Special topic research the foreign direct investment of south korea to vietnam in recent years

DA NANG UNIVERSITY OF ECONOMICS FACULTY OF INTERNATIONAL BUSINESS SPECIAL TOPIC RESEARCH THE FOREIGN DIRECT INVESTMENT OF SOUTH KOREA TO VIETNAM IN RECENT YEARS STUDENT: HỒ THỊ VUI CLAS

DA NANG UNIVERSITY OF ECONOMICS

FACULTY OF INTERNATIONAL BUSINESS

SPECIAL TOPIC

RESEARCH THE FOREIGN DIRECT INVESTMENT OF SOUTH KOREA

TO VIETNAM IN RECENT YEARS

STUDENT: HỒ THỊ VUI CLASS: 42K01.5

DA NANG 2019

INTRODUCTION iii

CHAPTER I OVERVIEW ABOUT FDI 1

1 Definition : 1

2 Forms of FDI 1

3 Factors promoting foreign direct investment 3

4 Benefits of attracting FDI 4

CHAPTER II OVERVIEW OF FOREIGN DIRECT INVESTMENT FLOWS INTO VIETNAM 6

1 Scale of FDI investment in Vietnam 6

2 Investment structure by industry 7

3 Investment structure by economic region 8

4 Investment structure by investment partners 9

CHAPTER III SITUATION OF KOREAN DIRECT INVESTMENT IN VIETNAM 11

1 Overview of Korean FDI 11

2 Economic relationship between Vietnam and Korea 11

3 Scale of Korea FDI investment in Vietnam 12

5 The Impact of Korea’s FDI on the Vietnamese Economy 18

CHAPTER IV Proposals to attract more FDI capital into Vietnam 20

1 Experiences from other countries 20

2 Solutions to improve the efficiency of attracting and using foreign investment capital in the coming time 22

References 25

LIST OF TABLESTable 1 Vietnam’s foreign direct investment projects in period 2010 - 2018 (Generalstatistics office of Vietnam) 7Table 2 FDI projects licensed by kinds of economic activity (General statistics office

of Vietnam) 8Table 3 FDI projects licensed in 2018 by cities, provinces and items (General statisticsoffice of Vietnam) 9Table 4 FDI projects licensed in 2018 by main counters (General statistics office ofVietnam) 10Table 5: Korea's FDI capital flows into the nation 11Table 6 Total register investment capital (General statistics office of Vietnam) 13Table 7 Korea's FDI structure by sectors into Vietnam (General statistics office ofVietnam) 14Table 8 Structure of FDI by locality of Korea into Vietnam (General statistics office

of Vietnam) 16

RESEARCH THE FOREIGN DIRECT INVESTMENT OF SOUTH KOREA

TO VIETNAM IN RECENT YEARS

INTRODUCTION

1 Necessity of the topic

Foreign direct investment is now taking place on a global scale with increasingvolume and pace of rotation In addition to promoting domestic resources, takingadvantage of foreign direct investment is considered as a smart to shorten the time ofinitial capital accumulation, creating a solid premise for economic development,especially for developing countries Therefore, FDI is considered as the "golden key"

to open the door of prosperity for nations In recent years, the number of countriesinvesting in Vietnam has been increasing, especially Korea This in addition tocreating favorable conditions for the country's development such as creating jobs forworkers, increasing investment capital for facilities also causes many disadvantagesand damages to the economy in the long term Therefore, the purpose of the study is tofind out the impact foreign direct investment into Vietnam

2 Research objectives:

To research the Korean direct investment activities in Vietnam in the recent years

3 Research tasks:

Firstly, clarify and deepen the importance of FDI in Vietnam

Secondly, clearly state the status and impact of Korea's FDI in Vietnam

Thirdly, propose some solutions to effectively use FDI capital and attract foreigncapital

4 Research object:

The situation of Korean FDI inflows into Vietnam

Space: from the perspective of the state

Time: study with data series from 2010-2018

5 Research Methods :

Methods of data collection: journals, statistics, surveys,

Statistical methods, statistical analysis

CHAPTER I OVERVIEW ABOUT FDI

7 Definition :

The World Trade Organization gives the following definition of FDI:

Foreign direct investment (FDI) occurs when an investor from one country (the hostcountry) acquires an asset in another country (the country that attracts the investment)along with the right to manage that asset The management aspect is whatdistinguishes FDI from other financial instruments In most cases, both the investorand the property he or she manages overseas are business entities In such cases, theinvestor is often referred to as a "parent company" and the assets are called

"subsidiaries" or "branch companies"

=>Foreign direct investment is a form of long-term investment by an individual orcompany of one country in another country by establishing a business or productionestablishment The foreign individual or company will take control of this business

8 Forms of FDI

8.1 Classified by investment nature

a Investment in operating facilities

Operating facilities investment is a form of FDI in which the parent company invests

in procurement and establishes new business facilities in the host country This formincreases the volume of investment

b Merger and acquisition

Mergers and acquisitions are forms of FDI in which two or more FDI enterprises aremerging with one another or one of these enterprises (either operating in the hostcountry or abroad) acquires one FDI enterprises in the host country This form doesnot necessarily lead to an increase in the volume of investment

8.2 Classified by the nature of capital flows

a Stock capital

Foreign investors may purchase shares or corporate bonds issued by a domesticcompany at a level large enough to have the right to participate in the company'smanagement decisions.

b Reinvestment capital

FDI enterprises can use profits earned from past business activities to make additionalinvestments

c Internal debt transactions

Between branches or subsidiaries in the same multinational company may lend to eachother to invest or buy shares, corporate bonds of each other

8.3 Divided by the motive of the investor

a Capital to search resources

These are capital flows aimed at exploiting cheap and abundant natural resources inthe host country, exploiting labor resources that may be low in skills but low in price

or exploiting abundant skilled labor resources This type of capital also aims to exploitbrand-name assets in receiving countries (such as famous tourist destinations) It alsoaims to exploit the intellectual property of the receiving country In addition, this form

of capital also aims to scramble for strategic resources to avoid falling into the hands

of competitors

b Capital to search efficiency

This is a source of capital to take advantage of low input costs in receiving countriessuch as cheap raw material prices, cheap labor costs, prices of production factors such

as electricity, water, communication costs, transportation, cheap business premises,preferential tax rates, legal conditions, etc

c Capital to search the market

This is a form of investment to expand the market or keep the market from being lost

by competitors In addition, this form of investment also aims to take advantage ofeconomic cooperation agreements between host countries with other countries andregions, taking the receiving countries as a springboard to penetrate into regional andglobal markets

9 Factors promoting foreign direct investment

9.1 Differences in marginal productivity of capital among countries

The marginal difference in productivity (the number of extra outputs a manufacturercan produce as a result of an additional unit of production factor) of capital betweencountries An excess country often has lower marginal productivity A country thatlacks capital often has higher marginal productivity This situation will lead to themovement of capital flows from the surplus to scarce places to maximize profits.Because the production costs of surplus countries are often higher than those of capitalshortage countries However, this does not mean that all activities with high marginalproductivity are invested in production by enterprises but also important activities,which are vital for enterprises to produce whether that activity gives low marginalproductivity

9.2 Product cycle

For most businesses involved in international business, the life cycle of these productsconsists of three main stages: the new product stage; maturity of products;standardized product stage

9.3 Special advantages of multinational companies

Multinational companies have unique advantages (such as basic competencies) thatallow them to overcome cost constraints abroad so they are willing to invest directlyabroad When choosing investment locations, multinational companies will choosewhere the conditions (labor, land, politics) allow them to exert the aforementionedspecific advantages Multinational companies often have a great advantage of capitaland technology investing in countries that have available raw materials, cheap laborcosts and often a potential consumer market We easily realize the benefits of this

9.4 Market access and reduced trade conflict

Foreign direct investment is a measure to avoid bilateral trade conflicts For example,Japan is often complained by the United States and Western European countriesbecause Japan has a trade surplus and other countries have trade deficits in bilateralrelations In response, Japan has increased its direct investment in those markets Theymanufacture and sell cars and computers in the United States and Europe, to reduce

exports of these products from Japan They also invest directly in third countries, andfrom there export to North American and European markets.

9.5 Exploiting experts and technology

It is not that FDI only goes from the more developed to the less developed Theopposite is even stronger Japan is a country actively investing in the US to exploit ateam of experts in the US For example, Japanese car companies have opened cardesign departments in the US to employ American experts The same goes forJapanese computer companies Not only does Japan invest in the United States, otherindustrialized countries have similar policies

9.6 Access to natural resources

For raw materials, many multinational companies seek to invest in countries withabundant resources Japan's first major wave of foreign direct investment in the 1950swas for this purpose

10 Benefits of attracting FDI

10.1 Supplement to domestic capital

In theories about economic growth, the capital factor is always mentioned When aneconomy wants to grow faster, it needs more capital If domestic capital is not enough,the economy will want both foreign capital, including FDI

10.2 Acquire technology and management know-how

In some cases, capital for growth despite lacking can still be mobilized partly by

"austerity policy" However, technology and management know-how cannot beachieved by that policy Attracting FDI from multinational companies will provide acountry with the opportunity to acquire technology and business management know-how that these companies have accumulated and developed over the years and withgreat expenses However, the dissemination of these technologies and managementknow-how to the whole country to attract investment also depends heavily on thecountry's absorbing capacity

10.3 Join the global production network

When attracting FDI from multinational companies, not only enterprises withinvestment capital from multinational companies, but even other domestic enterpriseshaving business relations with such enterprises will also participate too regional labordivision process Therefore, the country attracting investment will have theopportunity to join the global production network to facilitate exports.

10.4 Increase the number of jobs and labor training

Because one of the purposes of FDI is to exploit the conditions to achieve lowproduction costs, foreign-invested enterprises will employ many local workers Anincrease in the income of a part of the local population will contribute positively tolocal economic growth In the process of hiring, training of occupational skills, which

in many cases is new and progressive in developing countries that attract FDI, will beprovided by enterprises This creates a skilled labor force for the country to attractFDI Not only ordinary workers, but also local professionals also have the opportunity

to work and be fostered professionally in foreign-invested enterprises

10.5 Large budget revenue

For many developing countries, or for many localities, taxes paid by foreign-investedenterprises are an important source of budget revenue

CHAPTER II OVERVIEW OF FOREIGN DIRECT INVESTMENT

FLOWS INTO VIETNAM

If Vietnam wants to achieve its goals of industrialization and modernization(industrialization and modernization), the most important issue is to mobilize and useforeign direct investment effectively In recent years, the Government of Vietnam hasalways attached great importance to attracting investment from abroad TheGovernment continuously improves the investment environment, facilitating domesticand foreign enterprises, in which attaching special importance to the implementation

of the law-making program

1 Scale of FDI investment in Vietnam

According to data of Foreign Investment Agency, from 1988 to October 20, 2017, 63provinces and cities of our country have received 24,397 FDI projects of 128 countriesand territories, with registered capital (there are also effectiveness) 312.9 billion USD,realized capital is 169.05 billion USD

From 1991 to now, realized FDI has increased rapidly:

- 1991 - 2000 reached 19,462 billion USD, an average of 1.95 billion USD / year.

- 2001 - 2010 reaching 58,497 billion USD, equaling 3 times the previous decade;

on average 5.85 billion USD / year

- 2011 - 2016 reached 84 billion USD, equaling 4.55 times in the period of 1991

2000 and 1.43 times 10 years earlier; on average 12 billion USD / year

In 2016, the foreign invested economic sector contributed about 19% of domesticrevenue and 19% of GDP; accounting for over 50% of industrial output value, inwhich oil and gas, electronics, smartphones, mobiphone, electronic components,animal feed, drinks, Have a much higher proportion; accounting for nearly 72% oftotal export turnover of which the main product is manufactured goods with highadded value, trade surplus of about 25% of export turnover of this sector, not only to

offset the trade deficit of enterprises in countries but also created a trade surplus ofnearly 3 billion USD.

Foreign direct investment projects licensed in period 1988 - 2018 by Year and Items

Number ofprojects

Total registered capital(Mill USD)

Implementation capital(Mill USD)

2 Investment structure by industry

Sectors that attract foreign direct investment in Vietnam include agriculture,manufacturing, real estate, The sectors which have been expanded and diversifiedover time

Foreign direct investment projects licensed by kinds of economic activity (Accumulation

of projects having effect as of 31/12/2018) by Kinds of economic activity and Items

Number ofprojects

Total registered capital(Mill USD)

Accommodation and food service activities 734 12025.6

Human health and social work activities 142 1970.9

Table 2 FDI projects licensed by kinds of economic activity (General statistics

office of Vietnam)

3 Investment structure by economic region

Foreign investment capital invested in Vietnam is unevenly distributed amongprovinces The investment is concentrated in big cities such as Ho Chi Minh City,Hanoi, Da Nang and provinces with developed economies This increases the localbudget, concentrates labor resources, creates jobs, and increases income for people

Foreign direct investment projects licensed in 2018 by province by Cities, provincies and

Table 3 FDI projects licensed in 2018 by cities, provinces and items (General

statistics office of Vietnam)

4 Investment structure by investment partners.

The source of investment capital from countries to Vietnam is more and more

plentiful to the investing countries Investment countries are mainly developed or

developing strongly in the international market and have close relationship with

Vietnam Previously, Japan was the country with the largest investment capital in

Vietnam, including ODA and FDI However, in the past decade, South Korea started

to rise and ranked first in terms of total FDI inflows into Vietnam

Foreign direct investment projects licensed in 2018 by main counterparts by Main counterparts

and ItemsNumber of projects Total registered capital (Mill USD)