Các yếu tố của môi trường đầu tư tác động đến thu hút đầu tư trực tiếp của các doanh nghiệp mỹ tại ba trung tâm kinh tế lớn của việt nam

khóa luận, luận văn, thạc sĩ, tiến sĩ, cao học, đề tài

Socialist Republic of Vietnam Republic of the Philippines

NGUYEN ANH TUAN

(English name: Raphaen)

BUSINESS CORPORATION IN THREE MAIN COMMERCIAL CENTERS OF VIETNAM

A Doctoral DissertationPresented to the Faculty of theGraduate School of Southern Luzon State University

in Collaboration With Thai Nguyen University

This research was a process of learning that asked for the involvement ofindividuals, companies and institutions During my research period, I receivedunconditional co-operation from many individuals/organizations, and their supportwas a key factor in successfully completing the Dissertation I greatly appreciate thecontribution of everyone involved and I apologize to those I do not mention by name

First of all, I am especially grateful to my supervisors, Professor Do Anh Tai,who provided me with valuable guidance and comments throughout the researchperiod I also thank my supervisor for giving me the opportunity to work in the area of

my interest I would also like to thank the members of the reading for reading themanuscript and for providing me with constructive comments

During the period of data collection, I visited both the Vietnam and USinstitutions To begin with, I would like to express my gratitude to the followingmembers of the institutions for their willingness to be interviewed and also forspending time and effort in filling questionnaires: Departments of Planning andInvestment (Hanoi, Ho Chi Minh city, Da Nang); Foreign Investment Agency –Ministry of Planning and Investment; I extend especial thanks to the board of Rectors

of Hanoi University of Industry for permitting me to follow the doctoral course andgreat favorable conditions for me to accomplish this doctoral course I would also like

to express my gratitude to Thai Nguyen University, Southern Luzon State Universityand their professors for organization, support and help during the doctoral course

I wish to express my sincere thanks to my families for their continualencouragement, love, and prayers for my progress and success Finally, I am greatlyindebted to my wife for her love, moral support, understanding and greatencouragement.

Hanoi, 8 th June 2013

Nguyen Anh Tuan

DEED OF DECLARATION

I, Tuan NGUYEN ANH., hereby submit my Dissertation for oral examination,

entitled “Environment factors for foreign direct investment for American

business corporations in three main commercial ceters of Vietnam””, truthfully

declare that the said paper is a product of my original research investigation The datapresented in the paper have clear origin

PhD candidate

Nguyen Anh Tuan

TABLE OF CONTENTS

DEED OF DECLARATION V LIST OF TABLES XIV LIST OF TABLES XIV LIST OF FIGURES XVI APPROVAL SHEET XX

CHAPTER 1 21

INTRODUCTION 21

Background of the Study 21

Statement of the Problem 22

Objectives 24

Hypothesis 25

Scope and limitation of study 25

Significance of study 26

Definition terms 27

CHAPTER 2 32

REVIEW OF LITERATURE AND RELATED STUDIES 32

1 FOREIN DIRECT INVESTMENT (FDI) THEORY 32

1.1 Concept and features 32

1.1.1 Concept 32

1.1.2 Features 33

1.2 FDI classification 35

1.2.1 Joint – venture company 35

1.2.2 Enterprise with 100% foreign capital 36

1.2.3 Business cooperation contract 37

1.2.3 Other forms of FDI 37

1.3 Roles of foreign direct investment 40

1.3.1 Impact of FDI on investors and investor’s country 40

1.3.2 Impact of FDI on investment receiving country 41

2 OVERVIEW OF INVESTMENT ENVIROMENT 46

2.1 Concept 46

2.2 Characteristics of the investment environment 47

2.2.1 Synthetic feature 48

2.2.2 Mobile (dynamic) feature 48

2.2.3 Openness feature 48

2.2.4 Systematic feature 49

2.3 Classification of investment environment 50

2.3.1 Classification by national management function 50

2.3.2 Classification by channels of factors affecting investment activity 50

2.3.3 Classification by constituent elements 50

2.3.4 Classification by scopes 50

2.3.5 Classification by phases of formation and investment activities 51

2.3.6 Classification by causes for capital flows 51

3 IMPACT OF INVESTEMENT ENVIRONMENT ON FDI ATTRATION 51

3.1 Factors from investment environment in the host country countries 51

3.1.1 Natural environment 51

3.1.2 Politic environment 52

3.1.3 Law and policy environment 53

3.1.4 Economical environment 54

3.2 Factors from invironment in investor’s countries 56

3.2.1 Macroeconomic policy 56

3.2.2 International legal for oversea investment 57

3.2.3 Economic, scientific and technological potential 58

3.3 Factors from international investment environment 59

3.3.1 General trend of cooperation between regions and countries 59

3.3.2 General trend of regional lingkage and globalization 59

3.3.3 Establishment and development of transnational companies 60

4 ATTRACTING FDI EXPERIENCE WORLD-WIDE 62

4.1 Attracting FDI experience of some countries 62

4.1.1 China 62

4.1.2 Malaysia 64

4.1.3 Thailand 66

4.1.4 Singapore 67

4.2 Experience for Vietnam 68

4.3 Role of FDI on socio-economic development in Vietnam 70

4.3.1 Enhancement of investment capital 70

4.3.2 Promotion of economic structure transfer, work creation for employee 70

4.3.4 Contribution of infrastructure and techniques forming for the industrialization and modernization process 71

4.3.5 Contribution of national budget increase 72

5 REVIEW OF RELATED STUDIES 72

6 CONCEPTUAL FRAMEWORK 75

CHAPTER 3 77

METHODOLOGY 77

1 RESEARCH DESIGN 77

2 LOCATION OF THE STUDY 79

4 SAMPLE SIZE AND SAMPLING TECHNIQUE 81

5 DATA COLLECTION PROCEDURE 83

Figure 2 Data collection process 85

6 STATISTICAL ANALYSIS 86

CHAPTER 4 87

RESESULT AND FINDINGS 87

1 RESEARCH BACKGROUND - AN OVERVIEW OF FDI ENVIRONMENT IN VIETNAM AND THE UNITED STATE 87

1.1 General investment environment of Vietnam 87

1.1.1 Politic environment 87

1.1.2 Geographic and Infrastructure environment 89

1.1.3 Economical and Financial Environment 92

1.1.4 Institutional and Administrative Management environment 95

1.1.5 Labor environment 96

1.2 Trend of FDI attraction in Vietnam 98

1.2.1 Economic growth forecast for Vietnam 98

1.2.2 Comments about FDI from the U.S in Vietnam during 2013 – 2020 99

1.3 POLICIES OF THE U.S ON ABROAD INVESTMENT 102

1.3.1 Summary of the United States 102

1.3.2 Practice of FDI from the US in Vietnam 110

2 RESULTS OF SURVEY ON FDI ENVIRONMENT IN VIETNAM 119

2.1 Foreign Enterprise’s Assessement 120

2.1.1 Process of receiving a project under OSS (One-Stop-Shopping) mechanism .120

2.1.2 Infrastructure 121

2.1.3 Investment supporting policy 121

2.1.4 Rapid work clearance 122

2.1.5 Ensurement of supplying raw materials, supporting industries 122

2.1.6 Review of foreign investors about the attractiveness for FDI 123

2.2 The State administrator’s assessement 125

2.2.1 Politic evironment 125

2.2.2 Institutional and management environment 126

2.2.3 Geographic and infrastructure environment 127

2.3 Foreign investor’s assessement 128

2.3.1 Evaluating the reliability of statistic data 128

2.3.2 Descriptive statistics 134

2.3.3 ANOVA analysis 135

2.3.4 Hypothesis Testing 139

2.3.5 Factor analysis on regression model 142

CHAPTER 5 147

CONCLUTIONS AND RECOMMENDATIONS 147

1 CONCLUSIONS 147

2 RECOMMENDATION FOR ATTRACTING THE U.S FDI 150

2.1 Shorterm solutions 151

2.1.1 Politic environment 151

2.1.2 Institutional- Administrative Management 151

2.1.3 Geographic- Infrastructure 153

2.1.4 Economic- Finance 155

2.1.5 Solutions related to human resources 159

2.2 Longterm solutions 160

2.2.1 Promote the development of supporting industries 160

2.2.2 Continuing negotiation, conclusion and implementation of the Trans-Pacific Partnership Agreement (TPP) 161

2.2.3 Develop specific policies to attract capital and technology from the MNC 162 2.2.4 Strengthening information and communication, policy and advocacy for the country to invest overseas 163

Vietnamese references 166

English references 168

Websites 168

REFERENCES 216

As a strongest economy of the world, the U.S FDI projects are typically scale associated with source technology, high technology Since the reestablishmentVietnam - U.S diplomatic relation, FDI from the United States in Vietnam plays animportant contribution to the process of industrialization and modernization of thecountry, improves economical, political and military roles of Vietnam However, USFDI in Vietnam is incommensurable with advantageous potential of two countries Inorder to attract efficiently the US FDI, Vietnam requires more improvement ofinvestment environment which is more and more increasingly attractive andcompetitive compared with other countries in the region.

large-A survey on 63 US investors, 30 state management agencies and 99 FDIenterprises was carried out in three main commercial centers of Vietnam (Hanoi, DaNang, Ho Chi Minh city) in order to find advantage and/or disadvantage of sub-factors of investment environment in Vietnam, then providing some prospectivesolutions for investment environment improvement in coming years Results showsthat Vietnam need to improve policies that ensure more investor’s right and alsopolicies that petitioner all corruption phenomenon and policies that has no distinctionbetween domestic and foreign investors Vietnam also has to improve traffic, storagesystem, harbor… In term of labor quality, it is needed to create more strict linkage

between vocational training centers, schools with enterprises; these training centersmust build training programs and graduated standards corresponding to typicalrequires of enterprises, especially it must focus on professional awareness of labors Italso needed to expand training linkage with international high quality traininginstitutions in order to enhance training quality and there therefore labor quality thatapproaches international standard On the other hand, Vietnam should better improveeconomical and financial policies such as stable currency exchange rates… Insummary, Vietnam needs to enhance synchronously factors of investmentenvironment in accordance with regional and international commands.

LIST OF TABLES

Table 1 Factors affecting the FDI 80

Table 2 Number of surveyed samples 82

Table 3 Comparation of transportation cost 91

Table 4 GDP growth in Southeast Asian countries 94

Table 5 Forecast of GDP of some Asia countries in coming years 98

Table 6 U.S FDI structure by investment form 112

Table 7 Assessment of foreign enterprise on OSS mechanism .120

Table 8 Assessment of foreign enterprise on infrastructure quality 121

Table 9 Assessment of foreign enterprise on investment supporting policy 121

Table 10 Assessment of foreign enterprise on work clearance activity 122

Table 11 Assessment of foreign enterprise on raw material supply ensurement 123

Table 12 Assessment of foreign enterprise on the attractiveness for FDI 123

Table 13 Opinion of state administrator on politic environment 125

Table 14 Cronbach’alpha of Political environment 129

Table 15 Cronbach’alpha of Institutional and management environment 129

Table 16 Cronbach’alpha of Infrastructure and Geographic environment 131

Table 17 Cronbach’alpha of Economical and Financial environment 132

Table 18 Cronbach’ Alpha of Labor environment 133

Table 19 Cronbach’ Alpha of Investor's determination 133

Table 20 Illustration method of calculating group variables via mean value 134

Table 21 Mean value of statistic variables 135

Table 22 Post Hoc Tests on Political environment 136

Table 23 Post Hoc Tests on Institutional and management environment 136

Table 24 Post Hoc Tests on Infrastructure and Geographic 137

Table 25 Post Hoc Tests on Economical and financial environment 138

Table 26 Post Hoc Tests on labor environment 139

Table 27 Pearson correlation coefficient between variables 140

Table 28 Statistics of developed regression models 143

LIST OF FIGURES

Figure 1 Framework of the research 76 Figure 2 Data collection process 85 Figure 3 Structure of U.S FDI among G7 countries 108 Figure 4 FDI from the United States in Vietnam during the period 1988-2012111 Figure 5 U.S FDI structure by investment form 114 Figure 6 The U.S FDI structure by investment sector 116 Figure 7: The US FDI structure by region (USD/Province) 118 Figure 8 The U.S FDI position in the FDI structure in Vietnam (USD/ State) 119

LIST OF APPENDIES

APPENDIX 1 BIBLIOGRAPHY 166

APPENDIX 2 SURVEY QUESTIONNAIRE 170

APPENDIX 3 CURRICULUM VITAE 188

APPENDIX 4 PUBLICATIONS RELATED TO THE DISSERTATION 193

APPENDIX 5 ANOVA ANALYSIS 194

APPENDIX 6 POST HOC TESTS 196

APPENDIX 7 LINEAR REGRESSION 198

APPENDIX 8 THE US INVESTORS' DETERMINATION 203

-APPENDIX 9 DIRECT INVESTMENT ABROAD BY THE UNITED STATES AND OTHER G7 COUNTRIES 204

APPENDIX 10 TOTAL FDI FROM THE UNITED STATES IN VIETNAM PERIOD 19882012 205

-APPENDIX 11 FDI FROM THE UNITED STATES IN VIETNAM BY INVESTMENT FORM PERIOD 1988 2011 207

-APPENDIX 12 FDI FROM THE UNITED STATES IN VIETNAM BY INVESTMENT SECTOR PERIOD 1988 – 2011 208

-APPENDIX 13 FDI FROM THE UNITED STATES IN VIETNAM BY PROVINCES PERIOD 1988 – 2011 210

-APPENDIX 14 FDI IN VIETNAM BY INVESTING COUNTRIES - PERIOD 1988 – 2012 213

-LIST OF ABBREVIATIONS

ASEAN Association of Southeast Asian Nations

BOT Build – Operation – Transfer Contract

BTO Build – Transfer – Operation Contract

ICOR Incremental Capital - Output Rate

KCN, KKT, KCX Industrial zone, Economic zone, Processing zone for export

MPI The Ministry of Plan and Investment (Vietnam)

OECD Organization for Economic Co-operation and Development

UNCTAD United Nations Conference on Trade and Development

VCCI Chamber of Commerce and Industry of Vietnam

APPROVAL SHEET

This Dissertation , entitled “ENVIRONMENT FACTORS FOR FOREIGN DIRECT INVESTMENT FOR AMERICAN BUSINESS CORPORATION IN THREE MAIN COMMERCIAL CENTERS OF VIETNAM”, prepared and

submitted by Nguyen Anh Tuan in partial fulfillment of the requirements for thedegree of Doctor in Business Administration, has been examined and recommendedfor acceptance and approval for FINAL EXAMINATION

CHAPTER 1 INTRODUCTION

Background of the Study

Foreign direct investment (FDI) is a popular concept that a host country haveimvestement from foreign companies to produce goods or supply service in its nationalboundary The FDI is significant capital and technical source of economic growth This

is also characteristic clearly of globalization Beside that FDI is not only providing ofinvestment capital and technology, it is also providing of managerial and technologicalskills, job creation, infrastructure upgrading for host country It is proved in practicethat an important that, an economic isolation is closed road, especially in circumstancethat trend of globalization and integrate of international economic In order to attractforeign investors, especially numerous FDI inflows from Multinational Enterprises(MNEs) and big economies, many Governments have been developing and changingtheir traditional or transitional economies by designing and executed relevant policies toopen environment for FDI

In Vietnam, FDI is an important source to help restructure and increase thecompetitiveness of the economy since the middle of 1980s when Vietnam began toapply new ecomomic mechanism called as “Doi Moi” and known as “open-doorpolicy” FDI has become an important factor of economy of Vietnam in the context ofdeep integration with the world economy and globalization trends During period of 36years in attracting foreign investment Vietnam have gained significant success In thiscontext, Vietnam has launched several measures, open-door policy change, rapidlyimproving environment to attract foreign investment in order to face to the decline ofinflows of foreign direct investment and new developments of the globalization process

The change in financing and banking policy, labor force administration, especiallyimpoving geographical and infrastructure factors in the direction of increasing favorfor foreign investors by the Vietnam Government, have been considered as an urgentmeasure to increase the attractiveness for FDI Despite achieving certain results, it issaid that Vietnam did not make best use of opportunities to attract FDI and not gain themaximum benefits that foreign direct investment can bring, especially the FDI inflow

of investors from the major economies such as the U.S., Europe and Japan Besides, theapplication of geographical and infrastructure advantage in attracting foreign directinvestment in Vietnam, especially finacial and banking elements are limited, and not yetachieved as desired target

Statement of the Problem

Foreign direct investment (FDI) is one of remarkable activities in theinternational economics integration and globalization for many decades AttractingFDI is important for economic development not only for poor, development countriesbut also developed countries

Today, almost countries promote actively FDI attractiveness to provideemployment, income increase or to take high and innovational technologies,management skills FDI also helps to penetrate the market of other countries Vietnam

is also in the trend and needs to improve the quality of FDI projects by creatingfavorable policies for hi-tech projects and those which suit the country’s socio-economic development strategy

Vietnam achieved a long progress for creating propitious investmentenvironment since 1987 when Investment Law established Foreign Direct Investmentplays an important role in the Vietnam economy (25% total social investment);stimulating and improving efficient use of domestic resources, increasing exports

(exports in 2012 in national investment sector reached 72.2 billion U.S dollars,accounting for 55.9% of total exports in 2012) FDI has contributed significantly tonational revenues (USD 14.2 billion in the period from 2001 to 2010 and contributesabout $ 3.7 billion 2012), contributing to create 2 million jobs directly and around 3-4million jobs indirectly1 Until 31/12/2011, there are 14,552 FDI projects with aregistered capital of more than 210.5 billion USD In which, FDI from USA has 648projects and reached 10.507 billion USD, ranking the 7th of 100 countries and regionsinvesting into Vietnam2 This illustrated that USA is one of the top-ranking investors ofVietnam.

However, FDI capital from USA in Vietnam is not in accordance with availableeconomic condition of two countries and also comparative advantage of each.Moreover, while attracting FDI from USA, Vietnam has good opportunities forreceiving hi-tech project, innovative management experiences of MNC that suit topolicies’ selective FDI attraction of Vietnamese government That’s motive to improveinvestment environment to for attract direct investment into Vietnam from UnitedStates in some coming years

To attract FDI into Vietnam from the United States associated with originaltechnology transfer, modern technology, in the context of increasing competition forFDI attraction and especially in the context of the economy of many countries in theworld is in crisis, recession that requires Vietnam to actively improve the investmentenvironment to create a favorable investment environment for FDI activities However,the investment environment in Vietnam has still some negative barriers for attractingand using FDI as weak economic infrastructure, appropriate and qualified professionalhuman resources, complex administrative procedures

Therefore, research is needed to find appropriate solutions to improve theinvestment environment to attract and effective use of FDI, particularly FDI attractionassociated with original technology transfer, advanced management experience fromthe U.S MNCs for growth and sustainable development objectives To help achieve the

mentioned objectives above, it is needed to study the theme: “Environment factors for foreign direct investment for American business corporation in three main commercial centers of Vietnam”.This study shall answer for following questions:

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

2 How does governmental administrative environment of Vietnam affects to the

US FDI attraction ?

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

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

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

Objectives

The aim of the Dissertation was to assess the situation of FDI attraction fromthe United States into Vietnam, then to indicate existing shortcoming, in particularlyinvestment environment limitation that interfere U.S FDI flows into Vietnam andfinally to provide solutions to further improvement of investment environment for U.SFDI attraction and disbursement process in Vietnam Thus, the Dissertation has sometasks to research following objectives:

1 To determine how political environment of Vietnam affect to the US FDIattraction;

2 To determine how governmental administrative environment of Vietnamaffect to the US FDI attraction;

3 To determine how infrastructure- location factor of Vietnam affects to the

US FDI attraction;

4 To determine how economic and financial mechanism of Vietnam affects tothe US FDI attraction;

5 To determine how labor factor of Vietnam affect to the US FDI attraction

Hypothesis

It is difficult to reckon up and control how may percent of FDI effectuatedfrom total FDI registered in the context of FDI changed between investment formsand investment countries While collecting and analyzing FDI data in Vietnam, authorprovides thus some hypothesis as follow:

H1 Stable political environment is factor to attract more FDI

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

H3 Advantage of location is factor to determine FDI

H4 Openness of economic and financial mechanism is incentive for FDI H5 High qualification and skill labor force is factor to attract FDI in host country

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

Scope and limitation of study

The Dissertation focuses on studying investment environment for attractingFDI from USA to Vietnam in 03 major cities (Hanoi, Danang, Hochiminh city) Theinvestment environment includes investment environment in the host countries,investment environment in domestic country and international investmentenvironment Among three components of investment environment, the receivingcountry can actively control only the domestic environment if the country wants toattract FDI Dissertation research focused investment environment of Vietnam.Among the factors of investment environment of Vietnam, there are stable or barelychanged factors such as the natural environment, the political environment Therefore,the Dissertation focuses on the factors of investment environments to which theGovernment has heavily influenced, including: environmental policy, law,administrative procedures; economic environment; Infrastructure and humanresources.

Regarding the scope of time, research aims to study investment environment,inpact of investment environment on FDI capital and the status of FDI from theUnited States in Vietnam before and period of 1995 - 2012 Because the two countrieshave normalized relations and establish formal diplomatic relations with thebreakthrough in the economic, political, and cultural sector since 1995 However,

to clarify breakthrough in multi-side relations, the Dissertation refers to the problem

of relations between the two countries before the normalization of diplomaticrelations Finally, the Dissertation provides solutions to improve the investmentenvironment for the future

Significance of study

The basic arguments of FDI theory, investment environment, and influent factors will

be clarified The contents are: definition or concepts, characteristics, classification,

elements of the investment environment In addition, the Dissertation points out someinternational experience of some countries about the improvement of investmentenvironment in order to enhance FDI attraction in Vietnam.

The Dissertation also provides a general picture of FDI source from United States inVietnam which helps to heighten Vietnamese awareness of FDI role on socio-economical development in Vietnam Moreover, the Dissertation also providesgeneral view of investment environment and attracting prospects and promisingsolution of investment environment for FDI from United States in Vietnam in comingyear

Definition terms

Political environment: Government actions which affects the operations of a

company or business These actions may be on local, regional, national orinternational level Business owners and managers pay close attention to thepolitical environment to gauge how government actions will affect theircompany

Governmental administrative environment is created by administrative laws and

regulations Body of rules, regulations and orders formulated by a governmentbody (such as an environment management agency) responsible for carryingout statute law

Location environment is geographical place (such as an airport, seaport, container

freight station or terminal) that provides permanent facilities for movement ofgoods (such as customs, storage, and other support services) or is designatedfor a stated purpose

Economic and financial mechanism is the process by which a market solves a

problem allocating resources, especially that of deciding how much of a good

or service should be produced, but other such problems as well The marketmechanism is an alternative, for example, to having such decisions made bygovernment The financial mechanism is method or source through whichfunding is made available, such as bank loans, bond or share issue, reserves orsavings, sales revenue.

Labor environment is the total number of people employed or seeking employment in

a country or region It is also called work force

Investment is meaning "an investor provides capital in the form of tangible or

intangible property to conduct investment activities under the provisions of theInvestment Law and other provisions of the relevant legislation”

Direct investment is "a form of investment by investors to invest and participate in

active investment management"

Indirect investment is "a form of investment through purchase of shares, stocks,

bonds and other valuable papers, securities and investment funds throughother intermediary financial institutions, not directly involved in themanagement of investment activities"

Foreign investors is international organizations and individuals to implement

investment activities in Vietnam"

Enterprises with foreign investment capital includes enterprises founded by foreign

investors for carrying out investment activities in Vietnam; Vietnamenterprises which are belong to foreign investors from shares buying, merger,acquisition activities"

Investment activities are activities of investor in the investment process, including

investment preparation, implementation and management of investmentprojects

Investment Project is a collection of proposals on medium and long-term capital to

carry out investment activities on a specific geographical area, for adetermined period

Capital investment is "cash and other assets to legally implement investment

activities in the form of direct investment or indirect investment."

State capital is "development investment capital from state budget, state credit

guarantees, state credit capital for development investment and otherinvestment of the State"

Investors are organizations and individuals who own capital or on behalf of the owner

or the borrower and directly manage and use capital to make investments

Foreign investment is that foreign investors provide capital in ther form of cash or

other legal assets into Vietnam to conduct investment activity

Domestic investment is that domestic investors provide capital in the form of cash

and other assets to conduct investment activities in Vietnam

Conditional investment sector is "sectors are invested only with the specific

conditions prescribed by law

Business Cooperation Contract (BCC) is the "form of investment signed between

investors to do business collaboration, profit sharing, production-sharingwithout creating a legal entity

Build - operation - transfer contracts (BOT) is "a form of investment signed between

state competent agencies and investors to contruct infrastructure project,business this infrastructure in a given period; expiration, investors transferwithout compensation that works for the State of Vietnam

Build - transfer - business contracts (BTO) is "a form of investment signed between

state competent agencies and investors to build infrastructure projects, after

the completion of construction, the investor transfer the facility to the State,the government provide investor’s right to business that works in a certainperiod to recover the investment and profit.

Build - transfer contracts (BT) is "a form of investment signed between state

competent agencies and investors to build infrastructure projects, aftercompletion of construction, the investor shall transfer the facility to the State;Government facilitate the investors to implement other investment projects torecover the investment and profit or pay to investors as agreed BT in thecontract

Public Private Partnership (PPP) is "both public and private investors invest projects

for development socio-economic infrastructure and public services

Industry zone is areas that produce industrial goods and perform services for

industrial production, with defined geographical boundaries, and establishedunder the provisions of the Government

Export Processing Zone is an industrial zone specialized in the production of export

goods, the provision of services for the export goods production and exportactivities, with defined geographical boundaries, established under theprovisions of the Government

High-tech zone is areas that develop and apply high technology, creating hi-tech

enterprises, training high-tech manpower, manufacturing and doing business

of high-tech products, with defined geographical boundaries, established underthe provisions of the Government

Economy zone is "zone having specific economic space with strong favourable

investment and business environment for investors, with defined geographicalboundaries, was established under the provisions of the Government

Legal capital is "the minimum capital required to set up a business enterprise Legal

capital is authorized by the Competent Agency determined, it can beconsidered to be able to implement a project when the enterprise isestablished Legal capital will vary by sector, business sector

CHAPTER 2 REVIEW OF LITERATURE AND RELATED STUDIES

1 FOREIN DIRECT INVESTMENT (FDI) THEORY

1.1 Concept and features

1.1.1 Concept

Foreign direct investment has been developed since the 50s of XX century andhas been expanding throughout the world, not limited between developed countries,between developed countries and developing countries but also between developingcountries There is some approach about FDI concept

According to UNCTAD, FDI is an investment, including long-termrelationship, reflecting interests and long-term control of an entity in one economy(foreign investors or parent foreign companies) in an enterprise in an economy otherthan the economy of foreign investors (enterprises with 100% foreign-owned, jointventures or foreign subsidiaries)

According to the IMF, foreign direct investment is investment made to acquirelong-term interest in an enterprise which operates in an economy other than theeconomy of the investor The goal is for effective voice in the management of thatbusiness

According to the 2005 Investment Law of Vietnam, "Direct investment is aform of investment when investors invest and participate in an active investmentmanagement" and "foreign investors are foreign organizations or individuals putcapital to carry out investment activities in Vietnam ", which can be understood asforms of foreign investors which invest and participate in the management ofinvestment activities in Vietnam

Thus, from the perspective outlined above, it can be understood as form ofFDI investors shift money, technology… from one country to another, in which theowners of capital is the one to manage and operate directly activities for economicbenefit purpose from investment-receiving countries.

It might be understood as: FDI is the type of movement of capital betweencountries, in which the capital owners is both direct management and operation ofcapital use The FDI is considered under following assessments:

First, in consideration of the ownership aspect: FDI is the type of foreign

investment in which the property rights associates with ownership of investmentassets To identify whether a particular investment activity is a FDI projects or not,each nation has its own determined standards For example, the U.S Department ofCommerce defines a U.S investor is FDI company if it holds at least 10% ofregistered shares or equivalent assets of a foreign company

Second, in consideration of property flow aspect: FDI is the movement of

investment capital from investors to the investment country In this case, theinvestment activities in foreign countries are considered as direct investment when thecompany manages directly assets and shares; investment capital is part of investorcompany’s assets in the investment countries

Third, in consideration of activity scope: FDI is done mainly in the form of

subsidiaries or joint ventures under multinational companies Thus, FDI can bedefined as the business expanding activities of multinational companies on aninternational scale The expansion includes the transfer of capital, technology,productive skills and management key to countries receiving investment fororganizing production and business activities

1.1.2 Features

In general, foreign direct investment has the basic characteristics ofinvestment; otherwise it also has its own characteristics as follows:

First, FDI investors are owners of capital, foreign nationality, investing in

another country so foreign investors must abide by the laws of the investmentreceiving country Investors involved directly in the organization, management,administration and use of investment capital They have the rights and obligations ofbusiness activity corresponding to this capital In the case of investment of 100%capital, foreign investors have full power to decide, if contribution, this right depends

on the level of contribution

Second, FDI includes not only the initial capital investment by foreign

investors in the form of legal capital, it also includes loans from organizations andindividuals to develop and extend projects as well as investment capital is deductedfrom after-tax profits as a result of production and business activities Thus, the hostcountry must have appropriate financial policies to avoid some cases that someforeign investors put only a small amount of foreign capital but take loan in thereceiving country to perform investment; business expansion This affects purposes ofattracting foreign investment in the host countries

Third, FDI is long-term development investment capital, directly from abroad.

So this investment is essential long-term capital in the economy of recipient countries.FDI is international capital flows associated with the construction of buildings,factories, production lines…with long-term investment, large capital investment andhigh stability in host countries FDI differs from indirect foreign investment which is

a form of investment that foreign investors invest in other countries, but are not inpower of management, operation through financial instruments such as stocks,bonds…Characteristics of indirect foreign investment is short-term operation, more

volatility Due to the nature of the investment forms, FDI capital should be lessinfluenced or controlled by government compared to other forms of indirect foreigninvestment.

Fourth, FDI is a form of direct investment by foreign investors who bring

capital to invest in other countries So, other than loans, FDI in the host country is notought to refund and does not create debt burden of the national debt This is anadvantage over other forms of foreign investment Bringing capital from abroadinvestors into the country will create more capital for investment, especially in thedeveloping countries and this is not the capital of the national debt, and will ensurefinancial security for the country and is much better capital source than different loansfrom other countries To be known as the FDI, the foreign investor must contribute acertain percentage of capital and this ratio depends on each country's regulations andcan change over time

Fifth, FDI is a form of capital export to get high profits and foreign investors

decide on the size and use of FDI Foreign investors always aim to get high profit sothey can cause many disadvantage for national interests and objectives to attractinvestment capital of receiving country

Sixth, foreign direct investment is often accompanied by technology transfer,

management experience for the investment-receiving countries

As a summary, foreign direct investment is the type of international investment, inwhich a foreign investor distributes capital to build or buy (in whole or in part) thebusiness establishments in foreign countries and become the owner property thatmanages, operates or participates in the operating management of the establishments

1.2 FDI classification

1.2.1 Joint – venture company

This is a form of international business organization in which participantshave different nationalities between home country’s investors and the rest of theforeign partner This form is characterized by new enterprises established under thelaws of the host country, having a legal entity under the laws of the host country, thepartners have different nationalities contribute capital, and manage business activity,distribute profit, and share risks together Capital contribution rate is agreed by thepartners based on the law of the host countries This is the type of business that theinvestment receiving country has advantage not only to take the benefits of receivingcapital contribution but also to learn management experience, to train a team ofskilled laborers and to obtain high technologies To get these benefits, it requires localcapable contribution, qualified managers involved with foreigners For foreigninvestors, this form is only suitable in the early stages when they are notknowledgeable about local country, its legal and investment environment in order tounderstand and get support from host country partner in order to lessen the risk duringinvestment process However, when foreign investors know well the country, thisinvestment form is not very popular, because they already know and understand thelaws, procedures and policies related to the investment problem Thus, they want theirown investment decisions without going through the consent of the partners.

1.2.2 Enterprise with 100% foreign capital

This type of business when foreign investors invest capital for wholly formed,organized and operating management This type is set up as a limited company,having a legal entity under the laws of the host country Foreign investor managesthemselves and is responsible for production and business results, for interests andobligations in the business but being controlled by the laws of the host country

This form is the preferred foreign investment and is expanded in internationaleconomic relations as their own decisions, and management to get benefit frominvesting activities.

1.2.3 Business cooperation contract

This is a form of joint venture between a local partner with foreign investors.This form is characterized by a contract signed that presents an agreement to conductone or more business activities in the investment countries, based on clearly definedobjects, business content, obligations, responsibilities and division of business resultsfor the partners without setting new entity This type of contract is most commonlyapplied in the field of searching, exploration and exploitation of oil and some otherresources

1.2.3 Other forms of FDI

In practice, FDI is also implemented under these other forms:

BOT ( Build – Operate – Transfer) : BOT is an investment form signed

between the authorized state agency in the host country and foreign investors in order

to invest infrastructure construction (including expansion, upgrading andmodernization works), and trade in certain time to recover capital and a reasonableprofit, then transfer the entire work to the host country without compensation Thisforms can creat a new legal entity and may be 100% foreign-owned or joint ventures.The scope of application is infrastructure projects, in particular in the field of railtransport, roads, ports, hydroelectric

Build - transfer - business contracts (BTO) is "a form of investment signed

between state competent agencies and investors to build infrastructure projects, afterthe completion of construction, the investor transfer the facility to the State, thegovernment provide investor’s right to business that works in certain period to recover

the investment and profit This form is similar to BOT but after the completion ofconstruction works, they are transferred immediately to the host country before thebusiness done.

Build - transfer contracts (BT) is "a form of investment signed between state

competent agencies and investors to build infrastructure projects, after completion ofconstruction, the investor shall transfer the facility to the State; Government facilitatethe investors to implement other investment projects to recover the investment andprofit or pay to investors as agreed BT in the contract

Build - transfer contracts (BT) is "a form of investment signed between state

competent agencies and investors to build infrastructure projects, after completion ofconstruction, the investor shall transfer the facility to the State; Government facilitatethe investors to implement other investment projects to recover the investment andprofit or pay to investors as agreed BT in the contract

Public Private Partnership (PPP) is a contract signied between authorized

local agencies and investors to build public construction and services Both public andprivate investors invest projects for development socio-economic infrastructure andpublic services Competent State agencies make a list of priority annual investmentPPP projects and conduct competitive bidding to select foreign investors qualified,most experienced This form of cooperation is to optimize investment performanceand provide high-quality public services; it will be beneficial for both the state and thepeople as to take advantage of financial resources, management of the investment,while ensuring benefits to the people Each PPP project will be two contributions atthe certain rate of capital contributions, the contribution rate depending on theregulations of each country and each period

The form of BOT, BTO, BT and PPP is very sutable for developing conutriesdue to their weakness in infrastructure and capital resources.

In addition to the above, there are other forms ans follows but conditions forthese forms depend on each country's laws

Parent –subsidiary company: As a company owned capital in another

company at a sufficient level to control the management and operating activity of thecompany through the influence on board member or the board member selection

A collective name company: An enterprise must have at least two members of collective name, other collective name members, there may have capital contributing

partners

Mergers & Acquisitions Company: The majority of acquisitions and mergers

are made between large MNCs and focus on such fields as automotive,pharmaceutical, telecommunications and finance in the developed countries

Company branches abroad: This form is distinguished from the form the

company with 100% foreign investment based on the point: that subsidiary is notconsidered an independent legal entity while the company is usually a single legalentity

Every form of investment of foreign investors has both advantages anddisadvantages Therefore, harmony combination of interests of the partner involved inaccordance with the objectives, each country will have the priority form of FDIinvestment to promote country's potential as well as benefits for foreign investors

In addition, FDI is divided in the following sectors based on the businesssectors of FDI project, such as:

Industry Sector: foreign investors invest in producing and trading lines for

industrial products

Agriculture Sector, forestry and fisheries: foreign investors invest in the

production and business sectors for agricultural, forestry and fishery product

Service Sector: foreign investors invest in business services, such as banking

and finance, hotels, tourism, telecommunications, culture, education, health

1.3 Roles of foreign direct investment

1.3.1 Impact of FDI on investors and investor’s country

a) Positive impacts

First, improve efficiently capital use by exploiting the advantages of the

investment-receiving countries such as, sources of cheap labor or near sources of rawmaterials and markets for product consumption

Second, restructure the national economy towards a modern and more efficient

orientation In the period 1975 - 1995, the Yen appreciation has prompted Japanesecompanies to move production abroad; the context has created better conditions forthe horizontal links between countries in the region The parent company in Japanfocused on producing high commodity and necessary equipment to provide foraffiliates throughout Asia The branches are located in the countries, producing laborintensive goods, medium- and low-level technology to substitute for imported productfrom Japan for the host country market, or to export to the third countries or back toJapan

Third, avoid trading or non-trading protection Through direct investment

abroad, the investor will establish the production and business establishments located

in the local country which is implementing policies of trading or non-tradingprotection

Forth, increase business profits through "transfer pricing" Through FDI

activities in many different countries, multinational companies will take advantage of