FDI enterprises have encountered during the listing process on Vietnam stock exchanges Then, the practical solutions are suggested
Chapter 5 is conclusion In this part, the author summarizes the research results, indicates the implications of the this study and gives recommendations for further research.
LITERATURE REVIEW
Definitions of Key Terms
Foreign direct investment (FDI) is defined by the OECD as an investment aimed at establishing a lasting interest by a resident enterprise in one economy in an enterprise located in a different economy This definition aligns closely with those provided by other organizations, including UNCTAD and the IMF.
In Vietnam, foreign direct investment (FDI) refers to the process by which foreign investors inject capital, including money and other assets, into the country to engage in investment activities as per the Law on Foreign Investment Most definitions of FDI utilized in Vietnam are derived from the interpretations provided by international organizations such as the OECD, UNCTAD, and IMF.
Foreign Direct Investment (FDI) is commonly defined as the cash flow invested by individuals in one country into a foreign firm The definitions provided by reputable organizations such as the OECD, UNCTAD, and IMF are widely recognized and frequently referenced in academic studies, establishing them as reliable sources in the field.
Foreign Direct Investment (FDI) is defined in various ways, leading to multiple interpretations of FDI enterprises According to the OECD glossary, a Foreign Direct Investment Company Enterprise is described as an enterprise located in one economy where an investor from another economy holds at least 10% of its voting power, either directly or indirectly, if it is incorporated, or the equivalent for unincorporated enterprises.
Likewise, UNCTAD and IMF have the similar definition of FDI enterprises as “an enterprise resident in an economy other than that of the foreign direct investor” and
“enterprise resident in another economy”, respectively
In another way, Investment Law 2020 of Vietnam mentions to the definition:
Foreign-invested economic organizations are defined as entities where foreign investors hold membership or shares This definition indicates that foreign direct investment (FDI) is recognized by Vietnamese law as an economic organization involving foreign capital.
Cultural FDI enterprises are defined as businesses that receive investments from foreign organizations or individuals to operate within a specific country, despite the varying definitions of terminology across different sources.
The stock market is a crucial component of the financial market, playing a vital role in capital mobilization It aggregates small savings from individuals, transforming them into substantial capital resources that finance investments for businesses, the economy, and government initiatives This process is essential for fostering production, driving economic growth, and supporting various investment projects.
Figure 1: Structure of Financial Market
Source: Prospects of Bond Market in Bangladesh: An Empirical Study on Banking
Like other markets, the stock market need their all participants to operate One of the most important participants in the stock exchange
A stock exchange serves as a centralized platform for buying and selling shares of publicly traded companies Unlike other exchanges, it exclusively facilitates the trading of stocks, bonds, and exchange-traded products Transactions on a stock exchange are conducted through a computer system operated by its members.
The world is home to many stock exchanges, with the New York Stock Exchange (NYSE), NASDAQ, and Tokyo Stock Exchange (JPX) being among the largest Other notable exchanges include the London Stock Exchange (LSE), Shanghai Stock Exchange (SSE), and Bombay Stock Exchange (BSE).
In Vietnam, the term "stock exchange" encompasses both a physical location equipped with technology and the governing body overseeing it The country has three official stock exchanges: the Hanoi Stock Exchange (HNX), the Ho Chi Minh Stock Exchange (HSX or HOSE), and the Unlisted Public Company Market (UPCOM) The HSX and HNX facilitate transactions of listed securities, while UPCOM serves as a "transfer" exchange designed for specific purposes.
Encouraging unlisted companies to enter the stock market is essential, as listed securities typically belong to large, reputable firms that adhere to stringent listing standards To become publicly listed, companies must fulfill the rigorous requirements set by each stock exchange.
Listing of securities refers to the process by which a company's securities are admitted for trading on a specific stock exchange This involves obtaining permission to officially quote shares and debentures on the trading floor Essentially, it is the registration of a company's securities for trading on a stock exchange.
Stock exchange authorities require that companies meet specific standards for their securities to be listed Once a company's securities are listed, it must adhere to the stock exchange's terms and conditions Additionally, the listed company is obligated to provide ongoing information to the stock exchange, not just at the time of listing, but throughout the duration of its securities' listing.
Many enterprises aspire to become publicly listed on stock exchanges due to the numerous benefits it offers The stock market enables companies to raise capital quickly and sustainably, enhances their reputation, provides liquidity for shares, and fosters greater transparency and efficiency through public oversight These advantages have been supported by research from Ndungu (2006), Norman (2011), and Kadi (2016).
Overview of FDI Enterprises on the World Stock Exchanges
In developed countries like the United States, Spain, the United Kingdom, Italy, France, and Germany, the stock market has a rich history of corrections and exhibits high market efficiency These markets significantly impact domestic enterprises and investors, as well as influence other global markets Typically, stock market performance serves as a key indicator of the overall economy.
The three most prominent stock indexes in the U.S are the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite Additionally, investors globally monitor indexes from regions like Europe, Asia, and Latin America, as well as countries such as the UK, Canada, Germany, and Japan These markets draw significant attention from large-cap companies and investors, resulting in substantial daily trading volumes.
Emerging markets, which developed later than their counterparts in developed countries, play a crucial role in the economy and present unique investment opportunities for growth and diversification in retirement portfolios However, investing in these markets comes with significant risks, as they are more vulnerable to external factors and exhibit higher volatility compared to established markets.
The activities of FDI enterprises on the stock market are also related to the markets in which they participate Currently, in major markets like the USA, there are nearly
400 international companies that have their stocks listed on US stock exchanges and trading every day According to the 2014 Singapore Exchange (SGX) annual report,
Forty percent of the 766 companies listed on the exchange are located outside of Singapore In contrast, developing markets present a different scenario, as they are less appealing to foreign direct investment (FDI) enterprises, with limited data available on FDI activity within the stock exchanges of these countries.
Conceptual Framework
The conceptual framework serves as an academic structure to explore the relationships between studied variables (Swaen, 2019) Previous scholars have utilized various conceptual frameworks to review literature and construct their studies For instance, Black, Mendenhall, and Addou (1991) examined cross-cultural adjustment literature from the 1970s to the 1990s, gathering substantial evidence to support their framework Consequently, this model is not only
10 supported by a number of empirical papers, but has also been used for a long period of time
Research by Hailu (2010) indicates that the stock market plays a significant role in attracting Foreign Direct Investment (FDI), as foreign-owned firms may seek to raise capital from domestic sources for various reasons This finding aligns with the conclusions of other researchers, including Tsaurai (2018) and Nonnemberg.
& Mendonỗa (2004) However, relating to the topic of this thesis, there is no framework founded on the factors affecting the listing decision of FDI enterprises in different countries
RESEARCH METHODS
Participants
This study focuses on foreign direct investment (FDI) enterprises listed on Vietnam's stock exchanges, with a detailed analysis of a Japanese FDI company currently undergoing the listing process in Vietnam.
Research Instruments
A research instrument is essential for collecting, measuring, and analyzing data pertinent to a research topic In this study, the author utilized various methods, including online searches via Google, email correspondence with companies for internal documents, direct observation of company listing processes, and Excel for basic calculations The gathered data were then described, explained, and analyzed to illuminate the findings of the thesis.
Data Collection
Data collection is the process of gathering information and data from a variety of sources to help academics answer research questions and clarify findings
The author conducted a comprehensive literature review by gathering data from various reputable sources, including international economic organizations and official government websites like the State Securities Commission, Ministry of Finance, and Ministry of Planning and Investment, which offer regularly updated and reliable information Additionally, information from well-known online newspapers such as Tapchitaichinh and Vietnamnet was also utilized.
Furthermore, the data used for case study analysis are mainly collected from internship institution of the author, which is a Vietnamese Securities Company under the guarantee of information security
The statistical data and related information are duly gathered under the permission of the internship unit to facilitate this study to be conducted successfully.
Data Analysis
The author employed case study analysis to draw inferences and conclusions, utilizing a blend of qualitative and quantitative data sources This study focuses on a Japanese foreign direct investment (FDI) enterprise operating in Vietnam.
The study's literature review was supported by information gathered from e-books, reputable online newspapers, and other reliable internet sources This compilation of resources, along with previously acquired data, enhanced the study's accuracy Additionally, past research provided a robust foundation for analysis, comparison, and conclusions.
The author comprehensively addresses all relevant aspects to provide a thorough understanding of the study's subject By detailing the "who, what, when, and where" of the research context, the author enhances the clarity of the findings The study's results are effectively communicated through the author's deep engagement with the data.
FINDINGS AND DISCUSSION
Current Background of FDI Enterprises on the Vietnam Stock
Established in 1996, Vietnam's stock market has become a vital component of the country's economy, aiming to serve as a key channel for capital mobilization One of its primary objectives is to attract qualified enterprises, including foreign direct investment (FDI) companies, to go public.
4.1.1 Overview of FDI Enterprises on Vietnam's Stock Exchanges
Vietnam has emerged as a prime destination for foreign direct investment (FDI) since the implementation of the Foreign Investment Law in 1987 A significant turning point occurred with Vietnam's accession to the World Trade Organization (WTO) in 2007, leading to a rapid increase in FDI inflows Today, Vietnam ranks among the largest FDI recipients in Southeast Asia (ASEAN) and was recognized as the 19th most attractive country for FDI globally in 2020, climbing five positions from the previous year (Thanh Van, 2021).
The chart below presents the FDI inflow into Vietnam from 2006 to 2021
Figure 2: FDI inflow into Vietnam in the period of 2006-2021
Source: Foreign Investment Department - Ministry of Planning and Investment
After joining the WTO in 2007, Vietnam experienced a significant surge in foreign direct investment (FDI), reaching a record registered capital of 64 billion USD in 2008, which was three times higher than the previous year However, this growth was impacted by several factors, including the global financial crisis of 2008 and the European public debt crisis.
From 2010 to 2012, foreign direct investment (FDI) inflows into Vietnam experienced a significant decline compared to 2009 However, from 2013 to 2019, these inflows recovered and stabilized Notably, despite the challenges posed by the Covid-19 pandemic, Vietnam continued to attract positive FDI inflows in 2020 and 2021.
Foreign Direct Investment (FDI) in Vietnam can take various forms, as outlined by the country's adherence to WTO agreements and international investment treaties The Investment Law 2020, along with Decree 31/2021/ND-CP and the Enterprise Law 2020, facilitates FDI through the establishment of economic organizations.
15 capital contribution, implementation of investment projects, or BCC contracts The proportion of forms of FDI inflow into Vietnam is shown in the figure below
Figure 3: Foreign direct investment capital by the form of investment in the period 2005-2020
Source: Foreign Investment Department - Ministry of Planning and Investment
From 2005 to 2020, the Foreign Investment Department's statistics indicate that most foreign investors in Vietnam preferred establishing one-member limited liability companies with 100% foreign capital This trend has shown a consistent increase, surpassing 70% by the year 2020.
Vietnam's stock exchanges have seen limited attraction from foreign direct investment (FDI) enterprises, with only a modest number currently listed Between 2003 and 2008, ten FDI enterprises transitioned from limited liability companies to joint stock companies and entered the stock market Since then, only one additional FDI enterprise has been listed.
16 exchange The pie chart below shows the proportion of listed FDI enterprises to the total number of listed companies on the Vietnam stock exchange
Figure 4: Listed companies on Vietnam's stock exchange
As of 2021, the pie chart illustrates that foreign direct investment (FDI) enterprises represent a minimal share of the total listed firms on the Vietnam stock exchange The State Securities Commission reports that 11 FDI enterprises have transitioned from limited liability companies to joint stock companies and are listed on the exchanges Currently, only 8 FDI enterprises remain listed, while 3 have canceled their listings due to business losses, including 2 companies that are registered for trading on Upcom.
The capitalization between companies on the Vietnam stock exchange is shown in the chart below (see figure 5):
Figure 5 illustrates that the market capitalization of listed and registered FDI enterprises constitutes only about 0.3% of the total market capitalization, indicating that these enterprises are relatively small in comparison to the overall size of the stock market.
Figure 5: Capitalization of listed companies on Vietnam's stock exchange
Besides, in Vietnam, participants in the stock market are divided into three main groups An easy-to-understand model of Vietnam’s stock market is shown below:
Figure 6: Participants in Vietnam's stock market
Source: Designed by the author
The financial market ecosystem consists of three main groups: the first group includes players such as investors, traders, issuers, underwriters, brokers, dealers, and market makers; the second group comprises regulators and market organizers, including state securities commissions, stock exchanges, clearing houses, associations of stock dealers, and securities depositories; and the third group consists of intermediary organizations that facilitate transactions within the market.
18 including Securities companies, Fund management companies, and other financial institutions
To understand the study's topic, it is essential to grasp the roles of three key participants in the financial market First, issuers are organizations that raise capital by selling securities to investors Second, securities companies serve as intermediaries, providing financial services and consulting for companies seeking to become publicly listed Lastly, regulators, such as the State Securities Commission, oversee the fairness and functionality of financial markets, implementing legal frameworks, licensing securities activities, and supervising related entities.
As of 2021, there are eight companies listed on stock exchanges and two registered for trading on Upcom A company's scale on the stock market is determined by its market capitalization, which is calculated by multiplying the number of outstanding shares by the current share price The market capitalization of these companies is detailed in Table 1 below.
Table 1: Capitalization of FDI Companies on Vietnam’s stock exchanges
Number of outstanding shares Capitalization
Bien Hoa JSC SBT HOSE 26,35 650.762.228 17.147.584.707,80
Source: Compiled by the author from CafeF
Among the listed FDI companies in the above table, it is clear that Thanh Thanh Cong
Bien Hoa JSC stands out as the largest company by market capitalization, boasting over 17 trillion dong, while Chang Yih Ceramic JSC holds the position of the smallest market-cap company with a valuation exceeding 49.7 billion dong.
The performance of foreign direct investment (FDI) enterprises on Vietnam's stock market is inconsistent As of the end of 2021, statistics reveal varying business results among these enterprises.
Table 2: Profits after tax of listed FDI companies on Vietnam’s stock exchange from 2016 t0 2021
Source: Compiled by the author from SSC and CafeF
In 2021, 30% of enterprises experienced losses, all of which had a history of previous financial setbacks In contrast, the majority of foreign direct investment (FDI) businesses operated successfully and profitably Notably, companies such as TKU and IFS reported impressive profits after tax, exceeding 97 billion and 125 billion, respectively.
Case Study of a Japanese Company
The case study focuses on a Japanese foreign direct investment (FDI) enterprise headquartered in northern Vietnam, which was established in 2015 and licensed by local authorities The company has a charter capital of nearly 400 billion VND and primarily engages in the production of batteries and accumulators Additional details about the company are also provided.
Establish in 2015, the company had gone through the following stages of development:
The company was established in 2015 with initial charter capital of 3 million USD, equivalent to 64,500,000,000 VND The company's head office is located in an
In 2023, a company in the 26 industrial zone in Northern Vietnam successfully launched its first product after securing a Certificate of Origin By the end of the year, the company achieved international standard certifications for its products, marking a significant milestone in its growth.
By 2016, the company successfully mass-produced and launched its dual-glass modules Concurrently, it formed a dedicated research and development team focused on smart components to enhance its investment in technological innovation.
In 2017, the company underwent significant transformations, starting with its recognition as the top credit settlement firm in Vietnam by local financial institutions Subsequently, it launched a range of all-black components into the market To support its growth, the company acquired new land and a factory, and established a subsidiary in Frankfurt, Germany, aimed at enhancing its presence and market share in Europe.
In 2018, the company experienced significant growth and connectivity, marked by a strategic partnership with a renowned university in Vietnam, the expansion of its factory, and the establishment of a subsidiary in the United States The year also saw the company announce its entry into the capital market with plans to list in Vietnam By year-end, it successfully transitioned from a limited liability company to a joint stock company, increasing its charter capital to nearly 200 billion VND.
In 2019, the company launched a technology research and development platform in Shanghai, China, while successfully passing the first level fire test in Italy and receiving certification from a recognized international body Additionally, the company secured significant cooperation agreements and accolades.
The year 2020 marks the growth of the Company when the company recorded revenue and a large number of orders Its products have been distributed all over the
27 world and the company officially joined the United Nations Global Compact to seek a path of sustainable development
In 2021, the company achieved significant milestones, winning numerous prestigious awards for its high-quality products It also established a second production base in Northern Vietnam, featuring state-of-the-art intelligent production equipment Additionally, the company successfully increased its capital to approximately 400 billion VND.
The company is a Japanese FDI entity fully invested by a major group headquartered in Tokyo, Japan Established in 2006, the group initially operated in Japan before expanding to North America, Southeast Asia, and EMEA Currently, it boasts one R&D center in Japan, three sales offices in the USA, Germany, and China, and two production bases in Vietnam and China This global presence is designed to meet customer needs worldwide.
Figure 8: Global network of the Japanese company
The FDI Japanese company itself is currently operating with 5 subsidiaries (see figure
The firms aim to enhance their products' alignment with a dynamic global supply chain strategy By ensuring quality, efficiency, and reliability, the company effectively meets the diverse needs of customers and projects in the global market, with production facilities in Vietnam and China As a result of its subsidiaries in multiple countries, the company is recognized as a multinational entity.
Figure 9: Organizational structure of the Japanese company
Source: Company's Internal Report 4.2.4 The Main Business Activities
The production of batteries and accumulators includes the processing and assembly of solar panels Under the Investment Law 2020 and related decrees, these business activities are not subject to restrictions for foreign investors, allowing for a maximum foreign ownership rate of 100% This presents a significant advantage for the company, as the parent company can retain full capital without the need for divestment, provided it meets the requirements for public listing.
The company specializes in high-quality sun-energy modules, aiming to protect the environment by promoting sustainable, fossil fuel-free solutions Acknowledging the urgent challenge of global climate change, it is committed to environmental conservation and the advancement of clean energy By leveraging its strengths to deliver greener energy solutions worldwide, the company strives to enhance living conditions and foster sustainable energy development for all.
In 2018, the company transitioned from a limited liability structure to a joint stock company as the initial step towards becoming a publicly listed entity Subsequently, it engaged a consulting firm to assist in preparing the necessary listing documents By the end of 2019, the company submitted its listing application to the State Securities Commission (SSC) However, in early 2020, the SSC requested amendments and additional documentation, leading to significant challenges in the revision process Despite the considerable time and effort invested by both the company and the consulting organization, progress remained limited.
In 2022, the Securities Company directed the firm to retract its previously submitted listing documents in order to prepare a new set The company is currently finalizing its public registration dossier and anticipates registering for trading on Upcom in the third quarter of this year.
Benefits of FDI Enterprises to be listed on Vietnam's Stock Exchanges 29 1 Government’s Incentives
Vietnam is recognized as a leading destination for foreign direct investment (FDI) in the region, attracting foreign investors with its reliability and effectiveness The government's various advantages and supportive policies contribute to making Vietnam an appealing investment hub.
30 conditions for the FDI enterprises when being listed on stock exchanges Therefore, these enterprises would have significant benefits when assessing Vietnam's stock market as follows:
Foreign Direct Investment (FDI) offers significant incentives during the listing process on Vietnam's stock exchange To enhance the quality and efficiency of foreign investments, the Vietnamese government has established favorable conditions for FDI businesses These policies not only attract companies to invest in production and operations but also encourage their participation in the Vietnamese stock market.
Tax incentives significantly influence foreign direct investment (FDI) firms seeking to list on the Vietnamese stock exchange Key policies, including the Law on Investment, Law on Corporate Income Tax (CIT), and laws on Export and Import Tax, along with various guiding documents, are designed to encourage FDI in Vietnam These policies primarily focus on tax exemptions, deductions, and extensions on tax payment deadlines, providing direct benefits to FDI enterprises operating in the country, including the company featured in this case study.
In 2015, the Management Board of Industrial Zones of the Province issued an Investment Certificate that mandates the company to pay a corporate income tax of 10% on income generated from the production, processing, and assembly of solar panels This tax rate is applicable for a period of 15 years, starting from the project's operational date in 2015 and continuing until 2029 Furthermore, the company is granted a tax exemption during this period.
4 years commencing from the first income from the project (from 2016 to 2019) and benefits from a reduction of 50% of payable tax in 9 following years (from 2020 to
2029) The Company has to pay corporate income tax for income from other operations at the rate of 20% The corporate tax of the company is shown as below:
Table 4: Corporate income tax of the Japanese company from 2019 to 2021
Corporate income tax payable at the common tax rate
Corporate income payable tax after exemption and deduction
Source: Financial Statement in 2019, 2020, 2021 of the company
The Corporate Income Tax (CIT) data from 2019 to 2021 indicates that the company benefited significantly from incentive policies, resulting in a CIT much lower than the standard rate In 2019, the company enjoyed complete tax exemption for its main operations, leading to minimal CIT payments for other activities However, with the expiration of the tax exemption in 2020 and 2021, the company faced a preferential tax rate of 5% for its main activities and 20% for others, raising the overall tax payable to approximately 7% of pre-tax profits Despite this increase, the effective tax rate remains considerably lower than the standard rate, contributing positively to the company's profit after tax.
The implementation of preferential policies has facilitated foreign direct investment (FDI) enterprises in accessing the stock market By benefiting from tax exemptions, these businesses can significantly lower their costs, leading to enhanced financial opportunities.
32 businesses increase profit after tax This makes it easier for businesses to achieve the standard of ROE ratio when implementing the listing process
Access to information is a crucial factor in facilitating foreign direct investment (FDI) enterprises to become publicly listed companies The Internet provides these businesses with immediate access to a wealth of official information, which enhances their decision-making processes, making them quicker and more accurate.
Foreign Direct Investment (FDI) companies, along with other firms, can easily access official information sources in Vietnam The country's legal documents, including laws, decrees, circulars, and decisions, are widely publicized and accessible to all Additionally, foreign investors can conveniently find English versions of these documents to learn about the Vietnamese stock exchanges Reputable websites like thuvienphapluat.vn and luatvietnam.vn provide accurate information for investors to reference.
Vietnam's management agencies, including ministries and departments, each maintain their own websites These platforms serve to provide updated information and allow foreign direct investment (FDI) enterprises to submit feedback This enables FDI companies to pose questions, facilitating prompt responses from management agencies to address business concerns effectively.
Thus, the convenience of accessing information plays a great role for businesses, especially for FDI enterprises It helps businesses find the right direction to approach the Vietnamese stock exchanges
4.2.3 Professional Services of Consulting Firms
One of the components that have an important influence on the listing process of FDI enterprises in Vietnam's stock exchange is the supporting of consulting companies
The complex nature of the law necessitates the involvement of a consulting organization, typically fulfilled by investment banks globally, but in Vietnam, this role is taken on by securities companies Their participation is a mandatory requirement for companies preparing listing registration dossiers With the support of securities companies, foreign direct investment (FDI) businesses can adhere to legal regulations and avoid potential infringements.
A securities company serves as a vital link between businesses and regulatory authorities, facilitating the listing process for enterprises According to the SSC, there are over 80 active securities companies located in major cities like Hanoi, Ho Chi Minh City, and Da Nang Licensed by the SSC, these firms offer expert guidance to foreign direct investment (FDI) enterprises seeking to go public.
In October 2019, a Japanese FDI Company selected WSS as its consulting organization for the listing process, signing a contract to formalize their partnership WSS appointed skilled personnel to assist the company, providing crucial support in document preparation, application submission, and explanatory dispatch This collaboration enabled the FDI Company to swiftly identify challenges and implement effective solutions Notably, WSS employees frequently traveled from Hanoi to the company's headquarters to address issues directly, demonstrating their commitment to facilitating a smooth listing process.
Numerous studies indicate that a key factor in attracting foreign direct investment (FDI) inflows into Vietnam is the variety of investment forms available to FDI enterprises Current regulations permit FDI to be established as joint venture enterprises, wholly foreign-owned enterprises, or through business cooperation contracts However, companies aiming for public listing must transition to joint stock companies, as mandated by Vietnamese law, which also facilitates this conversion process.
There are 34 investment forms available for joint stock companies, along with documentation to assist enterprises in their conversion to this structure Once an enterprise becomes a joint stock company, foreign direct investment (FDI) firms can proceed with additional procedures, such as capital raising and attracting more investors, to fulfill the requirements for public disclosure or listing, similar to Vietnamese companies.
In 2015, a Japanese company established itself in Vietnam as a 100% foreign-owned enterprise, operating as a limited liability company under the Vietnam Enterprise Law As the company aimed to become publicly listed, its management decided to transition to a joint stock company, following the guidelines of the Enterprise Law 2014 and Investment Law 2014 By the end of 2018, the transformation was successful, resulting in the company becoming a joint stock company with three shareholders As of 2021, the shareholder structure is outlined as follows:
Table 5: Shareholder structure of the Japanese company in 2021
Type of shareholder Number Percentage of ownership
Common Challenges for FDI Enterprises to be Listed on the Vietnam
Foreign Direct Investment (FDI) enterprises in Vietnam benefit from various favorable conditions; however, they encounter significant challenges compared to their counterparts in developed countries Key difficulties faced by FDI enterprises when accessing the Vietnamese stock market include regulatory complexities, market volatility, and limited access to financial resources.
4.4.1.1 Lack of legal instructions for FDI to become a listed company on Vietnam’s stock market
Incomplete legal instructions pose major challenges for Japanese companies seeking to list on Vietnam's stock market, creating significant obstacles in the process The case study company is currently grappling with these issues.
Company leaders struggle to navigate the complexities of the Vietnamese legal system regarding stock exchange listings, leading to a prolonged learning process about local laws The abundance of regulations surrounding listing issues has created uncertainty, making it challenging for the company to determine whether to go public This initial indecision has prompted extensive consideration of their options.
Many enterprises have faced similar challenges regarding securities listing regulations, primarily governed by the Securities Law 2019 These regulations are further influenced by various legal documents, including Decree 155/2020/ND-CP and Decision 639/QD-SGDHN, highlighting the complexity of Vietnam's legal framework.
The legal framework is still being refined, leading to the regular issuance of new documents that lack synchronization This results in overlapping regulations and the absence of certain rules, causing confusion for businesses seeking solutions.
Vietnamese and foreign experts have highlighted the challenges faced by foreign direct investment (FDI) enterprises in navigating the confusing regulations for floating shares on the Vietnamese stock market Lawyer Tran Minh Hai from Basico noted in an interview with Hanoi Times that the criteria and processes are unclear Similarly, David Harrison, a partner at Mayer Brown Vietnam, pointed out that only a limited number of companies have successfully listed on the HSX and HNX due to the absence of a clear pathway for listing Consequently, this uncertainty may deter FDI enterprises from pursuing stock market listings.
Alibaba opted for the New York Stock Exchange instead of the Hong Kong Stock Exchange due to the latter's rigid legal framework regarding partnership structures and dual share listings Despite Hong Kong's geographical and cultural ties to China, which account for a significant portion of Alibaba's revenue, the inflexibility of its stock exchange influenced the company's decision.
4.4.1.2 Delay in resolving FDI enterprises’ inquiries in listing process
Many foreign direct investment (FDI) enterprises, including Japanese companies, face significant challenges during the listing process, particularly due to the lack of timely responses from authorities For instance, a company reached out to the State Securities Commission (SCC) for guidance on listing procedures on the Vietnam stock exchange but received a response nearly a month later This response primarily consisted of lengthy legal excerpts, which were unclear and not practical for the company's management.
It also a common issues faced by many other FDI enterprises when they are preparing for listing procedure Because of the lack of necessary guidelines, the companies
Thirty-seven companies aiming to list on the Vietnamese stock exchange have actively sought guidance from the relevant authorities However, the response from these authorities has been slow, leading to delays in providing the necessary instructions Numerous examples of this issue have been documented.
A study published in the Journal of Economics and Forecasting in August 2021 by MSc Dang Thi Bich Lien from Hai Phong University highlights that numerous foreign direct investment (FDI) enterprises have approached the Ministry of Finance and the State Securities Commission for guidance on listing and registering transactions They seek to list all shares, including those held by foreign founding shareholders, rather than just a portion of publicly offered shares However, there has been no response from authorities regarding these requests Notably, Soul Metal Vietnam and Ngu Kim Forest Industry JSC are examples of FDI enterprises unable to list due to the lack of agency instructions In the meantime, these companies plan to register for transactions on UPCoM to safeguard small shareholders' interests and enhance share liquidity.
In addition to the initial public offerings, some companies seek to list shares held by foreign founding shareholders, a matter that remains unresolved by authorities For instance, Tung Kuang Industry Joint Stock Company, which is listed on the Hanoi Stock Exchange, has requested to list the remaining 84.52% of its charter capital for six foreign founding shareholders However, the company has yet to receive any guidance from the relevant agencies (Hoang Ha, 2020).
In summary, the lack of a complete legal framework is the primary obstacle hindering foreign direct investment (FDI) companies from going public on the stock exchange Numerous FDI enterprises have halted their listing processes or abandoned their intentions to list due to unclear regulations If this issue remains unresolved, it could significantly affect the overall Vietnamese economy, particularly concerning foreign investment.
A growing number of 38 investors in Vietnam are expressing dissatisfaction with the requirement to list their shares on the stock exchange, prompting them to consider alternative markets This trend raises concerns about the potential outflow of foreign investment capital from Vietnam.
The Japanese FDI company encountered significant challenges with financial reporting while attempting to list on the Vietnam stock exchange This issue became apparent when the company received a response from the SSC regarding its initial listing application submitted at the end of 2019 The SSC rejected the application due to the company’s use of an incorrect financial statement format In their response, the SSC outlined common problems that contributed to the rejection.
The audit opinion on the 2018 financial statement of SSC indicates that it is intended solely for tax authorities and is not suitable for other purposes The auditing firm has declined to provide their report to any party other than the company for tax purposes As SSC is the parent company of several subsidiaries, it is recommended that consolidated financial statements be submitted by WSS Consequently, a request was made to clarify and resubmit the financial report in the correct format.
Suggested Solutions for Challenges of FDI Companies to be Listed on
This article analyzes the challenges faced by Japanese Foreign Direct Investment (FDI) companies seeking to list on the Vietnamese Stock Exchange The researcher proposes several potential solutions to address these common obstacles.
To facilitate the listing process, it is important for FDI enterprises language barriers challenges, paper document storage issues, and have a deep understanding about the legal policies for FDI enterprises
To address language barriers, companies should consider hiring interpreters for online and offline meetings, as well as for email communications, to facilitate effective communication However, relying heavily on interpreters can lead to increased costs Therefore, a more sustainable long-term solution involves leveraging existing human resources by enhancing recruitment practices and offering training programs to improve employees' foreign language skills.
To address paper document storage challenges, the company must collaborate with its subsidiaries to establish a professional document management process, minimizing the risk of lost documents and time spent searching for specific files Given the presence of subsidiaries in various countries, meticulous record-keeping is essential Appointing an experienced employee to oversee this task can enhance efficiency Furthermore, developing a standardized process applicable across all subsidiaries is crucial; for instance, stakeholders should save both hard and soft copies of documents simultaneously This approach offers a practical solution to the company's document storage issues.
To mitigate unnecessary risks, businesses must thoroughly understand the Vietnamese legal system, particularly in relation to preparing accurate financial statements Companies can achieve this by either conducting their own research or seeking consultation from legal experts to ensure strict compliance.
46 with the provisions of current laws related to issues such as accounting regime, capital contribution process to avoid the risk of exchange rate, for example.
Securities companies play a crucial role in enhancing their consulting capabilities to support businesses in achieving their objectives They must possess a deep understanding of foreign direct investment (FDI) enterprises to effectively provide consulting services, including legal insights on listing conditions, processes, and potential risks Additionally, securities firms should act as intermediaries between state agencies and enterprises, effectively communicating the needs and aspirations of both parties while overcoming language barriers Furthermore, they must assist in preparing listing registration documents and offer timely legal advice to prevent delays caused by repeated edits or resubmissions, which can disrupt the company's plans In this capacity, securities companies serve as local partners, helping FDI enterprises navigate these challenges, a solution also highlighted by Mueller (2017) for foreign businesses entering the Chinese market.
For the issue of the legal corridor, it requires the authorities to have the short-term and long-term solutions to create opportunities for FDI enterprises to go public:
In the short term, authorities must promptly address inquiries from foreign direct investment (FDI) enterprises to ensure clarity and accountability It is crucial to avoid situations where questions go unanswered or responses are vague, shifting responsibility to other management bodies When regulations are lacking to address the challenges faced by FDI enterprises, management agencies should proactively seek solutions from similar global cases and propose suitable measures for the effective operation of FDI enterprises.
Vietnam market This solution is found similar to Harrison (2019) of the key role of
“the efficient administrative bodies” in attracting FDI enterprises to go public
To enhance investment opportunities, it is advisable to eliminate restrictions on foreign ownership, particularly those that hinder foreign investors from acquiring newly issued shares in publicly listed companies The government is expected to find a balance by considering national security and defense concerns, while still maintaining regulations in sensitive sectors like banking and insurance.
To enhance foreign direct investment (FDI) in Vietnam's stock market, legislators must establish a comprehensive legal framework with clear regulations for FDI enterprises This includes synthesizing relevant laws to create standardized processes that are easily accessible Publicizing these processes on the websites of the Ministry of Finance, the State Securities Commission, and stock exchanges is essential for transparency Drawing insights from major stock exchanges like NYSE and YSX, it is crucial to eliminate discriminatory rules between domestic and foreign enterprises, rather than merely introducing investment incentives.
The implementation of International Financial Reporting Standards (IFRS) is a key strategy to eliminate barriers in financial reporting, a plan initiated by the Ministry of Finance in 2020 The objective is to adopt IFRS by 2025 for specific enterprises, particularly public and listed companies However, challenges such as significant discrepancies between Vietnamese Financial Reporting Standards (VAS), a shortage of skilled human resources, and the need for a new information technology system hinder this transition.
In summary, addressing the challenges faced by foreign direct investment (FDI) enterprises during the listing process benefits both the companies and regulatory authorities By becoming public, these enterprises are required to fully disclose their information, enhancing oversight Additionally, the need to attract investors encourages businesses to actively engage in profit-generating activities, ultimately aiding the government in tax collection.