Summary of PhD Dissertation: Determinants of Vietnamese enterprises’ outward direct investment decision - The case of Cambodia

The thesis studies the factors affecting the decision of direct foreign investment of Vietnamese enterprises, in which Vietnamese enterprises registered to apply for direct investment to the Kingdom of Cambodia by the Foreign Investment Agency and registered, licensed by the Investment Development Council of Cambodia (CDC) and businesses that intend to invest in Cambodia.

MINISTRY OF EDUCATION - TRAINING

The thesis is completed at:

Name of the supervisor:

DISCLOSURE OF RESEARCH RESULTS

RELATED TO THE THESIS

During the study and completion of the thesis, the author has done researches directly related to the thesis as follows:

 Research project

1 Vo Thanh Thu & Le Quang Huy (2015) Vietnamese enterprises outward direct investment: The reality of foreign direct investment of Vietnamese enterprises - in case of Cambodia Upgrading project of Journal of Economic Development achieving international standard SCOPUS 2015 Ho Chi Minh City: University of Economics Ho Chi Minh City

 Articles published in academic journals

1 Le Quang Huy (2013) Re-aware of Vietnam's direct foreign investment role and some policy comments Journal of Financial Research - Marketing, 13 & 14

2 Vo Thanh Thu, Le Quang Huy & Le Thi Bich Diep (2016) Researching factors affecting decision of Vietnam's FDI: The case of Cambodia Journal of Economic Development, 27 (9), 4 - 33

3 Vo Thanh Thu & Le Quang Huy (2017) Determinants of Viet nam’s FDI in Cambodia Proceedings of the National Conference: Economic picture for Vietnamese enterprises 2017 Ho Chi Minh City: University of Economics & Law, Viet Nam National University HCM

4 Vo, T T., & Le, Q H (2017) Determinants of Vie.tnam’s Outward Direct Investment: A difference test among entry modes International Conference of University of Economics Ho Chi Minh

City: Policies and Sustainable economic development Ho Chi Minh City: University of Economics Ho Chi Minh City

5 Vo, T T., Le, Q H., & Le, T B D (2018) Determinants of Vietnam’s outward direct investment: The case of Cambodia Journal

of Asian Business and Economic Studies, 25(01), 24 - 49 doi:

10.24311/jed/2018.25.S01.2

CHAPTER 1 GENERAL INTRODUCTION

1.1 Theoretical context

As defined by OECD (2008), foreign direct investment is a type of cross-border investment with the goal of establishing long-term benefits in an enterprise that is residing in another economy Many studies explain the role of foreign direct investment: For investors to seek more attractive profit margins in foreign markets (Agarwal, 1980; Moosa, 2002) or to implement diversification of investment activities (Tobin, 1958; Markowitz, 1959; Moosa, 2002)

or influenced by output output and market size of the receiving country (Balassa, 1966; Moore 1993; Wang & Swain, 1995) By assessing the outward investment motives of Japanese enterprises, Kreinin et al (1999) concluded that "market share protection is one

of the most important motivations for FDI." For countries receiving capital, OECD (2002) pointed out that FDI creates a spillover effect

on technology, supports investment in human resources, contributes

to the nation's international trade integration, helps create a business environment more competitive and increase the development of businesses All of these contributes to higher economic growth and is seen as an effective solution to help economic growth in developing countries According to Grossman and Helpman (1991), Hermes and Lensink (2003) point out that FDI plays an important role in modernizing and promoting the development of the economy in the host country Johnson (2005) in the study of the impact of FDI on economic growth, concluding FDI impacts on host countries, especially the group of developing countries mainly in the form of physical capital and technology, in particular, technology is a key factor According to Kemp (1962), capital mobility is due to

differences in marginal productivity Capital moves from where marginal productivity is lower to where marginal productivity is higher Kemp's theory is based on a perfect market assumption, without risk, that profit is the only variable of investment decisions Therefore, a country with abundant capital has a lower profit margin than the scarce country However, this theory did not explain the reason besides the capital inflows, the capital flow also moves out of

a country and moreover, why the countries that lack capital and technology are not high in developing countries which include Vietnam, the enterprises directly invest abroad? So what causes direct investment abroad from developing countries?

According to UNCTAD (2006) and Dunning (2006), there are differences in the causes affecting foreign direct investment enterprises from developed countries and developing countries It is also the topic that attracts the research of the authors in the world

So far, there have been many theoretical works explaining the cause of the formation of foreign direct investment such as: theory of effective market hypothesis, theory of inefficient market assumption, choice theory choose the position of internationalization theory After all, there are two ways to study the cause of FDI formation In the direction of studying motivational factors from the country, researchers believe that the motivation for businesses to decide to invest abroad may be because the domestic market is no longer attractive (UNCTAD, 2006; Kayam , 2009; Masron & Shahbudin, 2010; Lu & co-author, 2011, Lou & Wang, 2012), domestic business costs are too high (Andreff, 2003; Kayam, 2009; Masron & Shahbudin 2010), natural resources increasingly depleted or inaccessible (UNCTAD, 2006; Masron & Shahbudin, 2010; Yao et

al., 2010) In addition, for FDI enterprises to facilitate investment abroad, there is a great need for support from the domestic government in making investment policies and regulations (Aykut & Ratha, 2004; UNCTAD, 2006; Yao et al, 2010; Masron & Shahbudin, 2010; Lu et al, 2011; Lou & Wang, 2012; Stoian, 2013)

In the direction of research focused on attracting factors, the researchers argue that businesses that decide to invest abroad may stem from recognizing the attractiveness of the market in the intended country private (Balassa, 1966; Dunning, 1988 & 2002; Wheeler & Mody, 1992; Moore, 1993; Wang & Swain, 1995; Markusen & Venables, 1998, 2000; UNCTAD, 2006; Buckley et al., 2007; Duanmu & Guney , 2009; Cuyvers et al., 2011; Anil et al, 2011; Gill, 2014; Lee et al, 2016; Mourao, 2017), low operating costs (Dunning, 1988 & 2002; MacCarthy & Atthirawong, 2003; UNCTAD, 2006; Anıl & et al, 2011), abundant or easily accessible resources (Dunning, 1988, 2002; Anil & et al., 2011), have a close geographical position or a Cultural similarities (Anil et al., 2014), economic infrastructure (Dunning, 1988 & 2002; Wheeler & Moody,

1992, Zhang & Zuk, 1998, Na and Lightfoot, 2006), Business support of local governments (Dunning, 1988 & 2002; Anil et al., 2014; Buckley et al, 2007; Dunning, 1988 & 2002) or due to good international economic integration (Dunning, 1988 & 2002; Anil et al., 2011)

In addition, Aykut and Ratha (2004), UNCTAD (2006) synthesized and recommended two groups of push - pull factors to impact on FDI However, in these studies, it is only limited to summarize the discrete studies of factors attracting capital in the country of capital import and promoting from the capital exporting

countries affecting FDI.The most recent publication by Li et al (2018) recommends new research directions so that simultaneously assessing all 3 components affecting FDI include: internal corporate perspective (ownership, type of FDI .), the level of managers and the context decide the location selection (the factors belong to home country, host country, local, sub-regions, networks)

On that basis, this thesis proposes to examine the simultaneous impact of Push - pull factor groups to investment decisions of enterprises from a developing country This is an research gap that the thesis expects to solve

1.1.2 Empirical context

Up to now, Vietnam has invested abroad with 1318 projects and over

22 billion USD, the average investment capital / project is nearly 17 million USD Among more than 30 countries receiving investment capital from Vietnam, by the end of 2017, the Kingdom of Cambodia

is the second ranked country with the total number of projects with

168 projects (accounting for 16.05%) and 3rd ranking of investment capital with more than 2.7 billion USD (accounting for 13.7%) In

2017, Vietnam and Cambodia celebrated 50 years of establishing diplomatic relations with Cambodia, in this historical period, the economic - political - military relations between the two countries always developed in a wide and deep way However, Vietnam is only the fifth largest investor among foreign investors in Cambodia, this result is not commensurate with the potential and relations of the two countries So far, there have been some empirical studies on FDI activities from Vietnam to abroad, but the works have not focused on studying the factors affecting the investment abroad decisions of Vietnamese enterprises and measures the degree of simultaneous

influence of these factors on the decision of direct investment activities abroad and there is no empirical study on in-depth investment of Vietnam in Cambodia market Based on the theoretical

and practical context, the author proposes the thesis: “Determinants

of Vietnamese enterprises’s outward direct investment decision: the case of cambodia”

1.1.3 Research significance of Vietnamese enterprises’s FDI to Cambodia

Cambodia is a small market but a very important position for Vietnam because the two countries have territory, economic cohesion, penetrating into each other's markets will help stabilize socio-political security

In the context of many Vietnamese enterprises wishing to invest abroad, the results of the study not only complement the research activities on FDI from developing countries like Vietnam but also helping Vietnamese State administrative agencies have a basis to propose appropriate strategies and solutions to enhance FDI activities from Vietnam to Cambodia in particular and to other countries in general, contributing greatly to development Vietnam's political and economic relations with Cambodia and other countries

in the world

1.2 Research aims

(1) Simultaneously verify the scale of motivating factors from the capital exporting country and the factors of attraction from the receiving country affecting the decision of direct investment of enterprises abroad

(2) Determine the influence and degree of influence on Push factors

to the direct investment decision of Vietnamese enterprises

(3) Determining the influence and degree of influence on Pull factors

to Vietnamese enterprises' direct investment decisions

(4) Proposing policy implications with scientific basis and management applicability to the State of Vietnam and the host country in creating a favorable investment environment to promote FDI from Vietnam; at the same time, give suggestions for managers

of Vietnamese enterprises which are and intend to invest directly abroad

1.3 Research’ object and scope

 Research’ object: Factors affecting Foreign direct investment decisions

 Research’ scope: The thesis studies the factors affecting the

decision of direct foreign investment of Vietnamese enterprises, in which Vietnamese enterprises registered to apply for direct investment to the Kingdom of Cambodia by the Foreign Investment Agency (Ministry of Planning and Investment of Vietnam) and registered, licensed by the Investment Development Council of Cambodia (CDC) and businesses that intend to invest in Cambodia

- Research period from 1989 to 2017

1.4 The research methodology

The general research method of the thesis is based on Embedded Design method in which quantitative research is main (Creswel, 2014) The research methods, the process of building the scale, the sampling process will be detailed in Chapter 3 of the thesis

In general, it is possible to generalize the research methods, analysis techniques and data processing as follows:

 Qualitative methods:

+ Grounded theory: to study the general theory, theoretical basis

related to FDI

+ Documents and Records Analysis: to research and evaluate

Vietnam's direct investment activities in Cambodia

+ Historical research method: to compare Vietnam's OFDI results

in general and Cambodia in particular over the years according to historical events, to find trends and differences, in order to find the reason for that difference

+Interview method: In order to adjust and supplement the scale and

to clarify the factors that motivate and attract Vietnamese enterprises

to invest directly in Cambodia as well as the difficulties facing businesses when investing in Cambodia

+ Observation method: implemented by the author to assess the

Cambodia investment environment, support activities of Vietnamese State agencies for direct investment activities abroad, to have the feeling of author when standing in the perspective of investors

 Quantitative methods:

+ Cronbach’s Alpha analysis method: to assess the reliability of scale

in the preliminary and quantitative quantitative research steps + Exploratory factor analysis method: to assess the scale value in the preliminary and official quantitative research steps, to clean up the scale as well as explore the group of factors

+ Confirmatory factor analysis method (CFA): to test the scale in the official quantitative research step

+ SEM analysis method: to test theoretical models with hypotheses set out

+ Bootstrap analysis method: to re-estimate the theoretical model to retrieve research samples to save time and cost

 Data sources:

- Primary data: through interviews with management levels of

Vietnamese enterprises, have/are and intend to invest in Cambodia and some experts have practical experience and research related to Vietnam’s FDI in general and to Cambodia in particular

- Secondary data: statistics from Foreign Investment Agency,

General Statistics Office of Vietnam, Cambodia Development Council, Vietnam Embassy, CPC - Vietnam Friendship Association, Cambodian Vietnamese Association in Cambodia, and books, newspapers, website, legal documents related to Vietnam’ FDI activities in Cambodia

CHAPTER 2 THE THEORETICAL BACKGROUND AND RESEARCH MODEL OF FACTORS AFFECTING THE FDI

DECISION 2.1 The theoretical background

There are many theories explaining FDI (Details in section 2.2 of the thesis), can be summarized in the following table:

Table 2.1 Summary of theories of FDI determinants

Theories Determinants Author(s) (year)

Perfect market Higher return on investment, lower labour costs, exchange rate risk, large

market size and output in the host country

Heckscher & Ohlin (1933), Agarwal (1980), (Tobin, (1958), Markowitz (1959), Balassa (1966), Moore (1993),

Wang & Swain (1995)

Industrial

organization

Advantage of capital, management, technology, marketing, access to raw materials, economies of scale,

bargaining and political power

Aharoni (1966), Knickerbocker

(1973)

- Advantage of locating in protected markets, favourable tax systems, low production and transport costs, lower risk

- Advantage of internalisation cutting transaction costs, lowering risk of copying technology, quality control

Dunning (1977, 1979, 1988,

2002)

New trade

theory

Market size, Transport costs, Barriers

to entry, Factor endowments

Markusen & Venables (1998,

2000)

Institution

approach Financial and economic incentives, Tariffs, Tax rate

Bénassy Quéré & co-author

(2001, 2007), Cleeve (2008)

Source: Compiled by the author.