Tài liệu Causes and effects of foreign direct investment basis for policy redirection in thanh hoa province in vietnam

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 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 i 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 ITCTUAF; 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. ii 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 iii statistical tool. The combinations of descr iptive and as we ll as stat ist ica l tools ha ve 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. C orrelation 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 iv 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. v 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 vi 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 vii 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 viii 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 85 4.10 the Thanh Hoa province ( Response from the management FDI) The importance of factors affecting the process of FDI investment 86 4.11 in the Thanh Hoa province (Response from the civil servants) Factors affecting the investment process of FDI enterprises in 87 4.12 Thanh Hoa Province Descriptive sattistics and correlation (Response from the civil 89 servants) ix 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 60 4.1 environment The trends in FDI in Thanh Hoa Province in the period from 2001 65 4.2 to 2012 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 x Abbreviations ASEAN Association of Southeast Asian Nations BITs Bilateral Investment Traits CRS Corporate Social Responsibility DPI Department of Planning & Investment EP Export- promoting FDI Foreign Direct Investment FSA Firm specific advantage GDP Gross Domestic Product GSO General Statistics Office IS Import-substituting MNC Multinational Corporation MNE Multinational enterprise MER Mixed, fixed and random OECD Organisation for Economic Co-operation and Development PCI Provincial Competitiveness Index PCL Product Life Cycle R&D Research and Development SSA Sub-Saharan Africa SMEs Small- and medium-sized enterprises TNC Transnational corporation UN United Nation UNCTAD United Nations Conference on Trade and Development VCCI Vietnam Chamber of Commerce and Industry WTO World Trade Organization xi 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 knowhow 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, 1 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 2 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 3 in the implementation of the central laws and regulations among provinces. Foreign investors may experience a lot of red tapes namely, corruption or delays in administrative progress if local authorities possess conservative inherited norms and cognitions. In this context, foreign investors have considered many factors when investing in Vietnam such as modes of entry and location choices for their operations so that they can make use of advantages and minimize disadvantages. In order to attract investors to Thanh Hoa and give the most favorable conditions to them, the province has offered many investment priority policies as well as improves administrative procedures. Over the past revised, the province’s investment environment has been significantly improved. With a view to: no restrictions on size, industry, and geographic areas, based on the Investment Law and Enterprise Law, Thanh Hoa is continuing to review and to improve the system of mechanisms and policies towards incentives and making it more convenient for investors. These mechanisms and policies of Thanh Hoa focus on improve and simplify administrative procedures, issue the open and attractive mechanisms and policies, call for investment, create innovative in building essential socio-economic infrastructure, promote the advantages of human resources, improve the quality of human resources in order to meet business’s demands. In addition, resolution No 02/NQ-TU dated 27/6/2011 regarding improvement for investment environment in province in the stage 2011 – 2015 focused on implementing site clearance work in order to meet investors’ requirements, support business development, transparency of information for business, support business development, transparency of information for business. With the above policy should take until 2012 in Thanh Hoa province has 41 investment projects involving foreign direct operation with a total registered capital of USD 6,952 million. 4 These results are encouraging, but compared to the potential and advantages of Thanh Hoa province are still limited. The number and sizes of investment projects in Thanh Hoa are low. Thanh Hoa is not one of the top provinces classified based on provincial competitiveness index. We have to describe the trends in FDI in Thanh Hoa Province and identified of factors affecting the attraction of foreign investment in Thanh Hoa. After that we can analysis of the impact of each factor to attract foreign investment is essential for the government in offering policies to attract investment capital and analyze the effects of FDI in the economic growth of Thanh Hoa Province. Therefore, we can formulate policy implication to enhance economic growth of Thanh Hoa Province in Vietnam. This thesis focuses on determinant of “Causes and Effects of Foreign Direct Investment: Basis for Policy Redirection in Thanh Hoa province in Vietnam”. The research was conducted in two phases. The first phase involves secondary collection and desk review such as reviewing of relevant literatures, journals, publications, books and reports. The second phase is the collection of primary data via structured questionnaire and data analysis. 1.3 Research Objectives The main objective of this research is to determinants Foreign Direct investment in Thanh Hoa province. Thus it hopes to achieve the following objectives: 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 in terms of the following factors:  Political and legal  Social and culture 5  Financial  Economic and marketing  Availability of resources  Infrastructure requirement 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. 1.4 Study Object and Scope Since year 2001 up to 2012 there are forty one (41) FDI entrepreneurs, including 100% foreign ownership and as well as joint ventures. These companies are playing a significant role for the growth of the Thanh Hoa province’s economy today. This contribution played an important role restructuring of Thanh Hoa province's economic structure. FDI corporations have created industrial manufacturing value of 4.388.8 billions VND in 2010. The estimated total value of the exports turnover of goods and services was $US 729 million in 2012. This is an indicator that, presently Thanh Hoa province is moving towards more diversified industrial base industries. With the growth of regional trade agreements the FDI flows in the Thanh Hoa is at a higher rate than found in many other provinces in Vietnam. As such, the scope of this research was extended to gather data from the existing foreign investors only. In addition to that, this paper has been studied the trends in FDI in Thanh Hoa province, the determinant factors affecting FDI flow to Thanh Hoa province and the effects of FDI in the economic growth of Thanh Hoa Province. 6 Further more for this study, the Dunning eclectic paradigm / OLI paradigm model and the factors which are influencing to choice of a host market of Gilomre, O’s Donnel, Carson and Cummins (2003) are being applied. 14.1. Object Causes and Effects of Foreign Direct Investment. 1.4.2. Scope + Spatial limitation Study site: Thanh Hoa province. Field survey was conducted in forty one (41) FDI entrepreneurs and 200 officers. + Time range: - Secondary data: collected during the period 2001 - 2012; - Primary data: Surveys were conducted in the period 2012 - 2013; - The solution was studied and proposed up to 2020. 1.4.3. Limits on Content - Studying the trends in FDI in Thanh Hoa province; - Determinant factors affecting FDI flow to Thanh Hoa province; - Analyzing the effects of FDI in the economic growth of Thanh Hoa Province. 1.5 Research Questions In order to achieve the above objectives, the following research questions were proposed for this study: 1. What are the existing conditions of industry facilities of Thanh Hoa Province in terms of (Land facilities (industrial park / location); Lights and water; Road networks; Communication facilities; etc & buildings) 2. What are the existing policies with regards to (Ownership sharing; Stocks distribution & allocation; Permits and Registration; Taxation; Supply of raw materials; Capitalization & other resource; Man power) 7 3. To what extent that foreign direct investment are affected as course the low FDI in terms of (Political/Government/Legal; Social and cultural; Financial; Economic and Market; Availability of resources; Infrastructure) 4. Is there a significant difference on the perceptions of respondents in terms of factors affecting the process of FDI investment in the Thanh Hoa province? - Time investment licensing - Time of evaluation the basis design, planning and construction licensing - Compensation for land acquisition, land allocation - Government intervention in the operation of enterprises (check by police, taxcollector, etc.) - Labor recruitment - The dynamics of provincial leaders - Access to policy-makers to resolve firm issues - Control of corruption - The environmental factors. - Access to information on investment policy and investment. 5. What policies investors & incentives can be redirected to encourage and improve performance of FDI? 1.6 Significance of the Study The study is deemed significant for its benefits to certain individuals such as the following. (1). The thesis indicated the general picture of foreign direct investment in Thanh Hoa province in the period from 2001 to 2012. At the same time, it also pointed out the trend of foreign direct investment in Thanh Hoa province during this 8