unlicensed determinants of viet nam’s outward direct investment

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 VietnamCambodia 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 Number of enterprises Percentage (%) Invested, is investing directly 33 13,3 Intent to invest (import, export, service) 215 86,7 Total 248 100 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 Coefficientsa Standardized Unstandardized Coefficients Model Coefficients Beta t Sig B Std Error (Constant) -.184 098 -1.871 062 VD 336 015 573 22.292 000 HT 264 014 499 19.419 000 KT 266 016 440 17.074 000 QC 180 014 325 12.659 000 a Dependent Variable: DT - Enterprises will invest / increase investment in Cambodia Source: The authors In summary, the main determinants of Viet Nam’ FDI decision in Cambodia are rewritten as follows: Investments in Cambodia = - 0.184 + 0.336 * Culture - Geography + 0.266 * Macroeconomics and market + 0.264 * Infrastructure + 0.180 * Regulations and policies related to investment The results of the impacting factor groups which rearranged according to push and pull factors as follows: Table The main determinants of Viet Nam’ FDI decision in Cambodia Denoted Macroeconomics and market PUSH FACTORS KT6 QC1 Regulations and policies related to investment PULL FACTORS KT5 Culture Geography QC3 Variables Competitive pressure in the Vietnamese market increasing The monetary policy, interest rates of Vietnam or adverse changes for investors Regulations and procedures for licensing investment abroad of Vietnam is increasingly convenient The incentive policy, investment incentives to overseas, especially with Cambodia of Vietnam increasingly improved VD1 The attitude, religious beliefs of the two countries are quite similar VD2 Both cultures and cuisines are quite similar VD3 Customs and practices of the two countries are similar VD5 Cambodia and Vietnam are geographically close to each other KT1 Macroeconomics and market Infrastructure KT2 KT3 KT4 stable HT1 The traffic system (bridges, ports, yards, vehicles ) of Cambodia is convenient HT2 Transport system connecting Vietnam and Cambodia is convenient (water, air, ) HT4 Information system, internet of Cambodia are convenient HT5 HT6 Regulations and policies related to investment 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 The macroeconomic environment of Cambodia is Cambodia's electricity and water supply system meets the requirements of FDI enterprises HT7 Human resources in Cambodia meet the project requirements of Vietnam QC2 Cambodia medical services meet the requirements of FDI enterprises Regulations and procedures for FDI licensing of Cambodia are easy QC4 QC5 Cambodia's low resource regulation The incentive policy, investment incentives for FDI of Cambodia are increasingly improved Source: The authors According to Levene’s test shown as Table below, the sig value is 0.092 (> 0.05), there is no difference in the overall assessment of the investment decision between entry modes Table Independent Samples Test Levene's Test for Equality of Variances t-test for Equality of Means Enterprises will invest / increase investment in Cambodia (Entry modes) Source: The authors On the other hand, according to the value of sig value (at Table 5), there is no significant difference in the assessment of the decision factors between the entry mode by Vietnamese enterprises However, based on the descriptive statistics for each factor evaluation in the push factors for each mode of entry (Table 6), the firms that have invested in Cambodia are more likely to value factors: Monetary and monetary policy of Vietnam or adverse change for investors (Mean =3.88/5), Regulation on procedures for licensing of overseas investment of Vietnam on The more convenient (Mean = 3.33/5), Incentive policies, investment incentives to overseas, especially Cambodia of Vietnam is improving (Mean = 3.76 / 5) Thus, there has been a slight difference in the impact of the two modes of entry Table ANOVA result for Push factors KT5 KT6 QC1 QC3 Source: The authors Table Descriptives result for Push factors N KT5 KT6 Mean Std Deviation Std Error 95% Confidence Interval for Mean Minimum Maximum QC1 QC3 Source: The authors Furthermore, according to sig value (at table 7), there is a difference in the assessment of the entry modes for the factors: Cambodia market size is large enough for businesses to expand their investment overseas, macroeconomic environment of Cambodia is stable, Cambodian information and internet system is convenient, Cambodia's electricity and water supply system meets the requirements of FDI enterprises, human resources in Cambodia meet the requirements of the project in Vietnam, medical services, medical examination and treatment Cambodia meets the requirements of FDI enterprises, incentive policies, incentives for foreign investment into Cambodia Table ANOVA result for Pull factors VD5 Sum of Squares KT1 KT2 KT3 KT4 HT1 HT2 HT4 HT5 HT6 HT7 QC2 df Mean Square Total 228.835 247 Between Groups 2.239 2.239 Within Groups 139.853 246 569 Total 142.093 247 Between Groups 1.727 1.727 Within Groups 134.818 246 548 Total 136.544 247 Between Groups 641 641 Within Groups 175.795 246 715 Total 176.435 247 Between Groups 2.402 2.402 Within Groups 144.372 246 587 Total 146.774 247 Between Groups 1.200 1.200 Within Groups 230.409 246 937 Total 231.609 247 Between Groups 950 950 Within Groups 201.562 246 819 Total 202.512 247 Between Groups 9.944 9.944 Within Groups 225.052 246 915 Total 234.996 247 Between Groups 2.698 2.698 Within Groups 167.814 246 682 Total 170.512 247 Between Groups 7.058 7.058 Within Groups 227.716 246 926 Total 234.774 247 Between Groups 9.474 9.474 Within Groups 163.038 246 663 Total 172.512 247 Between Groups 887 887 Within Groups 162.626 246 661 F Sig 3.939 048 3.150 077 897 345 4.094 044 1.281 259 1.160 283 10.870 001 3.956 048 7.624 006 14.296 000 1.341 248 Sum of Squares QC4 QC5 Mean Square df Total 163.512 247 Between Groups 035 035 Within Groups 192.058 246 781 Total 192.093 247 Between Groups 3.456 3.456 Within Groups 208.721 246 848 Total 212.177 247 F Sig .044 833 4.073 045 Source: The authors 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 VD1 Mean 95% Confidence Interval for Mean Std Std Deviation Error Lower Bound Upper Bound Minimum Maximum The firms have invested 33 3.85 667 116 3.61 4.09 The firms have intent to 215 3.64 683 047 3.55 3.73 95% Confidence N invest Total The firms have invested The firms have intent to invest Total The firms have invested VD3 The firms have intent to invest Total The firms have invested VD5 The firms have intent to invest Total The firms have invested KT1 The firms have intent to invest Total Mean Deviation Error Lower Bound Upper Bound Minimum Maximum N Mean Std Std 95% Confidence Interval for Mean KT2 KT3 KT4 HT1 invest Total The firms have invested The firms have intent to invest Total The firms have invested The firms have intent to invest Total The firms have invested The firms have intent to invest Total The firms have invested HT2 248 3.42 744 047 3.33 3.52 33 3.36 895 156 3.05 3.68 Minimum Maximum 5 N The firms have intent to invest Total The firms have invested HT4 The firms have intent to invest Total The firms have invested HT5 The firms have intent to invest Total The firms have invested HT6 The firms have intent to invest Total The firms have invested HT7 The firms have intent to Mean Std Std 95% Confidence Interval for Mean Minimum Maximum N Mean Std Std 95% Confidence Interval for Mean 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 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 difference in the overall assessment of the investment decision between entry modes But there have a diffence 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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