ĐTQT - Khôi Full - Lecture notes 5 PDF

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ĐTQT - Khôi Full - Lecture notes 5...

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Theories of FDI may be classified under the following headings: 1. Production Cycle Theory of Vernon Production cycle theory developed by Vernon in 1966 was used to explain certain types of foreign direct investment made by U.S. companies in Western Europe after the Second World War in the manufacturing industry. Vernon believes that there are four stages of production cycle: innovation, growth, maturity and decline. According to Vernon, in the first stage the U.S. transnational companies create new innovative products for local consumption and export the surplus in order to serve also the foreign markets. According to the theory of the production cycle, after the Second World War in Europe has increased demand for manufactured products like those produced in USA. Thus, American firms began to export, having the advantage of technology on international competitors. If in the first stage of the production cycle, manufacturers have an advantage by possessing new technologies, as the product develops also the technology becomes known. Manufacturers will standardize the product, but there will be companies that you will copy it. Thereby, European firms have started imitating American products that U.S. firms were exporting to these countries. US companies were forced to perform production facilities on the local markets to maintain their market shares in those areas. This theory managed to explain certain types of investments in Europe Western made by U.S. companies between 1950-1970. Although there are areas where Americans have not possessed the technological advantage and foreign direct investments were made during that period. 2. The Theory of Exchange Rates on Imperfect Capital Markets This is another theory which tried to explain FDI. Initially the foreign exchange risk has been analyzed from the perspective of international trade. Itagaki (1981) and Cushman (1985) analyzed the influence of uncertainty as a factor of FDI. In the only empirical analysis made so far, Cushman shows that real exchange rate increase stimulated FDI made by USD, while a foreign currency appreciation has reduced American FDI. Cushman concludes that the dollar appreciation has led to a reduction in U.S. FDI by 25%. However, currency risk rate theory cannot explain simultaneous foreign direct investment between countries with different currencies. The sustainers argue that such investments are made in different times, but there are enough cases that contradict these claims. 3. The Internalisation Theory This theory tries to explain the growth of transnational companies and their motivations for achieving foreign direct investment. The theory was developed by Buckley and Casson, in 1976 and then by Hennart, in 1982 and Casson, in 1983. Initially, the theory was launched by Coase in 1937 in a national context and Hymer in 1976 in an international context. In his Doctoral Dissertation, Hymer identified two major determinants of FDI. One was the removal of competition. The other was the advantages which some firms possess in a particular activity (Hymer, 1976).

Buckley and Casson, who founded the theory demonstrates that transnational companies are organizing their internal activities so as to develop specific advantages, which then to be exploited. Internalisation theory is considered very important also by Dunning, who uses it in the eclectic theory, but also argues that this explains only part of FDI flows. Hennart (1982) develops the idea of internalization by developing models between the two types of integration: vertical and horizontal. Hymer is the author of the concept of firm-specific advantages and demonstrates that FDI take place only if the benefits of exploiting firm-specific advantages outweigh the relative costs of the operations abroad. According to Hymer (1976) the MNE appears due to the market imperfections that led to a divergence from perfect competition in the final product market. Hymer has discussed the problem of information costs for foreign firms respected to local firms, different treatment of governments, currency risk (Eden and Miller, 2004). The result meant the same conclusion: transnational companies face some adjustment costs when the investments are made abroad. Hymer recognized that FDI is a firm-level strategy decision rather than a capital-market financial decision. 4. The Eclectic Paradigm of Dunning The eclectic theory developed by professor Dunning is a mix of three different theories of direct foreign investments (O-L-I): 1) “O” from Ownership advantages: This refer to intangible assets, which are, at least for a while exclusive possesses of the company and may be transferred within transnational companies at low costs, leading either to higher incomes or reduced costs. But TNCs operations performed in different countries face some additional costs. Thereby to successfully enter a foreign market, a company must have certain characteristics that would triumph over operating costs on a foreign market. These advantages are the property competences or the specific benefits of the company. The firm has a monopoly over its own specific advantages and using them abroad leads to higher marginal profitability or lower marginal cost than other competitors. (Dunning, 1973, 1980, 1988). There are three types of specific advantages: Monopoly advantages in the form of privileged access to markets through ownership of natural limited resources, patents, trademarks; Technology, knowledge broadly defined so as to contain all forms of innovation activities Economies of large size such as economies of learning, economies of scale and scope, greater access to financial capital; 2) “L” from Location: When the first condition is fulfilled, it must be more advantageous for the company that owns them to use them itself rather than sell them or rent them to foreign firms. Location advantages of different countries are de key factors to determining who will become host countries for the activities of the transnational corporations. The specific advantages of each country can be divided into three categories10: The economic benefits consist of quantitative and qualitative factors of production, costs of transport, telecommunications, market size etc. Political advantages: common and specific government policies that affect FDI flows Social advantages: includes distance between the home and home countries, cultural diversity,

attitude towards strangers etc. 3) “I” from Internalisation: Supposing the first two conditions are met, it must be profitable for the company the use of these advantages, in collaboration with at least some factors outside the country of origin (Dunning, 1973, 1980, 1988). This third characteristic of the eclectic paradigm OLI offers a framework for assessing different ways in which the company will exploit its powers from the sale of goods and services to various agreements that might be signed between the companies. As cross-border market Internalisation benefits is higher the more the firm will want to engage in foreign production rather than offering this right under license, franchise. Eclectic paradigm OLI shows that OLI parameters are different from company to company and depend on context and reflect the economic, political, social characteristics of the host country. Therefore the objectives and strategies of the firms, the magnitude and pattern of production will depend on the challenges and opportunities offered by different types of countries.

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THE REASON WHY VIET NAM IS ENCOURAGING THE ATTRACTION OF DOMESTIC-INVESTED CAPITAL , WHILE ALLOWING DOMESTIC BUSINESS TO INVEST ABROAD Not only is Vietnamese businesses only earning "change money" when participating in the global value chain, but in order to upgrade the economy, Vietnam is forced to create a connection between the domestic investment and foreign direct investment (FDI). "Rolling round potato" Quite frankly, Mr. Vu Thanh Tu Anh, Director of the Fulbright Economics Teaching Program, used the image of “rolling potatoes” to talk about fragmentation, fragmentation, and lack of integration of the platform. Vietnam economy. According to Mr. Vu Thanh Tu Anh, in the Vietnamese economy, large enterprises are not connected with small businesses, FDI enterprises export a lot, but also cannot connect with domestic enterprises, so they have to import raw materials. If there is a lot of input, the localities have no connection, even unfair competition from each other. “Thus, it is impossible to create synergy for the economy. Must create internal capacity for the Vietnamese economy to stand up to external uncertainties. This challenge is very worrying ”, said Mr. Vu Thanh Tu Anh. The fragmentation and fragmentation in the connection of the Vietnamese economy is not mentioned in fact now. At the Vietnam Development and Reform Forum 2019 (VRDF), this story was once again emphasized. Mr. David Dollar, who has been present in Vietnam since 1989, is at the stage when Vietnam is beginning to do Doi Moi, as Chief Economist of the World Bank (WB) and is currently Research A senior researcher, Brookings Institution (USA), said that Vietnam has successfully attracted FDI, but the domestic official private sector has lagged behind, and domestic investment remains low. This has led to the fact that direct exports are often done by multinationals that manage global value chains. "I have traveled to many countries, especially in China, the value added in exports are mainly

coming from the domestic private sector," said David Dollar. In Vietnam, the story seems to be the opposite. Prime Minister Nguyen Xuan Phuc himself, when speaking at VRDF, also mentioned that, despite the "flow" of global value chains and supply chains of transnational corporations such as Samsung, LG, and Fujitsu, Aeon, Nestle, Nike, Intel ... have gone to Vietnam, but only 21% of Vietnamese enterprises can participate in the foreign application chain, lower than Thailand (30%), Malaysia (46%). “The average localization rate of Vietnam is only 33%, so participation in the global value chain remains low. Vietnamese businesses only get ‘change amount’ when joining global value chains ”, said the Prime Minister. At the seminar with scholars and experts on the VRDF, Minister of Planning and Investment Nguyen Chi Dung said that over 30 years of attracting FDI, Vietnam also wants to transfer technology, but " no one "transferred it. “Big corporations when entering Vietnam bring supply chains with them. It is very difficult for Vietnamese enterprises to become tier 1 and 2 suppliers for them, when capacity is not available, technology is not. As for level 3, to compete, it cannot compete with cheap Chinese products, ”said Minister Nguyen Chi Dung. "So how do we do?", In an apprehensive manner, Minister Nguyen Chi Dung asked such foreign experts.

It is impossible to rely entirely on FDI During the discussion at the VRDF Forum, Mr. Dao Van Hung, Director of the Institute of Policy and Development asked Mr. David Dollar, is there a prosperous country that mainly relies on FDI? The answer from Mr. David Dollar is no. "No country can develop but completely rely on FDI, but must rely on private investment", Mr. David Dollar emphasized. Having the same answer, Mr. Jonathan Pincus, Chairman of Rajawali Fund (RF), former Chief Economist of UNDP Vietnam, affirmed, even though important, FDI cannot substitute for domestic investment. GS. Nguyen Mai, Chairman of the Association of FDI Enterprises, said that the reasonable rate when foreign investment is equivalent to about 20-25% of the total social investment capital. “Neither should be higher nor lower than this ratio. Can not be lower because domestic investment capital is still limited, we need to attract FDI to promote economic development. It should not be higher than that because, there must also be opportunities for domestic businesses ", GS. Nguyen Mai said. The best answer in this case is to closely connect the FDI sector and the domestic sector. “Many countries are caught in a middle-income trap by focusing solely on the public and private sectors. Vietnam should become an integrated, closely interacting economy between the three public, private and FDI sectors. It is necessary to participate more strongly in the global value chain, to create more value added, ”said Jan Rielander, Special Envoy of the Director of the Development Center (under OECD). "Vietnam also needs a better connection between the private sector and the FDI sector to absorb high technology from more developed countries and through this process to improve labor productivity," said David. Dollar has the same recommendation. Sharing Malaysian experience, Mr. K. Yogeesvaran, former Deputy Minister of Industry, Cultivation and Commodities of Malaysia, said that Malaysia has also gone through various stages. Source: https://baodautu.vn/fdi-khong-the-thay-the-cho-dau-tu-trong-nuoc-d107731.html

1. Viet Nam is encouraging the attraction of Domestic-Invested Capital Domestic-invested investment has played an essential role in difficult economic times and has been an enormously important motivation which has made a contribution to promoting growth and economic restructuring, especially for projects to develop transport and energy infrastructure ... 2. Viet Nam is facilitating Domestic Business to invest abroad Benefits and roles of foreign direct investment + Advantages of overseas direct investment: The expansion of operations in foreign markets has many benefits: relatively stable profit margins in developed countries, rapid project implementation times, high quality projects, and progress Payment is extended with low ratio of early payments, low interest rates ... In particular, overseas investment helps domestic enterprises diversify their portfolios, create more opportunities to cooperate with international businesses so as to expand customer networks, and seek new investment potentials. Overseas investment may not achieve as high a rate of return as in the country, but in developed countries' markets can ensure stable returns. + The role of foreign direct investment. * For countries to invest. ● First of all, the host country can make use of the comparative advantage of the host country. ● Secondly, prolonging the product's life cycle through technology transfer. ● Thirdly, through foreign direct investment, investors can expand markets, avoid trade barriers of the host country when exporting machinery and equipment products here. ● Fourthly, foreign direct investment will encourage the exporting country to invest. her countries * For the host country. ● Firstly, FDI is one of the important capital sources to compensate for the shortage of investment capital, it make a contribution to the driving force for growth and development. ● Secondly, investment will affect economic growth. ● Thirdly, investment will change the economic structure. ● Fourthly, the investment will strengthen the nation's science and technology capabilities. Through foreign direct investment, companies (mainly multinationals) have transferred technology from their own country or from another country to the host country.

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Strategies on attracting Foreign Direct Investment Foreign investment attraction situation Since the Law on Foreign Direct Investment took effect (in 1988), the inflow of foreign investment (FDI) has become an important driving force for the socio-economic development of our country. Specifically, in the 2001-2006 period, FDI contributed about 16% of the total social investment capital; In the 2007-2014 period, with a significant increase in disbursement capital, the FDI sector had an improvement in its contribution. From 2007 to 2012, FDI always accounted for 21-30% of the total social development investment. In particular, in the past few years, FDI inflows into Vietnam not only increased in quantity (invested capital) but also increased in quality (investment depth) through the presence of countries: Brunei, China. States, Canada, South Korea ... with newly registered capital of over 1 billion USD. In the first 8 months of 2015 alone, there were a number of major licensed projects such as: - SamSung Display Vietnam Company Project with an additional investment capital of 3 billion USD. This project was licensed in 2014 with an initial capital of 1 billion USD;

- De Vuong City Joint Venture Company Limited project with total investment capital of 1.2 billion USD by Tien Phuoc Real Estate Joint Stock Company and Tran Thai Real Estate Company Limited Joint venture with investor Denver Power Ltd - UK investment projects in TP. Ho Chi Minh City operates in the field of real estate business. Hyosung Dong Nai Company Limited Project has a total investment capital of $ 660 million invested by Turkish investors in Dong Nai Industrial Park with the goal of producing and processing yarns. Worldon (Vietnam) Company Limited Project with a total investment capital of 300 million USD invested by BritishVirgin Islands investor in Ho Chi Minh City. Ho Chi Minh City with the goal of producing high-class garment products. Statistics of the Foreign Investment Department (Ministry of Planning and Investment) show that the FDI economic sector has always developed dynamically over the past time. In the first 8 months of 2015 alone, FDI projects disbursed $ 8.5 billion, up 7.6% over the same period in 2014; Export of FDI sector (including crude oil) reached 74.6 billion USD, up 14.7% over the same period in 2014 and accounting for 70.2% of total export turnover; Import of the FDI sector reached 65.22 billion USD, up 23.2% over the same period in 2014 and accounting for 59.4% of total import turnover. Generally in the first 8 months of 2015, the FDI sector saw a trade surplus of 9.38 billion USD. The disbursement progress of FDI was also recorded in details through the following periods: 1) In the period 2000-2005, the registered FDI value is low but the disbursement rate is quite high (69%). 2) In the period 2006-2008, there was a high registered FDI rate, the absolute disbursement value was also high but the proportion of disbursement compared to registration was very low (25%). The reason is that in the period 2000-2005, Vietnam is actively implementing the policy of attracting FDI, opening up and integrating into the international economy, so FDI mainly focuses on the industries of commerce and light industry. 3) In the period 2006-2008, Vietnam became a member of the WTO, the registered capital increased very high but focused on industries such as cement, iron and steel, making the project implementation time long. , slow disbursement. 4) From 2008 to present, due to many internal reasons (such as land problems, land clearance compensation ...) as well as external causes (such as financial and monetary crisis, changes in the portfolio ...), although the committed FDI capital is high, the disbursement rate is very low. The above results show that the State management over the activities of the FDI sector has been gradually going in depth, with close coordination among the agencies in managing FDI resources at all levels; Investment promotion activities have also made many innovations in methods and improved quality, thereby contributing significantly to attracting FDI. However, in general, the state management of FDI enterprises in Vietnam still has many limitations, due to the lack of consistency in legal documents and transparency in the management of the agency. government... In order to "manipulate" FDI inflows as well as efficiently manage FDI resources, to best support the country's socio-economic development goals in the context of deeper integration into the world economy, In 2014, the National Assembly of Vietnam decided to amend, supplement and pass a new Law on Investment, allowing FDI enterprises to step by step enjoy the same incentives as domestic enterprises. Accordingly, FDI enterprises are supported with corporate income tax, land collection tax incentives for FDI enterprises using local labor and achieving a certain percentage of exported products ...

In addition, the centr...