Nguyên nhân và ảnh hưởng của đầu tư trực tiếp nước ngoài: Cơ sở cho việc điều chỉnh chính sách tại tỉnh Thanh Hóa, Việt Nam

THAI NGUYEN UNIVERSITY

Socialist Republic of Vietnam

SOUTHERN LUZON STATE UNIVERSITY

Republic of the Philippines

LE HOANG BA HUYEN (JAMES)

CAUSES AND EFFECTS OF FOREIGN DIRECT INVESTMENT:

BASIS FOR POLICY RE-DIRECTION IN THANH HOA PROVINCE

IN VIETNAM

A Dissertation Presented to the Faculty of Graduate School

of Southern Luzon State University, Philippines

and Thai Nguyen University, S.R. Vietnam

In Partial Fulfillment of the Requirement for

the Degree of Doctor in Business Administration

August, 2013

i

The study was done at:

INTERNATIONAL CENTRE EDUCATION,

THAI NGUYEN UNIVERSITY

Academic supervisor: TRAN DAI NGHIA Ph.D

The thesis is prevented to the Council held in Southern Luzon State University,

Philippines at the …………, ………… , 2013

Desertation can be found at:

- National Library

- Learning Resource Center, Thai Nguyen University

- Library of International Training Center

- Library of Southern Luzon State University, Philippines

ii

ACKNOWLEDGMENTS

I would like to thank Thai Nguyen University, the International Centre

Education of Thai Nguyen University, Southern Luzon State University for guiding

me throughout this research and for providing me with the opportunity to conduct this

research and for helping me to carry out the necessary revisions to the thesis.

I would like to thank Dr. Cecilia N. Gascon, President of Southern Luzon

State University and Dr. Dang Kim Vui, the President of Thai Nguyen University,

who made possible the linkage between Thai Nguyen University with Southern Luzon

State University, the offering of Doctor of Business Administration, through the ITC￾TUAF;

I would like to thank Dr. Tran Dai Nghia, for his support and supervision

throughout my graduate study program. His kindness and daily instructions in the last

years are greatly appreciated and this dissertation is as much his work as mine;

I would also like to thank Dr. Nguyen Manh An, President of Hong Duc

University, my colleagues at Faculty of Economic and Business Administration, Hong

Duc University, my friends for their support and encouragement during the time I do

my dissertation.

In addition, I would like to thank local government of Thanh Hoa Province,

foreign companies in Thanh Hoa province for providing me with information to

conduct this research, and feedback necessary for making this thesis is successful.

Finally, I would like to thank my family for giving me constant support and

encouragement and for always believing in me. Last but definitely not least, thanks my

wife Nguyen Thi Tam, who has provided a tremendous amount of love and support during

my research. On the final note with love is for my daughters.

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ABSTRACT

This research was undertaken with the primary objectives of: (1) To describe

the trends in FDI in Thanh Hoa Province in the period from 2001 to 2012. (2) To

determine the factors affecting attraction of FDI in Thanh Hoa Province. (3) To

analyze the effects of FDI in the economic growth of Thanh Hoa Province. (4) To

formulate policy implication to enhance economic growth of Thanh Hoa Province in

Vietnam. To organize the research questionnaire, the conceptual framework was

adopted from the Eclectic Paradigm or the “OLI” paradigm developed by Dunning

1993 and according to factors which are influencing to choice of a host market of

Gilomre, O’s Donnel, Carson and Cummins (2003). The paper was studied six major

factors such as Political / Government / Legal Factors, Social and Cultural Factors,

Economic and Market Factors, Financial Factors, Availability of resources factors and

Infrastructure Factors which are highly affecting for the inflow of FDI. The variables

under each of the above factors have been included in the questionnaire.

The research methodology of the study which explained conceptual

frame work, research design, population and sample size, questionnaire design,

data collection and data analysis methods. The research was conducted in two phases.

The first phase involved secondary collection, desk tally by review, literatures,

research, journals, publications, books, official reports from government officials.

The second phase was the primary date collection by doing survey using structured

questionnaires (either through e-mailing, telephone and direct face to face interview).

The population of this research was forty one (41) FDI entrepreneurs and 100 officers.

To obtain the sample size it was used the Slovin formalation and the sample size was

determined as 37 and 80 respondents respectively.

Data processing methods, survey results are coded, data entry are described by

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statistical tool. The combinations of descriptive and as well as statistical

tools have been used to analyze the findings of the study. The data were processed

by using SPSS. All primary data collected through the questionnaires were analyzed

by frequency tables and correlation analysis. The techniques like simple tabulations

have been used for the frequency tables, determination of r a n k s u m , mean, P

Value, Adj. Variance and standard deviations. Correlation analysis was used to

study the linear correlation among the various factors affecting FDI and the level

of significance.

This study focuses on the four main issues: Firstly, about the trends in FDI in

Thanh Hoa Province, FDI in Thanh Hoa increased rapidly in the period from 2001 –

2012. Secondly, about the factors affect the attraction of foreign direct investment in

Thanh Hoa Province. We found that there are two aspects of the Thanh Hoa economic

environments in which international business partners are particularly interested: the

economic and marketing and infrastructure factors. However, the social and cultural

factor seemed not be a significant factor. Most investors put the social and cultural

factor in the least important group. Thirdly, analyze the effects of FDI in the

economic growth of Thanh Hoa Province. FDI has a positive impact on the

industrialization and modernization in Thanh Hoa province in recent years. However,

the current state of foreign direct investment in Thanh Hoa still exist some limited

such as: Total investment project is small, they are not commensurate with the

potential and strengths of provincial; Differences between the registered capital and

performance capital is large, performance capital growth is not high etc. Finally,

evaluate the favorable level of factors affecting the investment process of FDI

enterprises in Thanh Hoa province. The result of the study shows that there are some

v

factors that have been evaluated as much more favorable, while other factors are

considered more difficult.

Based on the findings of this research, recommendations were made to the

relevant in Thanh Hoa government in particular and as well as to the in the center

government for the formulation of appropriate investment incentive policies to attract

more foreign direct investment opportunities into Thanh Hoa province in the future

in-line with the FDI entrepreneur’s perception.

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TABLE OF CONTENTS

Page

ACKNOWLDGEMENT...........................................................................................................ii

ABSTRACT…………………………………….......................................................................... .iii

TABLE OF CONTENTS......................................................................................................... vi

LIST OF TABLES....................................................................................................................ix

LIST OF FIGURES ..................................................................................................................x

ABBREVIATIONS ...................................................................................................................xi

CHAPTER 1. INTRODUCTION................................................................................. 1

1.1 Background .............................................................................................................. 1

1.2 Problem Statement.................................................................................................... 3

1.3 Research Objectives.................................................................................................. 5

1.4 Study Object and Scope ............................................................................................ 6

1.5 Research Questions................................................................................................... 7

1.6 Significance of the Study.......................................................................................... 8

1.7 Research Definitions................................................................................................. 9

1.8 Organization of this study......................................................................................... 14

CHAPTER 2. LITERATURE REVIEW AND STUDIES .......................................... 15

2.1. Theoretical overview: FDI....................................................................................... 15

2.1.1 Definitions of FDI.................................................................................................. 15

2.1.2 Attract FDI ............................................................................................................ 17

2.1.3 Forms of FDI......................................................................................................... 18

2.1.4 Effects of FDI........................................................................................................ 21

2.1.5 Summary of some theories of attraction of FDI...................................................... 22

2.2 FDI and Motivation .................................................................................................. 28

2.3 Factors Influencing Location of FDI......................................................................... 35

2.3.1 Political stability and policy mechanisms factors.................................................... 35

vii

2.3.2 Socio-cultural environment factors......................................................................... 35

2.3.3 Financial factors..................................................................................................... 36

2.3.4 Economy and market factors.................................................................................. 36

2.3.5 Resource factors..................................................................................................... 37

2.3.6 Infrastructure factors.............................................................................................. 38

2.4 The determinants of the FDI in Vietnam review of literature..................................... 40

2.5 Overview of Thanh Hoa province ............................................................................. 48

2.5.1 Overview of Thanh Hoa’s social - economy........................................................... 48

2.5.2 The mechanisms and policies for attracting FDI in Thanh Hoa province ................ 49

CHAPTER 3. RESEARCH METHODOLOGY ......................................................... 53

3.1. Theoretical framework and hypothesis development ................................................ 53

3.2. The data collection and data analytical framework ................................................... 55

3.3. Sample size and Population determination ............................................................... 60

3.3.1 Population determination ....................................................................................... 60

3.3.2 Sample size determination ..................................................................................... 61

3.3.3 Sampling Method................................................................................................... 62

3.4. Questionnaire Design............................................................................................... 62

3.5. Response Rate ......................................................................................................... 63

CHAPTER 4. DATA ANALYSIS AND RESULTS .................................................... 64

4.1 The trends of FDI inflows in Thanh Hoa Province in the period from 2001 to 2012 .. 64

4.2. Data analysis about the factors affecting the attraction of foreign direct

Investment in Thanh Hoa Province. ................................................................................ 67

4.2.1 The importance of various factors in attracting FDI ìnlows in Thanh Hoa

province ......................................................................................................................... 70

4.2.1.1. Political/governmental/legal factors (F1)............................................................ 70

4.2.1.2. Social and cultural factors (F2)........................................................................... 72

viii

4.2.1.3. Financial factors (F.3)........................................................................................ 73

4.2.1.4. Economic and marketing factors (F4)................................................................. 74

4.2.1.5. Availability of resources factors (F5) ................................................................. 75

4.2.1.6. Infrastructure factors (F6) .................................................................................. 76

4.2.2 Results of the Analysis......................................................................................... 77

4.3 Data analysis about the effects of FDI in the economic growth of Thanh Hoa

Province ......................................................................................................................... 78

4.3.1 Contributions to development and movement of economic structure ...................... 79

4.3.2 Contributions in mobilizing invested capital for development ................................ 80

4.3.3 Employment change............................................................................................... 81

4.3.4 Contribution of FDI sector in province revenue...................................................... 82

4.3.5 FDI contribution to export turnover........................................................................ 83

4.4 Analysis of factors affecting the process of FDI investment in Thanh Hoa

province ......................................................................................................................... 84

4.2.1 Analysis of research results.................................................................................... 84

4.2.2 Correlations coefficient.......................................................................................... 89

CHAPTER 5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ......... 91

5.1 Summary .................................................................................................................. 91

5.2 Conclusion................................................................................................................ 93

5.3. Policy implications .................................................................................................. 96

5.4. Limitations and further research............................................................................... 99

BIBLIOGRAPHY......................................................................................................... 100

Appendix - A.................................................................................................................. 106

Appendix - B.................................................................................................................. 107

Appendix – C ................................................................................................................. 118

Appendix – D ................................................................................................................. 137

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LIST OF TABLES

Table Page

4.1 Foreign direct investment project licensed in period 2001 to 2011 64

4.2 The importance level of political, governmental and legal factors 70

4.3 The importance level of social and cultural factors 72

4.4 The importance level of financial factors 73

4.5 The importance level of economic and marketing factors 74

4.6 The importance level of availability of resources factor 75

4.7 The importance level infrastructure factors 76

4.8 Descriptive Statistics 77

4.9 The important of factors affecting the process of FDI investment in

the Thanh Hoa province ( Response from the management FDI)

85

4.10 The importance of factors affecting the process of FDI investment

in the Thanh Hoa province (Response from the civil servants)

86

4.11 Factors affecting the investment process of FDI enterprises in

Thanh Hoa Province

87

4.12 Descriptive sattistics and correlation (Response from the civil

servants)

89

x

LIST OF FIGURES

Figure Page

3.1 Theoretical Framework 54

3.2 Data collection and analytical framework 55

3.3 Steps of the assessment process to improve the investment

environment

60

4.1 The trends in FDI in Thanh Hoa Province in the period from 2001

to 2012

65

4.2 Company’ position by the respondents 67

4.3 Time of company establishment 67

4.4 Form of investment 68

4.5 Company group by size of capital 68

4.6 Types of Business 69

4.7 Contribution of FDI in gross domestic product 79

4.8 Investment at current prices 81

4.9 Employment in FDI sector of Thanh Hoa province 82

4.10 State budget revenue from FDI sector 83

4.11 Export turnover of FDI sector 84

xi

Abbreviations

ASEAN

BITs

CRS

DPI

EP

FDI

FSA

GDP

GSO

IS

MNC

MNE

MER

OECD

PCI

PCL

R & D

SSA

SMEs

TNC

UN

UNCTAD

VCCI

WTO

Association of Southeast Asian Nations

Bilateral Investment Traits

Corporate Social Responsibility

Department of Planning & Investment

Export- promoting

Foreign Direct Investment

Firm specific advantage

Gross Domestic Product

General Statistics Office

Import-substituting

Multinational Corporation

Multinational enterprise

Mixed, fixed and random

Organisation for Economic Co-operation and Development

Provincial Competitiveness Index

Product Life Cycle

Research and Development

Sub-Saharan Africa

Small- and medium-sized enterprises

Transnational corporation

United Nation

United Nations Conference on Trade and Development

Vietnam Chamber of Commerce and Industry

World Trade Organization

1

CHAPTER 1

INTRODUCTION

1.1 Background

In global integration economy, Foreign Direct Investment (FDI) has been very

much needed to boost the growth of a country’s economy especially the developing

countries. It is claimed that FDI can create employment, increasing technological

development in the host country and improving the economic condition of the

country in general.

Vietnam implemented its economic reform Doi Moi in the mid -1980s. The

market-based economic policies and legal frameworks have contributed to open

up the country, trade barriers have been removed and FDI has been now a

fundamental part of the economy.

Among various forms of international business, FDI is highly regarded as

the most effective way by which transition economies become integrated to the

global economy. FDI involves the transfers of multiple resources to a host country,

especially transfers of knowledge, capital, management skills, marketing know￾how and the latest production technology. FDI is expected to provide urgently

needed capital for country in various fields with limited access to international

capital markets and to generate cash revenues through privatization for limited

budgets. Furthermore, the entries of foreign companies are projected to foster

changes in the economic system, to create competition and to promote the

development of many sectors, especially, private sector. Foreign investors also

facilitate exports to Western and other international markets through their

knowledge and experience of the relevant markets as well as access to

distribution networks (Girma et al., 2005; Meyer, 1998; Nguyen and Xing,

2

2006). Hence, FDI interacts with many aspects of the transition process through its

direct impact on macroeconomics namely, the balance of payments and

employment, through the transfer of knowledge and through the role of investors as

new owners of formerly state-owned enterprises (Meyer, 1998). However, the

transition vice versa influences FDI inflows. For instance, FDI is gravitated to

countries with furthest progress in economic and institutional reforms to

minimize transaction costs of doing business (Baniak et al., 2002; Meyer, 2001).

As other transition economies, in the period from the late 1970s to 1990,

Vietnam was integrated in the trading system of the Soviet Union and its allies with

few other linkages. During 1980s, Vietnam had experienced severe shortages of food

and basic consumer goods, three-digit inflation, a high budget deficit, chronic trade

imbalances and deteriorating living standards. The sluggish economy forced the

Vietnamese government to initiate an overall economic reform from a planned

economy to a market one in 1986. The most important tasks of the reform

program w e r e to encourage development of private sector and to reduce the

dependence of the overall economy on inefficient state-owned enterprises. In this

process, FDI had played a crucial role in creating an “imported” private sector and

strengthening the competitiveness of the economy.

The first Law on Foreign Investment issued in 1987 by the Vietnamese

government was considered as one of the first concrete steps towards FDI

encouragement and economic renovation. This law was revised several times in

1992, 1996, 2000, and most recently replaced by a new law on investment

integrating both domestic and foreign investment (Unified Investment Law 2006).

These changes and amendments aimed to remove obstacles against the

operation of foreign investors and to improve the environmental investment in

3

Vietnam, creating a fair business environment for both domestic and foreign

companies. Usually, these changes are providing more tax incentives, promote

transfer of technology and simplify investment licensing procedures.

Besides favorable and open policies toward foreign investments, Vietnam

also attracted foreign investors in another ways such as a potencial market for

consuming and low costs of production factors. In particular, Vietnam is a

profitable market with population of some 90 million so the demand of consumer

goods is huge. Moreover, factor-cost advantages arising from relatively low costs

of raw materials and low labor costs create the attractiveness of Vietnam

compared to neighboring countries, especially in garment, textile, and sea food

manufacturing industries (Mirza & Giroud, 2004). However, foreign companies in

Vietnam still have to pay high transaction costs associated with searching,

negotiating and contracting with domestic partners arising from an incomplete,

inconsistent and continuously changing institutional framework. Acording to the

Provincial Competitiveness Index Report from 2006 to 2012, many managers in

Vietnam have not fully satisfied with the resource of information on suppliers,

buyers, price trends and changes in policies and regulations, and they have to use

personal relationships with local authorities to get important information.

1.2 Problem Statement

According to the decentralization policy started in the FDI law

amendment in 1996, each province was decentralized with more power and

autonomy in dealing with foreign investments such as in granting investment

licenses, leasing land, providing export and import licenses and recruiting labor.

This policy, on the one hand, allows provincial authorities to develop in an

innovative ways that attract more foreign investors, and also leads to variations