Determinants of viet nam’s outward direct investment a difference test among entry modes

In addition, the work examines the differences in assessing the impact of two factors groups on investment decisions by market entry method.. Push factors group from Viet Nam include Com

This article focuses on the determinants of Viet Nam’s Outward FDI

by studying simultaneously the influence of two Pull Factors and Push Factors In addition, the work examines the differences in assessing the impact of two factors groups on investment decisions by market entry method The authors used the mixed research methods: qualitative - quantitative combinations The research results indicate two groups of factors that both Pull Factors and Push Factors to impact Vietnam’s FDI abroad Push factors group from Viet Nam include Competitive pressure

of Vietnam market, Monetary policy, Interest rates of Vietnam, Regulations and procedures for licensing investment abroad of Vietnam, Incentive policy, investment incentives to overseas Pull factors group form host country include Culture – Geography, Macroeconomics and market, Infrastructure, Regulations and policies related to investment There have a difference among entry modes significantly in assessing Pull factors from host country.

Keywords: FDI; Viet Nam’s OFDI; FDI from Viet Nam.

1 Introduction

In the last 30 years, globalization and regionalization of theeconomy have been rapid, one of the characteristics of theprocess is that countries promote direct investment abroad, notonly developt countries, but also developing countries Outwardforeign direct investment (OFDI) has become a trend for thebenefit of stakeholders, including the investment side: On the side

of the State to invest, helping to increase the economic, socialand political influence on the receiving country; To create a stablesource of raw materials for domestic production; The return fromoverseas investment contributes to improving the country'sinternational payment balance, on the part of

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investors, through offshore investment, which helps to expand themarket in depth, Spreading the risk in business, increasing theefficiency of using capital Having realized the benefits of OFDI,

in 1989 when Vietnam did not have legal documents regulatingthe investment activities abroad, there were projects Firstly, with

a total investment of nearly 564 thousand USD invested in Laos,

by 2016, Vietnam has had 1,188 projects invested in 70 countriesand regions of the five continents and with about 21.44 Billion.However, if compared with global’FDI, FDI from Vietnam has notincreased significantly recently, the quality of development is nothigh, so it is necessary to study the factors affecting theinvestment of Vietnam abroad; in case, Cambodia is one of thelargest and most important market attracting Viet Nam’s FDI

So far, there have been many works in the world that study thefactors affecting OFDI According to UNCTAD's World InvestmentReport (2006), scientists and experts have summarized twogroups of factors for impacting on the movement of capitalabroad The first group of factors, the enterprises investingoverseas, may come from their push factor (domestic factors)such as domestic market characteristics, resource scarcity Thesecond group of factors, companies invest abroad by theattractiveness of foreign markets (also known as Pull Factors).However, none of the works has adequately researched thesynergy of assessing both groups of factors on the impact ofcapital movements on firms Therefore, this study was suggested

by the authors on this basis, "Determinants of Viet Nam’s

outward direct investment: A difference test among entry modes", to clarify which push factors and pull factors significantly

influences the OFDI of a developing country in another developingeconomy as well as examine the differences in the generalassessment of investment decisions as well as the factorsinfluencing investment decisions among entry modes

2 The theoretical background and proposed models of factors influencing the FDI decision of Vietnam to

Cambodia:

2.1 The theoretical background

There are two groups of factors influencing foreign direct

investment decisions at the same time, including push factors andpull factors They are:

Pull factors from Host countries:

- First, Macroeconomics and market

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First of all, FDI is attracted by the market characteristics ofreceiving countries, especially for investment projects seekingmarkets including: Market size and market development speed,low competitive pressure of market makes it easier for foreignbusinesses to gain market share (Balassa 1966; John H.Dunning

1977, 1979, 1988; Moore 1993; Wang & Swain, 1995; Markusen &Venables 1998, 2000 Ludo Cuyvers et al., 2008; Jing Lin Duanmu

& Yilmaz Guney, 2009; Ibrahim Anıl et al., 2011; Cassey Lee et al.,2016; GCI1) In addition, foreign investors were also attracted bystable macroeconomic conditions, low inflation rates, stableexchange rates (UNCTAD 2006, Muhammad Azam et al 2011;Cassey Lee et al Associates 2016; GCI)

- The second, Cost

FDI companies, regardless of their motives for seeking markets

or seeking production resources, are concerned about costfactors For them, cheap, quality inputs attracting FDI (JohnH.Dunning 1977, 1979, 1988; UNCTAD 2006; Ibrahim Anıl et al.,2011) Costs include labor costs, using cost of managementpersonnel, natural resource using costs (Horst, 1972, JohnH.Dunning 1977, 1979, 1988; Wheeler & Moody, 1990;Petrochilos, 1989), costs relating to obtaining a business orinvestment license (John H.Dunning 1977, 1979, 1988; EBDI, 2014

& 20152)

- The third, Infrastructure

Infrastructure are Facilities that enable economic activity andmarkets, such as transportation, communication and distributionnetworks, utilities, water, sewer, and energy supply systems(Michael P.Todaro và Stephen C.Smith, 2012) Infrastructureinclude physical infrastructure and social infrastructure In whichphysical infrastructure include bridges, communications,electricity, water, banking and financial systems; The socialinfrastructure system relating to education, health care,entertainment (Michael P Todaro và Stephen C Smith, 2012; ThuT.Vo & Huyen T.N.Ngo, 2008; GCI; EDBI) Good infrastructurehelps companies invest in lower costs (Michael P.Todaro vàStephen C.Smith, 2012) According to UNCTAD (2006),transnational companies investing in Africa are very interested inthe development of their infrastructure

1GCI denoted of Global competitiveness index, annual reported by World Economic Forum, first announce in 1979.

2 EBDI denoted of The ease of doing business index, annual reported by World bank in Doing Business Report) This index has been reported from 2001 that ranking economy all over the world from 1 to 189.

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- The fourth, Resource endowment

Resources are a nation’s supplies of usable factors of

production including mineral

deposits, raw materials and labor (Michael P.Todaro & Stephen C.Smith, 2012)

According to Locational theory, labor and natural resources arenon mobility factors (Horst (1972); Wheeler & Moody (1990);Petrochilos (1989), H.Dunning (1977, 1979, 1988), UNCTAD2006); Peter J Buckley et al (2007); Shujie Yao et al (2010);Ibrahim Anıl et al (2011))

- The fifth, institutional environment

The institutional environment influences investment decisionsand production organization and plays an important role in theways that society distributes benefits and is subject to the costs

of development strategies and policies (Klaus Schwab and Et al.,2016) According to Bénassy Quéré et al (2007) and Cleeve(2008), the extent to which new companies are established, lowlevels of corruption, high transparency, contract law, Propertyprotection is a determinant of FDI attraction Also, according toConstantinos Choromides (2015), factors such as low personaland corporate income taxes, market access (trade andinvestment liberalization) levels have positive implications forattracting FDI into Greece

Muhammad Azam et al (2011) with similar research also pointsout that good institutional quality and macroeconomic policiesplay a major role in attracting FDI into seven South Asiancountries

- The sixth, Culture and geography

Culture and geography between host countries and homecountries help attract FDI (Peter J Buckley et al., 2007; H.Dunning

1977, 1979, 1988) Ludo cuyvers et al (2008) also assert thatgeographic distance affects FDI into Cambodia and SoutheastAsian countries account for a large proportion of Cambodia'scapital

- The seventh, political risk

Where political stability is more attractive to FDI and vice versa(Peter J Buckley et al., 2007; Jing Lin Duanmu & Yilmaz Guney,2009; UNCTAD, 2006)

Push factors from Home countries:

Firstly, supportive policies from home countries’s governmentare important factors in the OFDI decision (UNCTAD, 2006; ShujieYao et al, 2010) These policies include the

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rules and procedures for licensing of offshore investment as well

as investment incentives for their investors (Aykut & Ratha,2004)

The second, the economy size and level of competition in thedomestic market are also the driving force behind FDI firms (SSKayam (2009), UNCTAD (2006), Tajul Ariffin Masron & Amirul Shah

Md Shahbudin (2010)

In addition, factors such as an increase in input costs or adomestic resource shortage also motivate domestic firms toinvest abroad (Horst (1972), Wheeler & Moody (1990), Petrochilos(1989), H.Dunning (1977, 1979, 1988, 2002))

2.2 Research model

Research model on the factors affecting Viet Nam’s FDI abroadaccording to chart below:

3 Research design

3.1 Rearch method and procedure

The research model of the author is not isolated when studyingeach factor influencing the FDI decision from Vietnam, but alsostudying the impact of two groups of factors in a model.Therefore, the author selects Explanatory Sequential Mixed

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Methods Design (Creswell, 2014) This study consists of two mainsteps: preliminary research and official study Then, the authorsconstructed and evaluated the scale according to Churchill'sprocess (1997) Specifically:

Step 1 Preliminary Qualitative Research: This was conductedthrough discussion and interviewing with 6 administrators indecision making and directly related to FDI of Vietnameseenterprises to Cambodia

Step 2 The official study was conducted by quantitativeresearch with a convenient sampling method, giving out 300questionnaires to enterprises operating in Vietnam-CambodiaFriendship Association and AVIC Authors sent survey directly tobusinesses participating in the 3rd and 4rd Investment PromotionConference Vietnam - Cambodia (248 suitable feedback votes).Survey period from 06/2015 - 9/2016

3.2 Scale adjustment

However, according to the results of qualitative research,experts say that monetary policy and interest rates of Vietnamare fluctuating as one of the reasons for their investment abroad(Additional variable named as KT6) and Cambodia enjoys a lot oftariff preferences of other countries than Vietnam (GSP program,Import Tax = 0) also motivates Vietnamese investors to makeinvestment decisions in this country (Additional variable named asKT7) The cost of skilled labor (governance and experts) inCambodia is low

3.3 Official study

This study was conducted by quantitative research with aconvenient sampling method Through the question of filtering,the sample identifying the participants in the survey is theenterprises have been investing in the Cambodian market andenterprises intend to invest in Cambodia (business activities toCambodia such as import and export, Bidding, transportationservices, tourism .) Specifically, the sample structure is asfollows:

Table 1

The character of sample

Number of enterprises

Percentage (%)

Intent to invest (import, export,

Total 248 100

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Source: The authors

The collected data were processed and analyzed using softwareSPSS 20 Through this data, the scales were evaluated forreliability using the Cronbach's Alpha coefficient The scale isaccepted when the Cronbach's Alpha coefficient is greater than0.6 (Nunnally & Bernstein, 1994, Tho D.Nguyen, 2011) and thecoefficient of correlation - total ≥ 0.3 Next, observable variablesare validated through factor analysis (EFA) Factor loads are lessthan 0.35 and weight differences less than 0.3 (Hair et al., 2009)will continue to be rejected The method used to extract thecoefficients is Principal Components with Varimax rotation Thescale is accepted when the deviation total is ≥ 50% (Nunnaly &Bernstein, 1994, Tho D.Nguyen, 2011)

The linear multiple regression model (with Stepwise method) isused to determine what factors actually influence the decision toinvest in Cambodia of Vietnamese enterprises and consider themagnitude of this impact

Levene test and One way ANOVA were used to examine thedifferences in the general assessment of investment decisions aswell as the factors influencing investment decisions among othermodes of entry of Vietnamese enterprises into Cambodia

4 Analysing result of official research

After assessing scale reliability with general/partial Crobach'sAlpha's and assessing scale validity through 2 EFA, the results ofthe analysis showed that 33 observation variables were groupedinto seven factors

Next, in order to determine which group of factors influencedthe decision of direct investment of Vietnamese enterprises toCambodia, the author conducted a multiple regression analysis Inparticular, dependent variable is DT - Enterprises will invest /increase investment in Cambodia; 7 independent variables arethe mean values corresponding to the seven groups of factors (33variables) above

Stepwise regression results were obtained using four regressionmodels as shown in the table below, with the fourth modelachieving the highest adjusted R2 (83.8% )

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Source: The authors

In summary, the main determinants of Viet Nam’ FDI decision inCambodia are rewritten as follows:

Investments in Cambodia = 0.184 + 0.336 * Culture Geography + 0.266 * Macroeconomics and market + 0.264 *Infrastructure + 0.180 * Regulations and policies related toinvestment

-The results of the impacting factor groups which rearrangedaccording to push and pull factors as follows:

VD2 Both cultures and cuisines are quite similar

system meets HT5

the requirements of FDI enterprises

licensing of

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Source: The authors

On the other hand, according to the value of sig value (at Table5), there is no significant difference in the assessment of thedecision factors between the entry mode by Vietnameseenterprises However, based on the descriptive statistics for eachfactor evaluation in the push factors for each mode of entry (Table6), the firms that have invested in Cambodia are more likely tovalue 3 factors: Monetary and monetary policy of Vietnam oradverse change for investors (Mean =3.88/5), Regulation onprocedures for licensing of overseas investment of Vietnam on

The more convenient (Mean = 3.33/5), Incentive policies,investment incentives to overseas, especially Cambodia ofVietnam is improving (Mean = 3.76 / 5) Thus, there has been aslight difference in the impact of the two modes of entry.

Group s

Descriptives result for Push