Evironment factors for foreign direct investment for american business corporation in three main commercial centers of vietnam

The title of: “ENVIRONMENT FACTORS FOR FOREIGN DIRECT INVESTMENT FOR AMERICAN BUSINESS CORPORATION IN THREE MAIN COMMERCIAL CENTERS OF VIETNAM” is a research on 63 US investor enterprise

In order to attract efficiently US FDI, Vietnam requires more improvement of investment environment which is more and more increasingly attractive and competitive compared with other countries in the region The title of:

“ENVIRONMENT FACTORS FOR FOREIGN DIRECT INVESTMENT FOR AMERICAN BUSINESS

CORPORATION IN THREE MAIN COMMERCIAL CENTERS OF VIETNAM”

is a research on 63 US investor enterprises, 30 state management agencies and 99 FDI experts was carried out in three main commercial centers of Vietnam (Hanoi, Da Nang, Ho Chi Minh city) to find advantage and/or disadvantage of sub-factors of investment environment in Vietnam, then providing some prospective solutions for investment environment improvement in coming years

Chapter 1

INTRODUCTION

Background of the Study

The FDI is significant capital and technical source of economic growth This is also characteristic clearly of globalization Beside that FDI is not only providing of investment capital and technology, it is also providing of managerial and technological skills, job creation, infrastructure upgrading for host country In Vietnam, FDI is an important source to help restructure and increase the competitiveness of the economy since the middle of 1980s when Vietnam began to apply new ecomomic mechanism called as “Doi Moi” and known as “open-door policy” FDI has become an important factor of economy of Vietnam in the context of deep integration with the world economy and globalization trends

Statement of the Problem

This study shall answer for following questions:

1 How does political environment of Vietnam affects to the US FDI attraction?

2 How does governmental administrative environment of Vietnam affects to the US FDI attraction ?

3 How does infrastructure- location factor of Vietnam affects to the US FDI attraction ?

4 How does economic and financial mechanism of Vietnam affects to the US FDI attraction?

5 How does labor factor of Vietnam affect to the US FDI attraction ?

Objectives

The aim of the Dissertation was to assess the situation of FDI attraction from the United States into Vietnam, then to indicate existing shortcoming, in particularly investment environment limitation that interfere U.S FDI flows into Vietnam and finally to provide solutions to further improvement of investment environment for U.S FDI attraction and disbursement process in Vietnam

Hypothesis

H1 Stable political environment is factor to attract more FDI

H2 Convenient, simple and prompt administrative procedure in registering shall attract more foreign investors

H3 Advantage of infrastructure- location is factor to determine FDI

H4 Openness of economic and financial mechanism is incentive for FDI

H5 High qualification and skill labor force is factor to attract FDI in host country

In order to research above factor relationship the author also assumed that total registered FDI is equal to total effectuate FDI and there is no conversion between investment form and no transfer of FDI projects between investment countries or regions

Scope and limitation of study

The Dissertation focuses on studying investment environment for attracting FDI from USA to Vietnam in 03 major cities (Hanoi, Danang, Hochiminh city) The investment environment includes investment environment in the host countries, investment environment in domestic country and international investment environment The Dissertation focuses on the factors of investment environments to which the Government has heavily influenced, including: environmental policy, law, administrative procedures; economic environment; infrastructure and human resources

Significance of study

The basic arguments of FDI theory, investment environment, and influent factors will be clarified The contents are: definition or concepts, characteristics, classification, elements of the investment environment In addition, the Dissertation points out some international experience

of some countries about the improvement of investment environment in order to enhance FDI attraction in Vietnam

Chương 2 REVIEW OF LITERATURE AND RELATED STUDIES

1 FOREIN DIRECT INVESTMENT (FDI) THEORY

1.1 Concept and features

1.1.1 Concept

FDI is the type of movement of capital between countries, in which the capital owners is both direct management and operation of capital use The FDI is considered under following

assessments: First, in consideration of the ownership aspect; Second, in consideration of property flow aspect; Third, in consideration of activity scope:

1.1.2 Features

Foreign direct investment is the type of international investment, in which a foreign investor distributes capital to build or buy (in whole or in part) the business establishments in foreign countries and become the owner property that manages, operates or participates in the operating management of the establishments

1.2 FDI classification

1.2.1 Joint – venture company

This is a form of international business organization in which participants have different nationalities between home country’s investors and the rest of the foreign partner This form is

characterized by new enterprises established under the laws of the host country, having a legal entity under the laws of the host country, the partners have different nationalities contribute capital, and manage business activity, distribute profit, and share risks together

1.2.2 Enterprise with 100% foreign capital

This form is the preferred foreign investment and is expanded in international economic relations as their own decisions, and management to get benefit from investing activities

1.2.3 Business cooperation contract

This is a form of joint venture between a local partner with foreign investors and characterized by a contract signed that presents an agreement to conduct one or more business activities in the investment countries, based on clearly defined objects, business content, obligations, responsibilities and division of business results for the partners without setting new entity

1.2.4 Other forms of FDI

In practice, FDI is also implemented under these other forms: BOT ( Build – Operate –

Transfer); Build transfer business contracts (BTO); Build transfer contracts (BT); Build

-transfer contracts (BT); Public Private Partnership (PPP);

1.3 Roles of foreign direct investment

1.3.1 Impact of FDI on investors and investor’s country

a) Positive impacts

- Improve efficiently capital use

- Restructure the national economy towards a modern and more efficient orientation.

- Avoid trading or non-trading protection

- Increase business profits through "transfer pricing"

- Is risk diversification for investors due to economic conditions, domestic political instability

b) Negative impacts

- If the Governments of the investment exporting countries does not have appropriate

investment policies in the domestic countries; this will encourage the attention of foreign investment over domestic investment to higher profitability Meanwhile, the domestic economy could fall into recession, political and social instability

- Foreign investors may be risk of economic policy, politics, society of the investment

receiving country

1.3.2 Impact of FDI on investment receiving country

a) positive impacts

- FDI contribute to the increase in capital investment, technology and promote

economic growth and development

- Technology transfer, economic management experience:

- Create jobs, raise living standards and quality of human resources:

- Expand markets, promote exports of goods

- Promote economic restructuring

- Contribute to increasing national budget and improving trade balances

b) Negative impacts

- The phenomenon of "transfer pricing" is quite common in foreign direct investment.

- Causing some imbalance and instability in the investment

- Causing negative result of labor and finance in the investment receiving country

- May be introduced by the outdated technology

- Increase the risk of bankruptcy of local economy and traditional industries, increase risk

of competitive inequality

- It is losing more jobs from the traditional manufacturing industries and being not

properly respected to training for employees

- Negatve impact on the environment and natural resource over-exploitation

- Is the risk of money laundering

2 OVERVIEW OF INVESTMENT ENVIROMENT

2.1 Concept

The concept of the investment environment has been studied and reviewed by many different aspects depending on the purpose, scope and subjects of research

2.2 Characteristics of the investment environment

2.2.1 Synthetic feature

The investment environment is the sum of factors The investment environment factors affect not only on an investors or on all investors in a certain locality, but also impact on other objects (customers, suppliers, employees ) and to the entire economy

2.2.2 Mobile (dynamic) feature

The investment environment is always dynamic or mobile, changeable due to movement and change over time of components constituting the investment environment The elements of the investment environment as well as their mobilization affect investment activities in general and activities of foreign direct investment in particular the investment

2.2.3 Openness feature

The openness of the investment environment has expressed the changes of elements of the investment environment; it is also affected by the higher level investment environment The movement of the elements of the provincial investment environment affected by the national investment environment, and the elements of national investment environment is influenced by the international investment environment, particularly in the context of international economic integration at present

2.2.4 Systematic feature

Investment environment has systematic feature because the investment environment is a sum of factors interacting with each other and being affected by international investment environment However, the national investment environment is a special system for itself because it consists of many smaller systems

2.3 Classification of investment environment

2.3.1 Classification by national management function

The elements of investment environment are divided into 2 groups: Group of strong powerful governmental element and group of less powerful governmental element: input price due to the market impact; natural features of a nation, disaster

2.3.2 Classification by channels of factors affecting investment activity

The factor of FDI investment environment is divided into 03 groups: Factors affecting costsb; Factors affecting risk; Factors affecting competition

2.3.3 Classification by constituent elements

The overall investment environment includes particular investment environments following: Natural Environment; Political environment; Law environment; Economic environment; Social and cultural environment

2.3.4 Classification by scopes

In a country, the investment environment can be devided into National investment Environment, Regional Investment Environment and Provincial Investment Environment

2.3.5 Classification by phases of formation and investment activities

FDI environment includes the following elements: Factors approaching investment market; Factors related to operating process; Factors related to the end of investment activity

2.3.6 Classification by causes for capital flows

- Push factor: The elements belong to the investment environment of the investment exporting countries

- Drag factor: The elements belong to the investment environment of the investment receiving countries

3 IMPACT OF INVESTEMENT ENVIRONMENT ON FDI ATTRATION

3.1 Factors from investment environment in the host country countries

3.1.1 Natural environment

The natural environment includes natural factors such as geographical location, topography, climate, natural resources of a given area

3.1.2 Politic environment

The stable political system ensures the Government's commitment to the investor about the capital property, the investment incentives and the development orientation This factor specifies level of assets risk and business activities of investors

3.1.3 Law and policy environment

FDI activities relate to many organizations and individuals and are conducted for a long time So the legal system of a country must ensure the following elements:adequacy and synchronization of the legal system; the ability of law implementation: working in the countries abroad with large amount of property, investors must rely on the laws of host countries to ensure their interests; administrative procedures; the preferences and restrictions given to investors by the legal system; Transparency, fairness, openness and stability of the legal system

3.1.4 Economical environment

The economic environment reflects the level of economic development of a country, and may affect the attraction and effective use of FDI investors

3.2 Factors from invironment in investor’s countries

3.2.1 Macroeconomic policy

- Financial and monetary policies

- Foreign exchange management policy

- Import and export policy

3.2.2 International legal for oversea investment

- The bilateral and multilateral investment agreements

- The double taxation avoiding agreements

- Help for investment promoting activities

- Insurance policy for capital investment

3.2.3 Economic, scientific and technological potential

- Economic potential: if the economy of a country has high accumulation capacity and

high levels of foreign currency reserves, the country has greater demand for foreign investment

to exploit effectively excess capital

- The level of research, scientific and technological development

3.3 Factors from international investment environment

3.3.1 General trend of cooperation between regions and countries

The trend of increasing cooperation between the countries and territories will limit military confrontation; promote the expansion of economic relations between the countries and territories These are important conditions for investment liberalization

3.3.2 General trend of regional lingkage and globalization

The trend of globalization also promotes international financial markets, which impacts strongly on FDI movements This effect is expressed by: reducing the financial institutions for international capital flows, extending the application of technology to create favorable conditions for trading business of financial markets

3.3.3 Establishment and development of transnational companies

FDI activities are mostly implemented by the TNCs so the establishment and development of TNCs will impact significantly on FDI flows movement TNCs include the parent and subsidiary company in countries around the world

4 ATTRACTING FDI EXPERIENCE WORLD-WIDE

4.1 Attracting FDI experience of some countries

The desertation explained FDI experience of China, Malaysia, Thailand and Singapore

4.2 Experience for Vietnam

- It is needed to determine the right content to attract FDI in each stage of socio economic development of the country

- It is required to ensure security for political, social and economic stability environment and to enhance the role of state management

- Improve open legal system

- Focus and concentrate investment in economic infrastructure in order to create a favorable investment environment for foreign investors

- Simplify administrative procedures, investment process

- Strengthen the financial services and supporting services to attract FDI

- Improve the quality of human resources to meet social requirements

4.3 Role of FDI on socio-economic development in Vietnam

- Enhancement of investment capital

- Promotion of economic structure transfer, work creation for employee

- Creation of industrial and export values and GDP growth contribution

- Contribution of infrastructure and techniques forming for the industrialization and modernization process

- Contribution of national budget increase

5 REVIEW OF RELATED STUDIES

The author reviewed above 20 studies on foreign direct investment and investment environment in Vietnam and in the world Most of the studies focused on studying the situation of FDI attraction in a country, region, at a local area of a nation; role of FDI to the invested countries, investment countries; and investment environment factors affecting FDI attraction

6 CONCEPTUAL FRAMEWORK

It is the relationship between environmental factors in attracting FDI of a host country including five factors in the folloing Figure 1 Framework of the research:

Factors

1 Politic,

2 Governmental administration,

3 Location,

4 Economic and financial mechanism,

5 Labor

FDI environment

of Vietnam as host country

FDI in the three

major cities of

Vietnam:

1 The US

Investors

2 The US FDI

enterprises

3 The FDI

Governmental

Administrator

Determination of the US invertors

1 Remaining investment

2 Extending projects

3 Encouraging other investors

International FDI policies of the United State

CHAPTER 3 METHODOLOGY

1 RESEARCH DESIGN

Step 1: Clarify the issues to be studied

Step 2: Study theorical results of foreign direct investment attration

Step 3: A qualitative study

Step 4: The synthesis , analysis, comparison are used

Step 5: Quantitative research uses multivariate regression models

2 LOCATION OF THE STUDY

- Departments of Planning and Investment (Hanoi, Ho Chi Minh city, Da Nang)

- Foreign Investment Agency – Ministry of Planning and Investment

- FDI enterprises in the 03 provinces

The data is collect in period of time from 1988 to 2012

3 DESCRIPTION OF RESEARCH POINTS

A five-point Likert scale was used for the scoring indicators of 5 indicators The results obtained from the questionnaire were entered into SPSS spreadsheet

Table 1 Factors affecting the FDI

Political environment affects to attracting FDI from the US (POE) Vietnam FDI

environment affects

to determination of the US invertors

(FVE)

Governmental administration affects to attracting FDI from the US (GAE)

Location factor affects to attracting FDI from the US (LOE)

Economic -financial mechanism affects to attracting FDI from the US (EFE)

Labor affects to attracting FDI from the US (LAE)

A model is basing on five indicators in the Table 1 and it is estimated as following model:

FVE(y) = β 0 + β 1 POE + β 2 LOE+ β 3 EFE+ β 4 LAE + α

4 SAMPLE SIZE AND SAMPLING TECHNIQUE

To determine the number of enterprises in research should examine this Dissertation Slovin formula used is as follows: n = 2

N

where n : number of samples to be surveyed

N: total business of foreign direct investment in three areas

e: Standard error of sampling

Due to surveyed enterprises are placed on vast areas, so it is very difficult to access them

On other hand, the surveyed time and cost are limited, so the Dissertation should be using the error standard in this survey is 10%

Thus, the minimum sample size to conduct the investigations would be:

N

99 59 , 98 ) 1 , 0 (

* 7032 1

7032

The numbers of samples were selected in the area, respectively: Hanoi: 99 * 29.3% = 29;

Da Nang: 99 * 11.1% = 11; Ho Chi Minh City: 99 * 59.6% = 59

5 DATA COLLECTION PROCEDURE

Figure 2 Data collection process

6 STATISTICAL ANALYSIS

1 Average value and comparative value method

2 Frequency scale for 05 factors

3 ANOVA statistic to find out discrepancies between 03 areas

4 Using the correlation coefficient (r) to perform statistic

5 Apply model of regression linear – correlation.

Survey research was studied or conducted through articles,

scientific reports, essays

Send a formal questionnaire to the investors, FDI enterprises and FDI

governmental agencies

Get officers experts who are experienced in FDI by submitting a preliminary

questionnaire

Collecting qualitative data for the

factors from the questionnaire

Collecting quantitative data from statistic agencies and legal system

Discuss and evaluate the impact of these factors work to attract the US investors

Find out the relationship and affection of these factors to the US FDI in Vietnam

Conclusions and Recommendations

CHAPTER 4 RESESULT AND FINDINGS

1 RESEARCH BACKGROUND - AN OVERVIEW OF FDI ENVIRONMENT IN VIETNAM AND THE UNITED STATE

1.1 General investment environment of Vietnam

1.1.1 Politic environment

Vietnam is ranked as one of the stable political countries in the world

1.1.2 Geographic and Infrastructure environment

Vietnam has a favorable geographical location for economic and social development in general, for attracting foreign investment in particular High rate of investment in Vietnam resulted in rapidly expanding volume of infrastructure and improving access and contributed to the successful growth and development of the country

1.1.3 Economical and Financial Environment

Since the implementation of reforms, Vietnam has been a great achievement in economics Vietnam maintains continuous economic growth; the average growth is ranked in the high growth economies in the region and around the world However, macroeconomic instability in recent years has negative impact on attracting foreign direct investment

1.1.4 Institutional and Administrative Management environment

Right from the start of implementation of open innovation policy, the Party and State of Vietnam was interested in the reform of administrative procedures and have been specified in the Resolution of the Communist Party of Vietnam

1.1.5 Labor environment

Human resource of Vietnam is important factor having a positive impact on FDI attraction because of the abundant labor force, low costs, and increasing labor skills over the years

1.2 Trend of FDI attraction in Vietnam

1.2.1 Economic growth forecast for Vietnam

When world economy would continue to recover in the future, Vietnam economy shall continue to grow and its structure shifts positively

1.2.2 Comments about FDI from the U.S in Vietnam during 2013 – 2020

The total investment

FDI from the United States in Vietnam will rise again in 2013, and will grow rapidly after 2015 It is derived from the many causes which are explained clearly in the dissertation

1.3 Policies of the U.S on abroad investment

1.3.1 Summary of the United States

In general, direct investment abroad by U.S was controlled mainly by the international bilateral and multilateral legal set by the United States (early years of the 19th century) In the framework of bilateral cooperation, the U.S government signed treaties under 3 types,