Determinants of viet nam’s outward direct investment

Vo Thanh Thu & Le Quang Huy | Determinants of Vietnam’s outward direct investment: A difference test among entry modes VO THANH THU University of Economics HCMC – vothanhthu@ueh.edu.vn LE QUANG HUY University of Finance and Marketing Abstract This article focuses on the determinants of Viet Nam’s Outward FDI by studying simultaneously the influence of two Pull Factors and Push Factors In addition, the work examines the differences in assessing the impact of two factors groups on investment decisions by market entry method The authors used the mixed research methods: qualitative - quantitative combinations The research results indicate two groups of factors that both Pull Factors and Push Factors to impact Vietnam’s FDI abroad Push factors group from Viet Nam include Competitive pressure of Vietnam market, Monetary policy, Interest rates of Vietnam, Regulations and procedures for licensing investment abroad of Vietnam, Incentive policy, investment incentives to overseas Pull factors group form host country include Culture – Geography, Macroeconomics and market, Infrastructure, Regulations and policies related to investment There have a difference among entry modes significantly in assessing Pull factors from host country Keywords: FDI; Viet Nam’s OFDI; FDI from Viet Nam Introduction In the last 30 years, globalization and regionalization of the economy have been rapid, one of the characteristics of the process is that countries promote direct investment abroad, not only developt countries, but also developing countries Outward foreign direct investment (OFDI) has become a trend for the benefit of stakeholders, including the investment side: On the side of the State to invest, helping to increase the economic, social and political influence on the receiving country; To create a stable source of raw materials for domestic production; The return from overseas investment contributes to improving the country's international payment balance, on the part of investors, through offshore investment, which helps to expand the market in depth, Spreading the risk in business, increasing the efficiency of using capital Having realized the benefits of OFDI, in 1989 when Vietnam did not have legal documents regulating the investment activities abroad, there were projects Firstly, with a total investment of nearly 564 thousand USD invested in Laos, by 2016, Vietnam has had 1,188 projects invested in 70 countries and regions of the five continents and with about 21.44 Billion However, if compared with global’FDI, FDI from Vietnam has not increased significantly recently, the quality of development is not high, so it is necessary to study the factors affecting the investment of Vietnam abroad; in case, Cambodia is one of the largest and most important market attracting Viet Nam’s FDI So far, there have been many works in the world that study the factors affecting OFDI According to UNCTAD's World Investment Report (2006), scientists and experts have summarized two groups of factors for impacting on the movement of capital abroad The first group of factors, the enterprises investing overseas, may come from their push factor (domestic factors) such as domestic market characteristics, resource scarcity The second group of factors, companies invest abroad by the attractiveness of foreign markets (also known as Pull Factors) However, none of the works has adequately researched the synergy of assessing both groups of factors on the impact of capital movements on firms Therefore, this study was suggested by the authors on this basis, "Determinants of Viet Nam’s outward direct investment: A difference test among entry modes", to clarify which push factors and pull factors significantly influences the OFDI of a developing country in another developing economy as well as examine the differences in the general assessment of investment decisions as well as the factors influencing investment decisions among entry modes The theoretical background and proposed models of factors influencing the FDI decision of Vietnam to Cambodia: 2.1 The theoretical background There are two groups of factors influencing foreign direct investment decisions at the same time, including push factors and pull factors They are: Pull factors from Host countries: - First, Macroeconomics and market First of all, FDI is attracted by the market characteristics of receiving countries, especially for investment projects seeking markets including: Market size and market development speed, low competitive pressure of market makes it easier for foreign businesses to gain market share (Balassa 1966; John H.Dunning 1977, 1979, 1988; Moore 1993; Wang & Swain, 1995; Markusen & Venables 1998, 2000 Ludo Cuyvers et al., 2008; Jing Lin Duanmu & Yilmaz Guney, 2009; Ibrahim Anıl et al., 2011; Cassey Lee et al., 2016; GCI1) In addition, foreign investors were also attracted by stable macroeconomic conditions, low inflation rates, stable exchange rates (UNCTAD 2006, Muhammad Azam et al 2011; Cassey Lee et al Associates 2016; GCI) - The second, Cost FDI companies, regardless of their motives for seeking markets or seeking production resources, are concerned about cost factors For them, cheap, quality inputs attracting FDI (John H.Dunning 1977, 1979, 1988; UNCTAD 2006; Ibrahim Anıl et al., 2011) Costs include labor costs, using cost of management personnel, natural resource using costs (Horst, 1972, John H.Dunning 1977, 1979, 1988; Wheeler & Moody, 1990; Petrochilos, 1989), costs relating to obtaining a business or investment license (John H.Dunning 1977, 1979, 1988; EBDI, 2014 & 20152) - The third, Infrastructure Infrastructure are Facilities that enable economic activity and markets, such as transportation, communication and distribution networks, utilities, water, sewer, and energy supply systems (Michael P.Todaro Stephen C.Smith, 2012) Infrastructure include physical infrastructure and social infrastructure In which physical infrastructure include bridges, communications, electricity, water, banking and financial systems; The social infrastructure system relating to education, health care, entertainment (Michael P Todaro Stephen C Smith, 2012; Thu T.Vo & Huyen T.N.Ngo, 2008; GCI; EDBI) Good infrastructure helps companies invest in lower costs (Michael P.Todaro Stephen C.Smith, 2012) According to UNCTAD (2006), transnational companies investing in Africa are very interested in the development of their infrastructure GCI denoted of Global competitiveness index, annual reported by World Economic Forum, first announce in 1979 EBDI denoted of The ease of doing business index, annual reported by World bank in Doing Business Report) This index has been reported from 2001 that ranking economy all over the world from to 189 - The fourth, Resource endowment Resources are a nation’s supplies of usable factors of production including mineral deposits, raw materials and labor (Michael P.Todaro & Stephen C.Smith, 2012) According to Locational theory, labor and natural resources are non mobility factors (Horst (1972); Wheeler & Moody (1990); Petrochilos (1989), H.Dunning (1977, 1979, 1988), UNCTAD 2006); Peter J Buckley et al (2007); Shujie Yao et al (2010); Ibrahim Anıl et al (2011)) - The fifth, institutional environment The institutional environment influences investment decisions and production organization and plays an important role in the ways that society distributes benefits and is subject to the costs of development strategies and policies (Klaus Schwab and Et al., 2016) According to Bénassy Quéré et al (2007) and Cleeve (2008), the extent to which new companies are established, low levels of corruption, high transparency, contract law, Property protection is a determinant of FDI attraction Also, according to Constantinos Choromides (2015), factors such as low personal and corporate income taxes, market access (trade and investment liberalization) levels have positive implications for attracting FDI into Greece Muhammad Azam et al (2011) with similar research also points out that good institutional quality and macroeconomic policies play a major role in attracting FDI into seven South Asian countries - The sixth, Culture and geography Culture and geography between host countries and home countries help attract FDI (Peter J Buckley et al., 2007; H.Dunning 1977, 1979, 1988) Ludo cuyvers et al (2008) also assert that geographic distance affects FDI into Cambodia and Southeast Asian countries account for a large proportion of Cambodia's capital - The seventh, political risk Where political stability is more attractive to FDI and vice versa (Peter J Buckley et al., 2007; Jing Lin Duanmu & Yilmaz Guney, 2009; UNCTAD, 2006) Push factors from Home countries: Firstly, supportive policies from home countries’s government are important factors in the OFDI decision (UNCTAD, 2006; Shujie Yao et al, 2010) These policies include the rules and procedures for licensing of offshore investment as well as investment incentives for their investors (Aykut & Ratha, 2004) The second, the economy size and level of competition in the domestic market are also the driving force behind FDI firms (SS Kayam (2009), UNCTAD (2006), Tajul Ariffin Masron & Amirul Shah Md Shahbudin (2010) In addition, factors such as an increase in input costs or a domestic resource shortage also motivate domestic firms to invest abroad (Horst (1972), Wheeler & Moody (1990), Petrochilos (1989), H.Dunning (1977, 1979, 1988, 2002)) 2.2 Research model Research model on the factors affecting Viet Nam’s FDI abroad according to chart below: Research design 3.1 Rearch method and procedure The research model of the author is not isolated when studying each factor influencing the FDI decision from Vietnam, but also studying the impact of two groups of factors in a model Therefore, the author selects Explanatory Sequential Mixed Methods Design (Creswell, 2014) This study consists of two main steps: preliminary research and official study Then, the authors constructed and evaluated the scale according to Churchill's process (1997) Specifically: Step Preliminary Qualitative Research: This was conducted through discussion and interviewing with administrators in decision making and directly related to FDI of Vietnamese enterprises to Cambodia Step The official study was conducted by quantitative research with a convenient sampling method, giving out 300 questionnaires to enterprises operating in Vietnam- Cambodia Friendship Association and AVIC Authors sent survey directly to businesses participating in the 3rd and 4rd Investment Promotion Conference Vietnam - Cambodia (248 suitable feedback votes) Survey period from 06/2015 - 9/2016 3.2 Scale adjustment However, according to the results of qualitative research, experts say that monetary policy and interest rates of Vietnam are fluctuating as one of the reasons for their investment abroad (Additional variable named as KT6) and Cambodia enjoys a lot of tariff preferences of other countries than Vietnam (GSP program, Import Tax = 0) also motivates Vietnamese investors to make investment decisions in this country (Additional variable named as KT7) The cost of skilled labor (governance and experts) in Cambodia is low 3.3 Official study This study was conducted by quantitative research with a convenient sampling method Through the question of filtering, the sample identifying the participants in the survey is the enterprises have been investing in the Cambodian market and enterprises intend to invest in Cambodia (business activities to Cambodia such as import and export, Bidding, transportation services, tourism ) Specifically, the sample structure is as follows: Table The character of sample Invested, is investing directly Intent to invest (import, export, service) Number of enterprises 33 215 Percentage (%) 13, 86, Total 24 10 Source: The authors The collected data were processed and analyzed using software SPSS 20 Through this data, the scales were evaluated for reliability using the Cronbach's Alpha coefficient The scale is accepted when the Cronbach's Alpha coefficient is greater than 0.6 (Nunnally & Bernstein, 1994, Tho D.Nguyen, 2011) and the coefficient of correlation - total ≥ 0.3 Next, observable variables are validated through factor analysis (EFA) Factor loads are less than 0.35 and weight differences less than 0.3 (Hair et al., 2009) will continue to be rejected The method used to extract the coefficients is Principal Components with Varimax rotation The scale is accepted when the deviation total is ≥ 50% (Nunnaly & Bernstein, 1994, Tho D.Nguyen, 2011) The linear multiple regression model (with Stepwise method) is used to determine what factors actually influence the decision to invest in Cambodia of Vietnamese enterprises and consider the magnitude of this impact Levene test and One way ANOVA were used to examine the differences in the general assessment of investment decisions as well as the factors influencing investment decisions among other modes of entry of Vietnamese enterprises into Cambodia Analysing result of official research After assessing scale reliability with general/partial Crobach's Alpha's and assessing scale validity through EFA, the results of the analysis showed that 33 observation variables were grouped into seven factors Next, in order to determine which group of factors influenced the decision of direct investment of Vietnamese enterprises to Cambodia, the author conducted a multiple regression analysis In particular, dependent variable is DT - Enterprises will invest / increase investment in Cambodia; independent variables are the mean values corresponding to the seven groups of factors (33 variables) above Stepwise regression results were obtained using four regression models as shown in the table below, with the fourth model achieving the highest adjusted R2 (83.8% ) Table Coefficie ntsa Mod el Unstandard ized Coefficien ts Standardized Coefficients t Sig Sum of Squares KT1 KT2 KT3 KT4 HT1 HT2 HT4 HT5 HT6 HT7 QC2 Total 228.835 247 Mean Squar e Between Groups Within 2.239 2.239 139.853 246 569 Groups Total 142.093 247 Between Groups Within 1.727 1.727 134.818 246 548 Groups Total 136.544 247 Between Groups Within 641 641 175.795 246 715 Groups Total 176.435 247 Between Groups Within 2.402 2.402 144.372 246 587 Groups Total 146.774 247 Between Groups Within 1.200 1.200 230.409 246 937 Groups Total 231.609 247 Between Groups Within 950 950 201.562 246 819 Groups Total 202.512 247 Between Groups Within 9.944 9.944 225.052 246 915 10.87 001 Groups Total 234.996 247 Between Groups Within 2.698 2.698 3.956 048 167.814 246 682 Groups Total 170.512 247 Between Groups Within 7.058 7.058 227.716 246 926 Groups Total 234.774 247 Between Groups Within 9.474 9.474 163.038 246 663 14.29 000 Groups Total 172.512 247 Between Groups Within 887 887 1.341 248 162.626 246 661 Groups df F Sig 3.939 048 3.150 077 897 345 4.094 044 1.281 259 1.160 283 7.624 006 Sum of Squares QC4 QC5 Tota l Between 163.512 247 Mean Squar e 035 035 Groups Within Groups Tota 192.058 246 781 192.093 247 l Between Groups Within 3.456 3.456 208.721 246 848 212.177 247 Groups Tota l Source: The authors df F 044 Sig .833 4.073 045 Final result, according to descriptive statistics (at table 8), enterprises that have invested in Cambodia are quite satisfied with the following factors: The attitude and religious beliefs of the two countries are quite similar, Cambodia market size is big enough for Vietnamese businesses to expand their investment abroad, The low competitive pressure of the Cambodia market, Growth speed of the Cambodia market is fast, Regulations and procedures for FDI licensing of Cambodia are easy, The incentive policy, investment incentives for FDI of Cambodia are increasingly improved Enterprises that have intent to invest in Cambodia are quite conciliatory with the following factors: The attitude and religious beliefs of the two countries are quite similar, Both cultures and cuisines are quite similar, Cambodia and Vietnam are geographically close to each other, The macroeconomic environment of Cambodia is stable, The low competitive pressure of the Cambodia market, Regulations and procedures for FDI licensing of Cambodia are easy Table Descriptives result for Pull factors N VD The firms have investe d Mean St d St d Deviati on Erro r The firms have intent to 95% Confidence Interval for Mean Low er Bou nd Upper Bound Minimum Maximum 33 85 667 16 3.61 4.09 215 3.64 683 047 3.55 3.73 95% Confidence N Mean invest KT1 VD VD Deviati on Erro r Low er Bou nd Upp er Bou nd Minimum Maximum Tot al T h e f i r m s h a v e i n v e s t e d T h e f i r m s h a v e i n t e n t to invest Total The firms have investe d The firms have intent to invest Total The firms have investe d The firms have intent to invest Total The firms have investe d The firms have intent to invest Total 248 3.67 683 043 3.58 3.75 33 3.24 830 145 2.95 3.54 215 3.33 761 052 3.23 3.44 248 3.32 769 049 3.23 3.42 33 3.27 839 146 2.98 3.57 215 3.20 776 053 3.10 3.31 248 3.21 784 050 3.12 3.31 33 3.18 1.13 197 2.78 3.58 215 3.47 931 064 3.34 3.59 248 3.43 963 061 3.31 3.55 33 3.30 984 171 2.95 3.65 215 3.02 713 049 2.93 3.12 248 3.06 758 048 2.97 3.16 N Mean St d St d 95% Confidence for Deviatio Error Interval Low Upp Mean n er er The firms have 33 invested 3.64 962 Bou 168 3.30 The firms have 215 intent to 3.39 701 048 3.30 Bou 3.98 5 5 3.33 3.34 3.94 3.48 KT2 KT invest Total 248 3.42 744 047 3.33 The firms have invested The firms have intent to invest Total 215 3.21 838 057 3.10 The firms have invested HT2 The firms have intent to invest Total 248 3.23 845 054 3.13 The firms have invested The firms have intent to invest 33 3.61 933 162 3.28 Total Minimum Maximum 3.52 The firms have invested KT HT 215 3.32 738 050 3.22 3.42 248 3.35 771 049 3.26 3.45 33 1.029 179 2.57 3.30 215 3.14 958 065 3.02 3.27 248 3.12 968 061 3.00 3.24 33 2.64 859 150 2.33 2.94 2.94 33 3.36 895 156 3.05 3.68 N HT7 HT HT HT Mean St St d d Deviatio Error n 95% Confidence Minimum Lower Upper Interval for Bound Bound Mean Maximum The fir ms h a v e nveste d The firms have intent to invest 215 2.82 912 062 2.70 2.94 248 2.79 905 057 2.68 2.91 33 2.48 972 169 2.14 2.83 215 3.07 954 065 2.95 3.20 The firms have intent to invest 248 3.00 975 062 2.87 3.12 33 2.94 704 123 2.69 3.19 Tot al Total 215 3.25 843 057 3.13 3.36 T h e The firms have investe d 248 3.21 831 053 3.10 3.31 33 2.42 902 157 2.10 2.74 215 2.92 971 066 2.79 3.05 248 2.85 975 062 2.73 2.98 33 2.55 754 131 2.28 2.81 215 3.12 823 056 3.01 3.23 i n t e n t Total The firms have investe d t o i n v e s t f i r m s h a v e i The firms have intent to invest Total The firms have investe d The firms have intent to Vo Thanh Thu & Le Quang Huy | 27 N St d St d 3.04 836 053 2.94 3.15 3.70 847 147 3.40 4.00 3.52 808 055 3.41 3.63 3.54 814 052 3.44 3.65 2.97 883 154 2.66 3.28 2.93 884 060 2.82 3.05 2.94 882 056 2.83 3.05 3.45 711 124 3.20 3.71 3.1 949 065 2.98 3.23 3.15 927 059 3.04 3.27 Mean 95% Confidence Interval for Mean Minimum Deviatio Error Lower Upper n Bound Bound Maximum invest Total QC2 248 The firms have 33 invest ed The firms have 215 intent to inve Total 248 QC4 QC5 The firms have 33 invest The edfirms have 215 intent to inve st Total 248 The firms have 33 invest The edfirms have 215 intent to inve st Total 248 Source: The authors Contribution, limitations and suggestions for future studies The purpose of this study is to develop a framework for analyzing the factors that affect the offshore direct investment of a developing country like Vietnam as well as examine the differences in the general assessment of investment decisions as well as the factors influencing investment decisions among entry modes 360 | ICUEH2017 Vo Thanh Thu & Le Quang Huy | 28 Research results show that two groups of push - pull factors simultaneously impact on the movement of capital abroad by firms in developing countries In which the pull factors play a dominant role Push factors from Viet Nam include regulations, licensing procedures as well as incentive policies and investment incentives for offshore investment in Vietnam have been significantly improved in affecting enterprises Vietnam is investing in foreign countries, in addition, the pressure on domestic market competition is also a factor motivating businesses to invest abroad Futhermore, the author has discovered that monetary policy, interest rates of Vietnam or adverse changes to investors also encourage Vietnamese businesses to invest abroad Pull factors attract Vietnamese enterprises include the Geographic - Cultural factors (including elements of intimacy of attitudes, religions, customs, beliefs, food, as well as the geographic location of Vietnam and the host country), which has the strongest impact on direct investment decisions of Vietnamese enterprises abroad Infrastructure is the third strongest factor influencing the direct investment of Vietnamese businesses abroad (including transportation system, communication system, Electricity supply, water supply, human resource training, medical services - medical examination and treatment of countries receiving capital and communication systems connecting the two countries) There is no diference in the overall assessment of the investment decision between entry modes But there have a difence among entry modes significantly in assessing Pull factors from host country Limitations of the study and suggestions for future studies: The authors mainly took surveys of enterprises investing and intends to invest in Cambodia by convenient sampling method, so the overallity of the research is limited In addition, the study did not indicate how different sectors of the Vietnamese investment abroad are? 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