Determinants of investorss satisfaction the case of FDI investors in long an province

Results of the research show that market, labor, infrastructure, and investment policies are significant factors determining foreign investors‟ decision in Long An.. Keywords: Foreign Di

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

-

LE QUOC THINH

DETERMINANTS OF INVESTORS’ SATISFACTION -

THE CASE OF FDI INVESTORS

IN LONG AN PROVINCE

MASTER OF BUSINESS ADMINISTRATION THESIS

HO CHI MINH CITY- 2012

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

-

LE QUOC THINH

DETERMINANTS OF INVESTORS’ SATISFACTION -

THE CASE OF FDI INVESTORS

IN LONG AN PROVINCE

Major code: 60.34.05

MASTER OF BUSINESS ADMINISTRATION THESIS

SUPERVISOR: DR DINH CONG KHAI

HO CHI MINH CITY- 2012

First, I would like to express my gratitude and deepest appreciation to my research supervisor, Dr Dinh Cong Khai for his intensive support, valuable suggestions, guidance and encouragement during the course of my dissertation

Then, it is my very much gratitude to Mr Nguyen Van Hoa – Long An Planning and Investment Service for all the useful information and documents as well as the recommendations he did kindly offered Also, this research could not be done without the enthusiastic participation of FDI enterprises in Long An who provided me with valuable feedbacks and questionnaire answers I especially express and thankfulness

to the following companies: Formosa Taffeta, Bourbon Ben Luc, Vietnam Australia, Greenfeed, and Golden Bells who helpfully joined my interviews

My sincere thanks are also to all of my classmates, my friends, and especially Mr Dang Huu Phuc for his support and guidance

Finally, I dedicate this study to my beloved family, my wife, and my little Papaya who have encouraged and supported me during the time

Ho Chi Minh City, November 22, 2011

Le Quoc Thinh

Foreign Direct Investment (FDI) is playing important roles in today‟s global integrated economy, especially for developing countries This study examines determinants of FDI Investors‟ satisfaction in the context of Long An province in order to examine FDI theories in a certain circumstance as well as find out practical reference for Long An province in their FDI attraction policy The research combines three phases: literature review, face to face interviews, and questionnaire surveys to

142 FDI enterprises doing business in Long An Results of the research show that market, labor, infrastructure, and investment policies are significant factors determining foreign investors‟ decision in Long An Besides, investors who possess different characteristics also have different viewpoints towards the above mentioned determinants Finally, the study poses out some recommendations for both Long An government for their policy establishment and FDI scholars for further researches on this topic

Keywords: Foreign Direct Investment, Investors’ satisfaction, Determinants of FDI,

Long An province, Dunning Eclectic Paradigm

Acknowledgement i

Abstract ii

Table of Contents iii

List of Tables v

List of Charts and Models vi

CHAPTER 1: INTRODUCTION 1

1.1 Theoretical background 1

1.2 Overview of FDI in Vietnam and Long An province 3

1.2.1 FDI in Vietnam 3

1.2.2 FDI in Long An 4

1.3 Problem Statement and Research Objectives 6

1.4 Research Method and Structure 8

CHAPTER 2: LITERATURE REVIEW 10

2.1 Review of Determinant of FDI Studies 10

2.2 Dunning‟s Eclectic Paradigm and Determinants of FDI 15

2.3 Determinants of FDI in Developing Countries 18

2.4 Investors‟ satisfaction 23

CHAPTER 3: METHODOLOGY 24

3.1 Qualitative Research 24

3.1.1 Research Design 24

3.1 2 Research Results 25

3.2 Quantitative Research 27

3.2.1 Population and Sampling 27

3.2.3 Measurement 29

3.2.4 Pilot Test 32

CHAPTER 4: RESEARCH RESULTS AND FINDINGS DISCUSSION 34

4.1 Research Results 34

4.1.1 Descriptive Statistic of Sample 34

4.1.2 Exploratory Factor Analysis (EFA) 35

4.1.3 Reliability of the questionnaire 39

4.1.4 Research Model 40

4.1.5 Research Hypothesis 42

4.1.6 Regression of Analysis – Determinants of FDI 42

4.1.7 Normal Distribution Test 45

4.1.8 Determinants of FDI Investors‟ satisfaction and Enterprises‟ Character 47

4.2 Findings Discussion 52

CHAPTER 5: CONCLUSIONS AND IMPLICATIONS 56

5.1 Conclusion 56

5.2 Implications 57

5.2.1 Implications for Policy Maker in Long An province 57

5.2.2 Implications for Further Research 59

REFERENCES 61

APPENDIX 68

Table 3.1 Scale for economic condition factors 30

Table 3.2 Scale for government policy factors 31

Table 3.3 Scale for Investors‟ satisfaction factors 32

Table 4.1 Sample distribution based on FDI enterprises‟ nationality 34

Table 4.2 Sample distribution based on FDI enterprises‟ target market 35

Table 4.3 KMO and Bartlett‟s Test 36

Table 4.4 Total Variance Explained for Economic condition and Government policy variables 36

Table 4.5 Rotated Component Matrix for Economic Condition and Government Policy Variables 37

Table 4.6 Total Variance Explained for Investors‟ satisfaction variables 38

Table 4.7 Component Matrix for Investors‟ satisfaction variables 38

Table 4.8 Consolidation of Reliability Analysis – Scale (Alpha) 39

Table 4.9 Symbols and coding value of research variables 41

Table 4.10 Average of Determinants of FDI 42

Table 4.11 Model Summary 43

Table 4.12 ANOVA(b) 43

Table 4.13 Coefficients(a) 44

Table 4.14 One way ANOVA for nationality character 48

Table 4.15 Post Hoc Tests - Multiple Comparisons for nationality character 49

Table 4.16 Descriptive for nationality character 50

Table 4.17 One way ANOVA for target market character 50

Table 4.18 Post Hoc Tests - Multiple Comparisons for target market character 51

Table 4.19 Descriptive for target market character 51

Chart 1.1 Comparison of GDP growth rate between Vietnam and the world 4

Model 4.1 Research model 40

Model 4.2 Summary of research process and results 45

Chart 4.1 Regression Standardized Residual 46

Chart 4.2 Normal P-P Plot of Regression Standardized Residual 46

Chart 4.3 Regression Standardized Predicted Value 47

CHAPTER 1 INTRODUCTION

1.1 Theoretical background

World Trade Organization (WTO) defines Foreign Direct Investment (FDI) as an international business activity occurs when an investor based in one country (the home country) acquires a business in another country (the host country) with the intention to manage that business The management dimension is what distinguishes FDI from portfolio investment in foreign stocks, bonds and other financial instruments In most instances, both the investor and the business it manages abroad are business firms In such cases, the investor is typically referred to as the “parent firm” and the business as the “affiliate” or “subsidiary” (WTO, 2011a) From another perspective, Cavusgil (2008) considered FDI as an internationalization strategy in which the firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, plant and equipment

The above definitions though remain differences, consensus in two basic natures of FDI First, there must be the participation of at least one foreign company (the investor) and a host country where the investment locates In this relation, the investor contributes directly their know-how, technology and other production factors into the host country as a form of a business firm The second component is the pattern of the ownership This ownership defines the way investors manages their businesses in host countries in the relation with their mother companies (or parent firms) in home countries

According to Hill et al (2008), firms have several options to go global They are, among the most recognized ones, Exporting, Licensing, and Foreign Direct Investment In this, FDI finds great advantages in preventing the company from transportation cost, trade barriers (in case of Exporting) and from leakages of

technology know-how, operation and business strategy control problem (in case of Licensing) Shatz and Venables (2000) found two main reasons lead a company to FDI which are to better serve the local market of the host country (horizontal FDI), and is to get lower cost inputs (vertical FDI) Also from Hill et al (2008), multinational enterprises (MNEs) need to locate their businesses in other markets because of their “Strategic Behavior” This behavior requires companies to keep pace with their competitors in any business movement which happens when an industry composed of a limited number of large firms (oligopoly) In addition, in today‟s globalized market, FDI provides MNEs ability to access emerging trends, new technologies and the best skills worldwide (Cavusgil, 2008)

The benefit for a FDI host country is still controversial Although there are remain arguments from anti-globalist who protest against “the invasion” of MNEs to local business, most of the scholars agree on the huge benefit that FDI could bring to the host country (Dicken, 2011) Studies in China showed that FDI promoted income growth and asset formation (Zhang (2001), Ng and Tuan (2002)) Positive impact of foreign investment on labor productivity growth rate could be found in the study of Ramirez (2000) in Mexico Domestic pharmaceutical companies in India are beneficial from the appearance of foreign companies in this country in terms of investment, competition and operations (Johri (1983) and Kumar (1996), cited by Nayak, 2008)

In addition, empirical studies showed positive relations between FDI and economic growth of host country, even in some indirect ways Findlay (1978, cited by Hill et al, 2008) postulated that FDI increase the rate of technical progress in the host country through a “contagion” effect from the more advance technology and management practices used by foreign firms Tsai (1994) found this relationship and that it varies from periods of time and the patterns of the economy Then, study of Sahoo (2006) on FDI in four countries in South Asia also found that FDI has a significantly positive impact on growth Hill et al (2008) consolidated at least four

main benefits for a host country to receive FDI: resource –transfer effect, employment effect, balance of payment effect, and effect on competition and economic growth

Understanding the importance of FDI to a host country leads to another important task for scholars and host country‟s policy makers to understand Determinants of FDI According to Faeth (2009, pg 155), “increased globalization over the last two decades has led to strong growth of international business activity and foreign direct investment (FDI), which in turn has led to extensive research on the phenomenon of multinational enterprises (MNEs) and FDI”

1.2 Overview of FDI in Vietnam and Long An province

1.2.1 FDI in Vietnam

Vietnam, a developing country in South East Asia, has been for a long period struggling with poverty and undeveloped economy due to weaknesses of the central-planning economy Since 1986, under the economic reform, Vietnam‟s economy has taken great achievements For many years, GDP growth rates are stable and relatively higher than that of the world (Figure 1.1) On Jan 11th, 2007, Vietnam officially became the 150th member of World Trade Organization (WTO, 2011b) which marked

a milestone for the participation of Vietnam‟s economy into that of the world Today, international economic integration has become one of the most importation strategies

of the country‟s economy, in which Foreign Direct Investment (FDI) attraction has been put on the top priority (Vietnam Ministry of Planning and Investment, 2011a)

Chart 1.1 Comparison of GDP growth rate between Vietnam and the world Source: Indexmundi.com, 2011.

According to Vietnam Ministry of Planning and Investment (2011b), until June

23, 2011, Vietnam has attracted 12,776 FDI projects with the total registered capital is over 198 billion US dollars (Appendix 1); in this, a very high proportion is for processing and manufacturing industry (50%) In addition, FDI have had great contribution into the development of the country In the period of 2001 – 2005, this sector contributed approximately 15.5% GDP Today, FDI accounts for 100% production in oil drilling, automobile, washing machine, air-conditioner, etc In addition, FDI gains 60% of steel production, 28% of cement production, 76% of medical care equipment production Especially, FDI also helps Vietnam penetrate into the world market, improve the capability of production and export, enhance the country‟s technology It plays an important role in main exporting industries such as footwear and electric part manufacture, etc (Vietnam Ministry of Planning and Investment, 2011b)

1.2.2 FDI in Long An province

Long An province is the gate from Ho Chi Minh City (the central of the economy) to Mekong Delta (the central of rice and agricultural products) It is about 45 kms from HCM City and one hour drive from Tan Son Nhat International Airport Moreover,

Long An has advantages in the system of transportation both by car, by boat and by sea The province converges most of necessary conditions to attract FDI This has been proved in practice that Long An has been usually a top province attracting FDI

in Mekong Delta According to Vietnam Ministry of Planning and Investment (2011b, Appendix 2), until the middle of 2011, Long An has drew 361 registered FDI projects with the total registered capital is over 3.5 billion US dollars (ranked as the 5th in number of projects and the 12th in capital nationwide) Up to now, there are more than

300 FDI enterprises doing business in Long An mainly in manufacturing, food processing and textile The investors are from 27 countries, most of them are from Taiwan and other Asian countries (Long An Service of Planning and Investment, 2007)

The participation of FDI investors has made a remarkable contribution to improve the province in many aspects over the time, especially in exporting, tax, labor issue, and technology transfer According to the Long An 20-year FDI report (2007), until 2007, FDI accounted for 62% total export of the province and consumed 70000 labors This sector also contributed a remarkable portion for Long An‟s GDP over several years Nowadays, Long An is one of not many provinces in Vietnam which can itself manage financial budget

Realizing the importance of FDI in the development of the province‟s economy, in its own development orientation, Long An has chosen this investment sector as one of the top priorities In order to ensure all the best conditions for attracting FDI, alongside with the preferential investment policies, the province actively has invested in the infrastructure, skilled labor capital, etc Currently, there are now 13 industrial zones in the province, and will increase to 15 ones by 2015 with total surface will be around 9000 ha Together with the completion of other infrastructure projects such as the system of electricity, water, and nationwide highways, Long An is estimated to be the best destination of FDI inward in the South

of Vietnam by then In July 2010, Tan Tap international sea port project has been

inaugurated with total investment is over 1 billion US dollar All the actions above just proved for the province‟s commitment to support and create the most favorable conditions for FDI activities

1.3 Problem Statement and research objectives

The literature of Determinants of FDI even sufficient still comprises some limitations First, it is the limit in methodology Most of the research has been done in this field of Determinants of FDI base mainly on historical figures using the historical movement

of macro factors as the main source of data (Tsai (1994), Sahoo (2006), Le (2004)) This method, on one hand can provide trustable information about the nature of Determinants of FDI; however, on the other hand, it is not able to provide objective ideas about what FDI investors perceive to be meaningful for their investment By other words, the current methodology to approach Determinants of FDI is to some extend ignoring the viewpoint of investors about these determinants The second limit can be found in literature of Determinants of FDI studies is the level of research object There are a lot of research conducting on national or regional level (Sahoo

(2006), Janicki and Wunnava (2004)); however, applications for provincial level is quite limited, especially for that of developing countries Provincial policy makers, especially in case of Vietnam, tend to use Determinants of FDI as national level as references for their FDI policy establishment which is not totally reflect their very specific conditions

Regarding to Long An province, with their great advantages in geography, resources, and the support from the government, Long An must be the top destination for FDI in Vietnam However, the province, in fact, is facing to many fierce challenges in its path of FDI attraction (Long An Service of Planning and Investment Services, 2007):

 First, the current FDI achievement has not yet corresponded to the province‟s potentialities This is the comment from most of local and international experts when they encounter the FDI area in Long An The statistic number of FDI

projects and registered capital, on one hand, look very satisfactory in the relation with other provinces in Mekong Delta, but on the other hand, it shows a big distance between Long An and other provinces in the Southeast such as Binh Duong, Dong Nai or further like Danang and other provinces in the North who have the same condition as Long An This expresses the fact that the province‟s FDI attraction policy has not yet been effective as it should have been (appendix 2) In addition, the quality of the projects is also a debated problem Long An is ranked as 4th in terms of project quantity but come to 12th in terms of registered capital (The Vietnam Ministry of Planning and Investment, 2011b)

 The second challenge comes from other provinces in Mekong Delta Like Long

An, they are also realizing the importance of FDI and trying to improve their FDI environment as well as attract more FDI to their provinces They could be named out as Tien Giang, Dong Thap, Kien Giang, … These are remarkable Long An‟s competitors in the battle for FDI, which forces Long An to continuously improve their investment environment, enforce the investment attraction policies

Above are the typical problems that Long An are facing to in their process of attracting and utilizing FDI In order to break out the image of a very potential province but not yet developed, to leave behind the chase of and compete from other neighbor provinces and to recover the drawbacks in existing FDI policy, Long An needs a full-fledged study which provides a comprehensive view from the investors about the current environment and policy for FDI This would be a valuable reference

to build up a break-through FDI policy which accurately expresses the open viewpoint

of the province government, highlight the province‟s advantages and especially focuses directly on the interested issues of FDI investors

In this context, the research “Determinants of Investors‟ satisfaction – the case

of FDI investors in Long An” is conducted with the objective to explore the factors affecting the satisfaction of foreign investors Results of the research provide us with

a complete picture about issues which FDI investors are really interested in, and are really important for them when making investment decision Based on this objective, the thesis aims to answer the following questions:

- What are determinants of FDI Investors‟ satisfaction in Long An?

- Are there differences in assessment on above Determinants of FDI Investors‟ satisfaction from FDI investors whose specific characteristics are different from one another?

1.4 Research Method and Structure

Deriving from the limitations in literature of Determinants of FDI study as well as its objectives to specify the factors determining investors‟ satisfaction from viewpoints

of investors, the research employs a combined method comprising three steps:

Step 1: review the literatures on Determinants of FDI with special attention to those

conducted in the context of transitioning or developing countries in the platform of Dunning Eclectic paradigm From this, define a list of possible determinants that could be used for the next step

Step 2: based on the result of the first step, an in-deep interview will be conducted

with a few FDI enterprises and FDI policy makers in Long An province Then, a list

of valuable determinants will be drawn corresponding with the situation of the province The result of this step will define suitable and valuable variables for the research model in step 3

Step 3: With the suitable variables in step 2, the multi variable liner regression model

will be built and tested via a direct e-mailing survey of 200 randomly selected FDI enterprises doing business in Long An 5 point Likert scale will be exploited for the survey Results in step 3 will provide us a clear and complete view of investors about Determinants of investors‟ satisfaction in the province

Corresponding to this process, the below structure is proposed for this research:

 Chapter 1 Introduction: discusses the theoretical and practical background of

this research, the rationales for doing and the method is used to reach its objectives

 Chapter 2 Literature Review: reviews the literature in Determinants of FDI

The fundamental theory for this research is OLI paradigm of Dunning and the theories of vertical and horizontal FDI Then, reviews on FDI investors‟ satisfaction are followed Debates will be discussed with focus on the context

of FDI in developing and transitioning countries

 Chapter 3: Methodology: combines both qualitative research (in-depth

interview) and the quantitative research This chapter will discuss sampling method, scaling technique, the method of data collection, measuring technique, interview and questionnaire structure

 Chapter 4: Results and Findings discussion: consolidates and analyzes results

of quantitative research Then, this chapter will discuss these results in connection to both theory perspective and the case of Long An province

 Chapter 5: Conclusion and Implications: concludes the research and its

achievements; refers some implications for Long An FDI policies as well as for further research on this topic

CHAPTER 2 LITERATURE REVIEW

2.1 Review of Determinant of FDI Studies

One of the most important major of FDI studies is about Determinant of FDI

“Literature on the factors that motivate foreign firms to invest in host countries, especially industrially developing countries, is expansive” (Nayak, 2008, p.6)

First, looking for resources in the host countries has been a major reason behind FDI movement in the late 19th and early 20th century, study of Nayak (2008) According to Jones (1996), by the end of the Second World War, most of the world‟s natural resources have fallen into the hands of large MNEs The idea of resource seeking as a driving force to move outside MNEs‟ home market is also supported by Dunning (1998), Rugman and Verbeke (2001) Recent study by Chandrapalert (2000) with reference to FDI from USA to Thailand provided more evidence for this argument

Then, unexplored markets have been another determinant for FDI Vernon (1966) proposed the model of international product life cycle which pointed out that firms in developed countries have to move to new markets in less developed or developing countries to produce their products Park and Lee (2003) found similarities

in their study of American firms who invested in China to take advantage of the potential market of this country Tsai (1994), Ali and Guo (2005) used different

methods but found the same conclusion that large market size and growth of China is

a key point that influences multinational enterprise‟s investment decisions The common point in these researches is that market size of the host country could provide clues about the potentiality of labor, suppliers and customers the size of host country‟s market

Apart from the above traditional factors, resource and market seeking, recent driving forces for FDI could be addressed to efficiency seeking Vernon (1966) explained FDI of American firms to UK and Canada based on the low cost of production in these countries Tang (2002) indentified comparatively low cost labor in Asia is the motivation of US MNEs‟ vertical FDI there Others have argued that host country openness to trade and business is the main reason of for inward FDI, especially in developing and transitioning countries (Charkarabarti (2001), Sara and Newhouse (1995)) (Yang et al (2000) on the other hand, concluded favorable interest rates and wage rates are main Determinants of FDI in Australia Ownership advantage and ownership structure were respectively discussed by Ellis and Fausten (2002) and Dunning (1998) as other efficiency seeking Determinants of FDI

Nayak (2008) concluded that foreign firms invest to developing host country because of the availability of natural resource, potential market and lower factor costs for production in these countries

Faeth (2009) has another approach to Determinants of FDI by historically classifying its studies According to her, Determinant of FDI studies could be classified into 9 models

1 Early Studies of Determinants of FDI

Early empirical studies in Determinants of FDI, typically based on questionnaires in 1960s, concluded that market growth and market share are important Determinants of FDI (Robinson (1961), Behrman (1962), Basi (1966), Kolde (1968), Brash (1966), cited by Faeth (2009)) In addition, political stability, foreign exchange stability and positive attitude to foreign investment are significant motivation for foreign firms to invest to a host country (Basi (1962), cited by Faeth (2009))

2 Determinants of FDI according to the Neoclassical Trade Theory

The second theory to explain Determinant of FDI was Neoclassical Theory which was based on the Heckscher–Ohlin model (Faeth, 2009) Even though wide debates among scholars in this theory, they basically agree in capital endowment, currency

risks, interest rates difference are main driving force for firms to locate their business

in a certain country (Aliber, 1970, cited by Faeth, 2009)

3 Ownership Advantages as Determinants of FDI

Hymer (1976, cited by Faeth (2009)) viewed Determinants of FDI from the imperfection of the market His argument based on the concept of monopolistic advantage to explain why firms enter foreign markets He argued that foreign firms need ownership advantages such as product differentiation (imperfect good markets), managerial expertise, new technology or patents (imperfect factor markets) Knickerbocker (1973, cited by Faeth (2009)) then proposed the theory of oligopolistic reaction and pointed out that one of the reasons a US firm invest to a foreign market is

to follow the leader of that industry

In addition, numerous empirical studies have supported the argument that ownership advantages are significant determinants of FDI, showing that factors such

as R&D and advertising expenditure, managerial resources, technology, capital intensity, labor skills, firm size, scale economies and experience had an effect on FDI

or MNE activities (Horst (1972), Wolf (1977), Caves (1974), Baumann (1975), cited

by Faeth, 2009)

4 Aggregate Variables as Determinants of FDI

This type of Determinants of FDI research studied the effect of aggregate variables such as market size, and market growth on FDI To this, market size, market growth and trade barriers could potentially be important determinants of FDI and should be incorporated into the theoretical models explaining FDI (Faeth, 2009)

5 Determinants of FDI in the OLI Framework

Eclectic paradigm of FDI developed by Dunning (1977, 1979) by bringing together internalization theory and traditional trade economics In this paradigm, FDI was explained by identifying three types of special advantages that MNEs have: ownership, location and internalization advantages

 Ownership advantages is about the production process; the competitive advantages over domestic firms which includes patents, technical knowledge, management skills and reputation

 Location advantages were motives for locating production on a certain place abroad including the access to protected markets, favorable tax treatments, lower production and transport costs, lower risk and favorable structure of competition

 Internalization is about the advantages of FDI in comparison with licensing

or exporting In this comparison, FDI offers lower transaction costs, minimizes technology imitation and maintains the firm‟s reputation through effective management and quality control

6 Horizontal and Vertical FDI

Shatz and Venables (2000) summarized two types of FDI According to them, there are two reasons lead a company to FDI One reason is to better serve the local market, and the other is to get lower cost inputs FDI to serve local markets is often called

“horizontal” or “market seeking” FDI since it normally involves building duplicate plants in a foreign location to supply the market there The motive is to reduce the cost involved in supplying the market (such as tariff or transport cost) or to become more competitive in other ways – such as through proximity to the market and being able to respond to changing circumstances and preferences Then, FDI in search of low-cost inputs is often called “vertical” or “production cost-minimizing” FDI since it involves slicing the vertical chain of production and relocating part of the chain in a low cost location – for example, assembling electronics goods in Asia, even though manufacture of sophisticated component parts and final sales might take place in the United States

Both horizontal and vertical FDI tend to cluster in a certain location, (sometimes referred to as “agglomeration”), creating incentives to locate close to other firms An example may be regional groupings of services suppliers More suppliers, each producing a different service, will create finer divisions of labor in

intermediate input markets, thus lowering unit costs for final producers (Wheeler and Mody, 1992) Alternatively, clustering occurs if firms “herd” uncertain about whether

a country is a good location, firms may wait for the success of the first firm (as a signal of underlying the national conditions) before entering the fray in a follow-the-leader type scenario Finally, while the distinction between horizontal and vertical FDI is useful, they are not mutually exclusive; at times, we may find one plant serving both functions (Shatz and Venables, 2000)

7 Determinants of FDI according to the Diversified FDI and Risk Diversification Models

Ideas about horizontal and vertical FDI were critiqued by Hanson et al (2001) They argued that researches should focus more on the choice between production- and distribution – oriented FDI which does not reflect the export – versus – Investment decision as the basic of horizontal and vertical FDI Based on this finding, Ekholm et

al (2003) derived a theoretical model explaining export-platform FDI The intermediate good was produced in one of the two North countries, turning home countries to MNEs, while assembly was undertaken in either North or South Export-platform FDI – with North MNEs produces their goods in South and exports them to either the other

Kopits (1979) measured US MNEs‟s industrial structure from 15 manufacturing industries to analyze the determinants of diversified FDI He found exchange rates and interest rates are significant influential factors for FDI location to spread the business risk Evidence supporting the hypothesis that firms wanted to diversify geographically to reduce risk was presented by Hughes et al (1975), Michel and Shaked (1986), Miller and Pras (1980) and Thompson (1985) (Faeth, 2000)

8 Policy Variables as Determinants of FDI:

Another approach to Determinants of FDI is to view FDI in the relation between host country and MNEs or the competition between host countries to attract FDI According to Faeth (2000, p 184), one host country can distinguish the others from three main types of investment incentives:

“fiscal incentives (profit-based, capital investment-based, labor-based, based, value-added-based, import- or export-based and incentives based on particular expenses), financial incentives (government grants, government credits at subsidized rates, government equity participation and government insurance at preferential rates) and other incentives (subsidized dedicated infrastructure, subsidized services, market preferences and preferential treatment on foreign exchange)”

sales-Mudambi (1999) found that in order to reduce risk and uncertainty between the government and MNE, different supports such as grants, tax abatements, subsidized loans should be offered by the government to attract MNEs

2.2 Dunning’s Eclectic Paradigm and Determinants of FDI

The Eclectic paradigm is developed in 1970s in order to explain foreign activities of MNEs which could not be done by the contemporary theories at that time It offers a general framework for determining the extent and pattern of both foreign-owned production undertaken by a country‟s own enterprises, and that of domestic production owned or controlled by foreign enterprises (Dunning and Lundan, 2008)

The main hypothesis on which the Eclectic paradigm of international production is built up is that the level and structure of a firm‟s foreign value-adding activities will depend on four conditions (Dunning and Lundan, 2008) They are:

1 The extent to which it possess unique and sustainable ownership-specific (O) advantages These O advantages take the form of the privileged possession of

or access to intangible assets which arise as a result of cross-border added activities These advantages are assumed to increase the wealth-creating capacity of a firm, and hence the value of its assets

value-2 Assuming that condition (1) is satisfied, the extent to which the enterprise perceives it to be in its best interest to add value to its O advantages rather than

to sell them, or their right of use, to independent foreign firms These advantages are so called market internationalization (I) advantages They could

provide the firm with greater efficiency of superior incentive structures of hierarchies, or their ability to exercise monopoly power over the assets under their governance

3 When conditions (1) and (2) are satisfied, the extent to which the global interest of the enterprise are served by creating, accessing or utilizing, its O advantages in a foreign location The spatial distribution of L-bound resources and capabilities are assumed to be uneven and, therefore, will confer a competitive advantage on the countries possessing them over those that do not

4 Given the configuration of the ownership, location and internalization (OLI) advantages facing a particular firm, the extent to which a firm believes that foreign production is consistent with the long-term objectives of its stakeholders and organizational strategy

Regarding to the type international production, Dunning and Lundan (2008) proposed some determining factors for investors who seeking for resource (vertical FDI) or market (horizontal FDI) in related to this OLI advantages

 Ownership advantages (the “why” of MNE activity):

o For foreign investors who go abroad for natural resource seeking (Vertical FDI), the ownership advantages could be seen via: capital, technology, and access to markets; complementary assets; size and bargaining strengths

o For foreign investors looking for market: capital, technology, information, management, and organizational skills; surplus R&D and other capacity; economies of scale; ability to generate brand loyalty

 Location advantages (the “where” if production)

o Natural resource seeking investor (vertical FDI): possession of natural resource, and related transport and communications infrastructure; tax and other incentives

o Market seeking (horizontal FDI): material and labor costs; market size and characteristics; government policy (e.g with respect to regulations and to import controls, investment incentives, etc.)

 Internationalization advantages (the “how” of involvement)

o Vertical FDI: to ensure stability of supplies at right price; to control markets

o Horizontal FDI: a desire to reduce transaction or information costs, buyer ignorance or uncertainty; to protect property rights

Then, from the country level, there are some illustrations of how OLI characteristics may vary from one country to the others (Dunning and Lundan, 2008) First, about Ownership advantages, they are factor endowments (e.g resources and skilled labor) and market size and character; government policy towards innovation, protection of proprietary rights, competition, education and training, and industrial structure; government attitudes towards internationalization of business and cross-border alliances; the organizational culture and wealth-creating ethos of a country; the nature of corporate governance and inter-firm rivalry and/or cooperation; quality of financial institutions; role of the state in favoring national champions

Location advantages focus on physical, psychic and institutional distance between countries; government intervention (e.g tariffs, quotas, taxes, assistance to foreign investors or to own MNEs); availability/promotion of clusters of related activities, science parks etc

Finally, the internationalization advantages mention about government intervention and extent to which policies encourage MNEs to internalize cross-border transactions; government policy towards mergers; differences in market structures between countries with respect to transaction costs, enforcement of contracts, buyer uncertainty etc; adequacy of technological, educational, communications and institutional infrastructure in host countries, and their ability to absorb contractual resource transfers

Dunning (2006) based on this OLI paradigm, consolidated a list of factors determining FDI from the perspective of host country:

 General policy framework

 Economic, political and social stability

 Good governance (transparent and credible policies and their enforcement)

 Policies on functioning and structure of markets (especially competition and M&A policies)

 Private property protection

 Industrial and regional policies; development of competitive clusters

 Trade policy (tariffs and non-tariff barriers) and stable exchange rates

 Policies specific to FDI

 Bilateral international investment agreements

 Investment incentives and performance requirements (pre- and post-entry)

 Pre- and post-investment services (e.g., one-stop shopping)

 Social amenities (international schools, quality of life, etc.)

 Economic determinants by type of investment

 Land and building costs: rents and rates

 Cost of raw materials, components, parts

 Low-cost unskilled labor

 Availability and cost of skilled labor

2.3 Determinants of FDI in developing countries

Since the early 1980s, developing countries have generally welcomed FDI, recognizing its manifold benefits, such as provision of capital, transfer of technology, etc (Quazi, 2007) Raymond Vernon (1966) is one of the first and well-known

scholars who recognized the roles of developing countries in the life cycle of investment and production Raymond‟s Product Life Cycle theory pointed out that developing country is the final stage of product life cycle in the context of international production expansion

Tsai (1994) studied the Determinants of Foreign Direct Investment and its Impact on Economic Growth in the context of developing countries According to this research, the market size plays more important role than growth rate in determining inflow FDI The cheap labor cost hypothesis is also tested and showed some positive relation to FDI investment determination The labor resource is also shown via the amount of labor and labor skill A strong and abundant source of labor always is a good signal for production input for most industries In addition, increase in nominal wage does discourage FDI, particularly in the eighties Findings from this paper also suggest that, even though the Economic Growth rate reflects how high and stable the economy is, the coefficient of FDI and Economic Growth might be overstated And, the debate between modernization and dependency theorists seems to be unnecessary,

or it may be more ideological than practical The argument of market side as a main Determinant of FDI is also supported by studies of Nonnemberg and Mendonca (2004), Janicki and Wunnava (2004), as well as most of the studies conducted in developing countries

Nonnemberg and Mendonça (2004) studied the determinants of FDI in developing countries Besides market side, average rate of growth also has positive effect on the inflows of FDI This growth rate provides investors with confidence for their investment yield,; therefore, it should be considered as a determinant of FDI Another interesting finding is about the level of education which is reflected via the quality of labors There was a great deal of the direct investments in developing countries has been directed towards relatively knowledge-intensive activities, and that policies aiming at increasing the level of education may induce these investments In addition, the coefficient of an economy‟s degree of openness was included as a proxy

to reflect the willingness of a country to accept foreign investment, and proved to be

important in attracting capital Then, a country‟s risk rating proved to have an important negative effect upon the inflow of direct investment Janicki and Wunnava (2004) used the context of EU accession candidates to studied Determinants of FDI This study examines bilateral foreign direct investments between the members of the European Union and eight central and east European candidate economies in transition, awaiting accession into the European Union Even though openness to trade is the most important determinants of inflow FDI in this research, market size, labor cost and country risks all play significant contributions

Ali and Guo (2005)used primary data collected directly from FDI investors in China They sent self-administered, structured questionnaires via e-mail to pre-selected recipients who had agreed to take part in their research The aim of their research is to investigate the determinants of FDI in China from the perspective of country characteristics, identifying what are the most significant factors in China that influence foreign investors‟ decision to invest in the country First, they found that large market size and growth of China is a key point that influences multinational enterprise‟s investment decisions Then, lower labor costs, and the Chinese government‟s incentive policies favor China as host country for investment and that China is an important part of their globalization strategy However, high investment return is not a significant determinant for Investment decision Next, in the situation

of South Asia, market size, growth prospects, positive country conditions, labor cost and availability of skilled labor, infrastructure facilities, openness and export promotion, rate of return on investment, human capital, and policy measures are determinants of FDI to a host country, according to study of Sahoo (2006)

Kok and Ersoy (2009) also investigated the best determinants of foreign direct investment (FDI) in developing countries They combined both panel of data and cross-section method for 24 developing countries and found that the interaction of FDI with some Determinants of FDI have a strong positive effect on economic

progress in developing countries They proposed a list of determinant variables for FDI They are:

 Policy variables: Tax policy, trade policy, privatization policy, macroeconomic policy

 Business variables: Investment incentives

 Market-related economic determinants: Market size, market growth, market structure

 Resource-related economic determinants: Raw materials, labor costs, labor productivity

 Efficiency-related economic determinants: Transport and communication costs, labor productivity

Wint and Williams (2002) studied the efforts of many developing countries to promote their economies as a destination for FDI The results showed that the convergence of policy from the central government via the policies in tax, tariff and other policies regulate investment related activities, is a significant determinant for FDI investors to come Besides, the roles of promotional activities as well as promotional organizations are highly respected

Le Viet Anh (2004) researched “Locational Determinants of Foreign Direct Investment: The Case of Vietnam” using panel data for regression model also provided some interesting recommendations for FDI in Vietnam They are “Keeping Stable Political and Economic Stability, Improving Overall Legal Framework”,

“Paying More Attention to Improve the Quality of Labor, While Keeping Comparative Advantage of Labor Cost with Countries in the Regions, Especially China”, “Place a Priority of Development for Export-Oriented FDI Together With Development of Domestic Supporting Industries to Fully Utilize the Linkage Effects from FDI”, “National Level Management and Regional Level Policy Initiatives Should Play a Complementary Role, Rather Than Competitive One”

Another research by Nguyen Minh Toan (2010) conducted on FDI enterprises

in Ha Noi, Danang, and Ho Chi Minh City aiming to find “the factors affecting the infusion of foreign direct investment capital into a locality in Vietnam” which came out with some remarkable conclusions In this, the research identified 8 factors which belong to for groups: economic factors (market factor, profit factor, cost factor), resource factors (human resource, natural resource, physical location), infrastructure factors (technical infrastructure, social infrastructure), and policy factors Among them, (1) technical infrastructure which is about the system of transportation, sea ports, industrial zone, electricity, water supply,…, (2) investment incentives (the support of local governments to promote investment into the local This could be seen via corporate tax policy, the incentives in location, business conditions, etc.), and (3) low cost of production are significant factors when foreign investor consider to invest into a certain location

According to Canh and Son (2009), the participation of Vietnam in to the international institutions such as WTO, APEC… , the country‟ openness for international investors and trader, and the stability in macroeconomic and politics are both signals of a good investment environment which is definitely a good signal for investor to consider

In conclusion, FDI is a phenomenal field of study in this global business context In its scope of study, Determinant of FDI is a very important source of reference for host country to build up their FDI attraction strategy which is very important for their economy development In general, FDI could be basically divided into two main categories: (1) horizontal FDI is exploited by the companies who want to explore and utilize host country‟s market; (2) vertical FDI is adopted by those who aim to exploit the host country‟s resource and incentive policies with the ultimate objective is for exporting

The review of literature shows many similarities between and also conflicts among scholars in their studies of Determinants of FDI, especially from the theory of

Dunning and from the context of developing countries Depends on the context and methodology, there are different significant factors claimed to be the determinants of inflow FDI into a certain region or country Consolidating those determinants provide two main groups of factors: (1) economic conditions and (2) investment policies which are called possible variables for the purpose of our research These variables in turn are the main source for the next step of the thesis – qualitative research

2.4 Investors’ Satisfaction

Another concept to consider for next steps of the research is about investors‟ satisfaction which affecting to the decision making process Literature on this field are sufficient in both Vietnam an International In Vietnam, according to a research of Tho and Trang (2009) conducted in Tien Giang province, enterprises or investors‟ satisfaction is displayed via the result and prospect of their business This concept could be scaled via their business effectiveness (revenue, profit) In addition, investors tend to invest more for a long term in that region as well as introducing other investors to come when they are satisfied

In terms of international literature, study of Ali et al (2001) in Pakistan show strong relationship between investors‟ satisfaction and their decision making process

To this, significant influence of corporate social responsibility upon in satisfaction and loyalty is observed in Pakistan

Unlike the above authors who use investors‟ satisfaction to find relation with other research factors Stelzer and Chunquang (1992) approached directly to this concept by gauging investor satisfaction in the context of China The research discussed the results of a survey on the satisfaction of American joint ventures with business in China The research also concluded that factors affecting to the success and business results of the joint ventures in China are significantly affect to the investors satisfaction

CHAPTER 3 METHODOLOGY

This part deals with how the research is conducted The chapter includes discussions

of research methodology to examine the measurement scales of concepts and verify research model and hypotheses In order to achieve the objectives for this very specific case, the research employs both qualitative and quantitative research

to Lee (1999), qualitative research is usually conducted to thoroughly study the attitude and behavior of the research subject This is a crucial step to redefine factors affecting to FDI investors‟ satisfaction in the specific case of Long An province alongside with what have been consolidated via Literature Review This step also set

up fundamental idea for the scaling step in the coming quantitative research

This qualitative research is conducted by using face to face interviews Topics for these interviews surround the meaning and clarification of the above two groups

of factors with special focuses on how interviewees perceive these concepts in their practical business activities in Long An province (Appendix 1) This qualitative research conducts control sampling method with the control criterion is company‟s nationality By this method, 27 companies represent for 27 countries investing in Long An are selected randomly from a list of 328 enterprises Then, thanks to the reference of Long An Services of Planning and Investment, these 27 enterprises are contacted for the interview Finally, there are just 6 companies agreeing for the interview The discussions then finally just can be processed with only 5 of them

3.1.2 Research results

Results from the qualitative research show that most of the investors who made decision to invest into Vietnam and Long An in particular all have very well studied issues related to their investment for a long time in advance Some of them contacted Vietnamese Consulate in their countries for a best location to invest while the others spent direct inspections on the spot Some even have a representative office in another province in Vietnam before starting their manufacture in Long An What can be seen here is that they were all very carefully with their investment decisions They chose Long An as a place to invest for several reasons; among them, there are the appearance of the possible determinants in the Literature Review

For the group of investment conditions, the investors pay most attention to the province‟s infrastructure and labor source In this, the importance of geography and transportation of Long An have significant impact on their investment decision The abundant source of labor in Mekong River Delta is another subordinate which draws more interest Although the quality of labor is not as high as in Ho Chi Minh city, the investors somehow accept this level because it is now suitable for the requirement of their business and working condition However, for long term, they really pay interest

in the quality of labor, especially for labor at managerial and engineerial levels

Vietnam is a booming economy with more than 87 million people and Mekong Delta is one of the most busiest economic area in Vietnam are two main bases for investors to believe in a bright future for this huge consumption market, especially for horizontal FDI investors The plentiful source of input material especially in agriculture area has been the main interest of export companies which focus on agricultural product processing

However, the result of Qualitative Research shows very little about the impact

of economic growth on Investment decision or the Investors‟ satisfaction The impressive economic growth rate of Vietnam and Long An in many recent years does not have much impression for the investors It is hard to explain this odd since this growth rate is somehow reflected the potentiality of market One of the reasons could

be found that most of FDI enterprises in Long An focus on export purposes Besides, most of the investors here are in manufacturing who seeking for very long-term investment rather than short-term economic prospect

For the group of government policies, investors highly appreciate and specially pay attention to the investment incentive policy of the province which has been shown via tax reduction policies, policies on premises and the improvements in administration procedures However, most of them are confused about the relationship between the country openness and stability with their investment decision in Long

An According to them, those two factors should be ranked in the level of the national issues rather than the provincial level They could not distinguish the different between Long An and other provinces in the country if basing on country openness and stability to make decision This is also a very plausible argument since most of the researches including country openness and stability were conducted as a country level rather than province one So, it should be more effective if we diminish those two factors out of the scope of this research

The qualitative research also comes to a very important conclusion about investment decision and investors‟ satisfaction As mentioned above on the literature,

investment decision is hard to recognize since it differs from one investor to the others However, most of them agree that they just decide to invest when they are satisfied with the estimated results in both short-term and long-term perspective Especially, when they are satisfied, they tend to invest more or recommend others to invest These are very helpful recognized signals for the scaling of investment decision in the quantitative research which is conducted as “investors‟ satisfaction”

After finishing Qualitative Research, the data we get shares most of the common with that of Literature Review The only difference is that investors do not put high rate for the impact of the province and country‟s economic growth rate on their investment determination and some of the factors represent for the unique characteristics of a country rather than a province

To sum up, results from the first two steps of the research provide a list of valuable variables which will be applied for the research model in the next step (Quantitative research), those variables are again divided into two following groups:

1) Investment conditions: market size, labor, infrastructure, province natural

resource

2) Government policies: investment policies, investment incentives

and Investors‟ satisfaction as the signals for Investment Decision

3.2 Quantitative research

According to Literature Review and Qualitative Research, we, as the first step, can define two groups of variables for the quantitative research: (1) economic conditions and (2) government policies This quantitative research is the final step of the research which aims to measure and define specific characteristics within each group and then access its impact on investment decision of foreign investors

3.2.1 Population and sampling

The population of this research is 328 FDI enterprises doing business in Long An This list of enterprises is provided by the Long An Planning and Investment Service at the time of August 2010 The main focuses of this list is about company name, nationality and industry (or business sector)

The sampling method is conducted for this research is simple random sampling (in case of a probability sampling for exploratory research (Salkind, 2006)) which based on the sampling frame of 328 above enterprises Then, a short list of 200 enterprises is randomly picked up via “table of random numbers” (Salkind, 2006, pp.87) as the sample for this research After that, 200 constructed questionnaires were sent to these 200 enterprises via email There are only 156 enterprises have email replied Among those, just 142 enterprises provided valuable answered questionnaires for research analyze This return ratio (71%) is quite high thanks to the recommendation of Long An Planning and Investment Service Then, based on these

142 enterprises, the research sample is controlled by 2 characters: enterprise‟s nationality (Asia, Europe, Others), enterprises‟ targeted market (Vietnam domestic market, International market, Both)

3.2.2 Data collection process

After defining the sample for this research, the next step is about data collection process According to Salkind (2006), this process involves everything from contacting possible sources and arranging data collection trips to the actual recording

of data In this specific research, this process is conducted via 4 stages:

1 Constructing data collection form:

Data will be collected onto a 3 electronic pages form under the format of Microsoft Word 2003 This form includes 3 parts: Introduction, group of questions for controlled variables, and groups of questions for dependent and independent variables All the form will be constructed into two languages (English and Vietnamese) and sent to all of the sampled enterprises (200) simultaneously

2 Coding data: this part is conducted by using Statistical Package for the Social

Sciences (SPSS) Details of variables coding could be seen more in the coming scaling part

3 Collection of the actual data:

The quantitative research is conducted by sending questionnaires via email to 200 FDI enterprises which is shorted list from 328 FDI enterprises in Long An province First

a phone call is made to every enterprise to ask for the email address and a permission

to send this questionnaire After finishing the questionnaire, the results are also collected via email

4 Entry onto the data collection form:

This job is done independently by the surveyor Every replied form is named under the name of the enterprises and check if it is appropriate for analysis The usable ones

are stored in separate folders

3.2.3 Measurements

The questionnaire is designed following two steps First, base on the results of Literature Review and Qualitative Research, a preliminary questionnaire is set up That tentative questionnaire then will be tested by pilot tests with 5 participants

First, it is about scaling to measure the variables With the purpose of answering the research questions, the scaling of this research is designed in 2 parts:

 Scaling controlled characters of FDI enterprises: multiple selected questions will be asked for two characters: nationality and target market Simple frequency analysis will be conducted

 Scaling variables of Determinants of FDI Investors‟ satisfaction: 5 point Likert Scale is conducted with 1 is completely disagree, 2 is disagree, 3 is

no idea, 4 is agree, and 5 is completely agree

Details as below:

(1) Economic conditions:

Factors belong to the group of economic conditions includes the factors about economic, infrastructure, society and other available conditions of the province that could provide effectiveness for the investment From the results of literature review and qualitative research, this group includes: market (market size, customers, and suppliers), labor (amount of labor, labor cost), infrastructure (transportation, electricity, water, telecommunication, landing fee), and provincial natural resource (input material, mineral resource)

The group of economic condition factors is scaled by 15 observed variables, coded from V01 to V15, which displayed in Table 3.1

Table 3.1 Scale for economic condition factors:

V01: The consumption market of Long An and the vicinity in general is very potential

V02: We have a lot of customers in the province and the vicinity

V03: The large amount of suppliers in the province and the vicinity ensures our long-term business

V04: Labor resource in the province is abundant

V05: Labor cost is reasonable

V06: The traffic situation and traffic system in the province in good condition

V07: The electricity is stably supplied

V08: The cost for electricity is reasonable

V09: Water supply is stable

V10: The cost for water supply is reasonable

V11: Telecommunication (telephone, internet, post office,…) is very

convenient

V12: Land and leasing fee is reasonable

V13: The province provided enough land for our business

V14: Input material sources are stable

V15: The province mineral resource is abundant

(2) Government policies:

As defining from Literature review and qualitative research, group of factors about government policies contains the investment policies, tax and other macro policies that have impact directly or indirectly on the investment and investors This group includes: investment policies (tax policy, customs procedures, import-export policies, propriety rights, investment procedures, communication with the government, administration services) and investment incentives (problem solving, incentives for new establishment) The investment policies factors is scaled by 9 observed variables, coded from V16 to V24, displayed in Table 3.2

Table 3.2 Scale for government policy factors

V16: The province‟s tax policy is almost suitable that investors can take

advantage

V17: Customs procedures are prompt and accuracy

V18: The regulations in import and export are reasonable and favorable for enterprises

V19: Propriety rights is clearly and effectively set up

V20: Investment procedure is neat and complete

V21: Communication between government and enterprises are prompt and effectively

V22: The province‟s administration services which provided by the

government are qualified

V23: The government promptly solves the enterprises‟ difficulties

V24: Incentives for new and priority businesses is very helpful

(3) Investors’ satisfaction:

Due to the investment have already occurred, the definition of investment decision just could be done via directly interviewing by a qualitative research According to results of qualitative research, there are 5 signals of investors‟ satisfaction: (1) investors are happy with the short-term result (Return on investment, expected growth, short-term objectives), (2) investors tend to invest for a long-term (willingness to invest more, introduce other investors) Investors‟ satisfaction is scaled via 5 observed variables, coded from D01 to D05, Table 3.3

Table 3.3 Scale for Investors’ satisfaction factors

D01: Our business is very satisfactory

D02: We achieved the expected growth rate

D03: We can definitely reach short-term objectives

D04: We are willing to invest more if necessary

D05: We are happy to introduce other investors to invest in Long An

3.2.4 Pilot Tests

In order to ensure the clearance and rationale of the questionnaire, pilot tests have been conducted to 5 volunteering enterprises (the one who participated to the qualitative research) In term of target market character: 2 of them focus on domestic market, 1 for international market and the rest focus on both In terms of nationality, 3

of them are from Europe and the other two are Asian

These pilot testes are taken place in two issues: (1) check the spelling, grammar, meaning of the scales for each factors to ensure that all the surveyors are able to fully understand the questionnaires without any more explanation, and (2) trial run data collection results in SPSS to make sure the program can run smoothly with those collected data The collected data was tested by Reliability analysis (Delete low-item total correlation item < 0.30) and items made Cronbach alpha <0.60), Exploratory Factor Analysis (EFA) (Deleted items with low loading factor < 0.50)