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KHOA HỌC CƠNG NGHỆ Só 03/2022 Comparative analysis on competive advantages :>f ASEAN countries for foreign direct investment: rhe case of LG group I MSc KO TAE YEON; Associate Professor Dr DAN DUC HIEP General Director ofHeesung Electronics Vietnam Co., Ltd ■ Dr NGUYEN MINH DUC Vietnam Maritime University ABSTRACT: LG Group is a leading technology innovated company which has spreaded out its production bases over the world Currently, the Group are maintaining three production bases in South Eas Asian countries, including Vietnam, Thailand and Indonesia Human resources, scale of economy, the economic development, logistics system and political and social stability are critical factors for strategic decisions of investment The paper performs a compartive analysis on competitive advantages of 10 ASEAN countries The analysis results can be used by LG group for further decision in strategic investment KEYWORDS: Foreign direct investment ASEAN, competitive advantages Health Care in the field of chemicals; LG u+, GIIR, LG CNS, LG HelloVision Corp, in the field of communication and services and so forth Today, LG Group has over 84,000 staff and different systems in 112 small and large fields over the world The group is often rated by stars for the quality of its goods and services offered to customers Table 1.1 LG's production bases in South East Asia Indonesia Thailand Vietnam 1987 1987 1993 Color TV, Washing Color TV, Washing Founded year (FDI), Color TV, Audio Main prod ucts equipment, Freezer machine, Aircondi machine, Aircondi tioner tioner Domestic, Strategy Domestic Domestic, Export Export INTRODUCTION LG Group, which is a multinational corporation in Koka, has the headquater located in Seoul The group works in heavy industry, including electronics, chemicals, telecommunicationsand semiconductors It isconsiderable thát’ LG Group is also a leading technology-innovated COIrVipany around the world LG Group had historic first steị) in 1947 when LuckyChemical Co.Ltd was established, rhe year 1951 was a new era for LG group in the chemical and electronic industries After over 70 years, the group still globally develops and expands its field to semiconductors, energy and machines To be recognized as the market leader in business performance as well as management practices is its ultimate goal Besides, customer-value creation and people-oriented management are LG Group's principles LG's philosophy revolves around people, sincerity and sticking to thefundamentals.lt always focuses on understanding customers and offering optimum solutions, new experiences thorugh ceaseless innovation The group owns several affiliated companies operating uncer the main brand, in which there are important units such as LG Electronics, LG Display, LG Innotek in the field of electronics; LG Chem, LG Energy Solution, LG Household & LG group officially entered the Vietnamese market in 1995, opened LG Sei Electronics (a joint venture between LG Electronics of Korea and Star Electronics of Vietnam) and opened a factory in Hung Yen with an investment of 13 million USD in CRT TV production line with 550,000 products per year Additional products are computer monitors, air conditioners, refrigerators, washing machines belonging to LG Meca in Hai Phong, until it became a 100% Korean owned corporation in 2002 In 2003, LG group added 02 production lines with a total capacity of 450,000 products/year, and developed more products such as DVD players and LCD TVs Mobile phones were then introduced to the market in 2004 Until 2011, the factory primarily produced consumer goods for the Vietnamese market LG's production base consisted of five factories spread across three countries (Indonesia, Thailand, and Vietnam) In the future, LG Group will continue to develop and simulate investment in ASEAN countries Decisions will depend on many factors such as economics, politics, society, human resource and so on One of the priorities to be done is analysis, comparison among ASEAN nations It Isa basement for the next selections This paper focuses on 131 KHOA HỌC CÔNG NGHỆ Só 03/2022 comparative analysis among ASEAN countries with some criteria such as economics development, political stability, investment climate and logistics activities LITERATURE REVIEW ON COMPETITIVE ADVANTAGES FOR FOREIGN DIRECT INVESTMENT According to IMF (1993), Foreign Direct Investment (FDI) is defined that it is an investing activity, which is done in order to build long-term economic relationships between businesses running in countries In this definition, the capital that foreigners use in a country where they directly business is FDI Foreign Direct Investment (FDI) has grown significantly as a major form of international capital transfering over the past decade FDI world flows that are defined as cross-border expenditures to acquire or expand corporate control of productive assets have nearly tripled from 1980 to 1990 FDI has become a major form of net international borrowing for the world's biggest lender, Japan, and borrower, the U.S (Kenneth, 1993) Although definitions of FDI change over the time, they have some common features so that FDI is international investing form, in which, investors are able to invest a part or entire their capital in a project in other countries; investors investment by themselves; their purpose is often profit; and FDI often goes with technology tranfering Foreign direct investment enterprise is "defined as an incorporated or unincorporated enterprise in which a foreign investor owns 10 per cent or more of the ordinary shares or voting power of an incorporated enterprise or the equipvalent of an unincorporated enterprise" (DITEG, 2004) Basically, most enterprises having an ambition to widen its operational range from region to the global often tend to use its capital in order to invest in many other countries It causes FDI, which is usually created by multinational companies There are several enterprises with FDI in the world, for example, Cormo Ltd with production and trade of wood joinery, Intra Lighting Ltd with manufacturing and interior lighting, Kamen Sirac Jsc with manufacturing of lime and plaster, Iverica Ltd with production and sale of plain and structural plywood and venner and so on The classification of FDI is firstly upon to the investment direction both for assets or liabilities; secondly, the investment instrument used; and thirdly the sector breakdown As for the direction, it can be considered from the home and the host perspectives As for the instruments, direct investment capital comprises the capital provided (either directly or through other related enterprises) by a direct investor to a direct investment enterprise and the capital received by a direct investor from a direct investment enterprise Following this, three basic components made up direct investment capital transactions: equity capital, reinvested earnings and other capital Finally, there are several sector breakdowns of FDI flows, for instance, agriculture, mining, manufacturing, electricity, construction, wholesale, transport, financing, community and so forth Previously, some experts take care of FDI and also 132 many research about it such as "Các yếu tố ảnh hưởng tới quy mô vốn đẩu tư trực tiếp nước ngồi vào lĩnh vực nơng nghiệp Việt Nam" (Nguyên Thị Mai Hương, 2021) that reasearches on factors relating to the selections of FDI scale in Vietnam agriculture; "Foreign Direct Investment in the United States" (Graham and Krugman, 1989) that focuses on the impact of FDI on the United States;"Foreign Investment in Central and Eastern Europe" (Artisien, Rojec Svetlicic, 1993) that shows the changes in Central and Eastern Europe under FDI; "American Investment in Australian Industry" (Brash, 1966) that represents how American FDI affects on Australian industry; "Foreign Investment in New Zealand Manufacturing" (Deane, 1970) that indicates how New Zealand manufacturing changes under FDI impact; "American Investment in British Manufacturing Industry" (Dunning, 1958) that shows changes in manufacturing industry in British when American FDI goes in Overall, different points are listed as possible FDI determinants such as labor costs, returns to investment, level of human capital, financial openess, natural resources, country size, politics, macroeconomic, investment climate as well (Adams, 2009; An, 2012; Baliamoune-Lutz, 2004; Borensztein et al., 1995; Herzer, 2011; Kinda, 2009; Sekkat etal., 2007) HIERARCHICAL CLUSTER ANALYSIS Hierarchical cluster analysis is a common analytical method used to classify number of entities following to the their characteristic difference It provides data summary as the hierarchy, which is useful and may correspond to a meaningful taxonomy There are two approaches to hierarchical clustering The first intends to group small clusters into bigger ones, which is called agglomerative clustering approach (Jung and Kim, 2001) The other is called divisive clustering approach which splits big clusters into smaller ones The former is the most popular hierarchical clustering Using the data to build a binary tree successfully merges similar groups of points (Subrata Das, 2014) With the given measure, there are some ways to identify intergroup similarity: The first is Single-linkage or the similarity of the closest pair: dSL(A, B) = minieAJeBdLj (!) The second is Complete-linkage or the similarity of the furthest pair: dCL(A, B) = maxieAj6Bdjj (2) And the third is Group-average or the average similarity between groups: dGA = SiGA SjGB di,j (3) Hierarchical cluster analysis is applied commonly in various fields, for example, business, marketing, computer science, social science, and so on It can be solved by varieties of software including MATLAB, STATA, SASS, SPSS This method is suitable for comparative analysis due to its ability to classify objects by their similarity ans difference KHŨAHỌC CÔNG NGHỆ Só 03/2022 The nominated criteria for competitive advantages of :ountries for FDI in this paper are: - Population: this indicator reflexes potentiality for ^bor resource - Gross Domestic Product (GDP): presents the size of :he economy - GDP growth rate (%): presents the economic dèvelopment - Logistics Performance Index (LPI): presents the :ountry's development of logistics system - Political Stability and Absence of Violence/Terrorism ;%): presents social and political stability The given criteria are selected based on the literarure 'eview in section and they match the policies of LG s^oup All the criteria are provided by the World Bank as the following Table: Table 3.1 Input data for Hierarchical Cluster Analysis Countries Popula GDP GDP growth tion (mil) (bil US) rate Pol Sta LPI Vietnam 93.14 189.4 6.311 3.2 52.0 Thailand 68.51 425.9 3.647 3.4 16.5 Cambodia 15.40 18.2 7.027 2.5 46.2 Laos 6.7 13.45 7.312 2.7 56.8 Myanmar 52.4 61.42 6.657 2.3 13.6 Malaysia 30.08 317.3 5.332 3.2 51.6 Indonesia 256.5 933.9 5.416 3.1 27.2 Singapore 5.46 315.7 4.978 96.5 Philippines 101.1 296.3 6.408 2.9 14.5 Brunei 0.41 149.9 0.5 2.71 89.09 Source: World Bank (2021) The data of each criteria in Table 3.1 is average of 10 ye^rs from 2010 - 2019 The analysis result generated by SP^S is presented as follow: s Figure 3.1: Dendrogram using Croup Average The analysis shows that the 10 ASEAN countries can be divided into groups: Indonesia and Thailand are in group (1) and (2), respectively Group (3) consists of Vietnam, Malaysia, Singapore and Philippines The last countries including Cambodia, Laos, Myanmar and Brunei are in Group (4) Indonesia is remarked with the highest population and GDP The economy's average growing rate and LPI are quite good compared with other neighbours but Political stability and Absence of violence is evaluated very low.Thailand in the other hand, is similar as Indonesia in terms of social stability and LPI but the population is much lower as well as GDP and GDP growth rate The countries in Group (4) can be remarked as the group with small size of population and economy and notable limitation in logistics system Vietnam in Group (3) is noted with large population, positive economic development, high ranking in terms of logistics system and political and social stability CONCLUSION According to comparison in competitive advantages for foreign direct investment, the results imply that: - Among the countries that LG Group has already remained production bases, Indonesia and Thailand have advantages in terms of population and GDP However, Vietnam is more attractive by GDP growth rate, logistics system and especially political and social stability - Philippines has noticable advantages for population, GDP and GDP growth rate but also, critical disadvantages in terms of logistics system and political/social stability - Singapore and Malaysia are the two leading economies with stable society and government's policies but population is a big question - Cambodia, Laos, Myanmar and Brunei might have difference disadvantages but general speaking, they are far from attractive to foreign investors Vietnam, therefore, to some extent will be still potential for LG Group to continue further investment The country has a clear advantage in terms of manpower, a positive developing economy in decades Vietnam's logistics system are being improved very quickly and can be seen by its ranking in 2018 Political stability and absence of violence/ terrorism is another plus point for Vietnam but the government still have to spend more effort to maintain this advantage The paper has summarized theoretical background of foreign direct investment and perform a compartive analysis on competitive advantages of ASEAN countries The paper results can be used by LG group for further decision in strategic investment References [1] Artisien, p M., Rojec, M and Svetlicic M., eds (1993), Foreign Investment in Central an Eastern Europe, New York: St Martin's Press [2], Adams, Samuel (2009), Foreign Direct Investment, domestic investment, and economic growth in Sub-Saharan 133 KHOA HỌC CÔNG NGHỆ Só 03/2022 Africa, Journal of Policy Modeling, 31 (2009), pp.939-949 [3] An, Zhiyong (2012), Taxation and foreign direct invesntment (FDI): empirical evidence from a quasi-experiment in China, International Tax and Public Finance, 19 (2012), pp.660-676 [4], Baliamoune-Lutz, M 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Transport of China, IET Conference Publications vol.2009, Issue 50 CP, pp.15-25 Receipt date: 11/01/2022 Accepted date for posting: 20/02/2022 Reviewer: Associate Professor Dr Dang Cong Xuong Dr Vuong Thi Huong Thu ... financing, community and so forth Previously, some experts take care of FDI and also 132 many research about it such as "Các yếu tố ảnh hưởng tới quy mô vốn đẩu tư trực tiếp nước ngồi vào lĩnh vực... Chicago: The University of Chicago Press [19] Nguyen, T M H (2021), Các yếu tố ánh hường tới quy mô vốn đâu tư trực tiếp nước ngồi vào lĩnh vực nơng nghiệp Việt Nam, Hanoi: Central Institue... Economics Management [20] Nguyen, T L H and Bui, T B p (2014), Nghiên cứu nhàn tố tác động đến đầu tư trực tiếp nước quốc gia phát triển, Journal of Development and Integration, 14 134 [21] Sekkat,
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