FOREIGN DIRECT INVESTMENT (FDIS) AND TRANSNATIONAL CORPORATIONS (TNCS) IN VIETNAM.docx

UNIVERSITY OF FINANCE – MARKETING FOREIGN DIRECT INVESTMENT (FDIS) AND TRANSNATIONAL CORPORATIONS (TNCS) IN VIETNAM Lecturer: Nông Thị Như Mai Student's name Student's code Nguyễn Đặng Nhã An 2021009195 Nguyễn Thị Kim Chi 2021001334 Nguyễn Thái Hùng 1821002532 Content I Table of Contents A Introduction B Content I FDI II TNCs III Vietnam's FDI attraction policy IV The main issues of inadequacies, difficulties and problems around the attraction of FDI of Vietnam today .11 V Achievement 12 VI C Vision 13 Conclusion 13 i Table of Figures Table 1: Foreign direct investment inflows, top 20 host economies, 2020 (Source:UNCTAD) Table Structure of foreign direct investment by industry in 2021 (Source: FIA) .6 Table top 10+ reputable and leading TNCs listed in the Vietnamese market (Sourcehttps://glints.com/vn/blog/cac-cong-ty-xuyen-quoc-gia-o-viet-nam/#.Y3Nd03bP25c) A Introduction Vietnam has been a popular location for foreign direct investment (FDI), particularly from multinational corporations (TNC) With Vietnam, the likelihood of attracting FDI is expanding as the country's transnational economic integration process becomes more solid Not only are international firms contributing directly to budget income through duty payment, talent transfer, and job creation, but large-scale investment projects are also returning The large "magnet" leads to numerous other foreign direct investment system (FDI) in Vietnam The purpose of the following essay is to discuss the models, main issues and policy measures of Vietnam to attract FDI based on the knowledge content of FDI and TNC over the past years B Content I FDI 1) Definition of FDI: The FDI expression is the word Foreign Direct Investment This is a long-term investment of foreign individualities or companies in another country by establishing such production, business and operating establishments According to WHO World Trade Organization, foreign direct investment (FDI) means an investor from a country (investor) has property in another country (country attracting investment) together with the right to manage that property What distinguishes FDI from other financial instruments is the right to control In almost cases, investors and assets they manage abroad are business establishments (htt12) 2) The Law, regulations According to the Investment Law 2005 (this document has expired), foreign-invested enterprises include enterprises established by foreign investors to carry out investment activities in Vietnam; Vietnamese enterprises by foreign investors buying shares, mergers, and acquisitions (in short, all of them are foreign investors) Currently, the Investment Law 2020 (the document in effect) only defines in general terms that a foreign-invested economic organization is an economic organization whose foreign investors are members or shareholders Thus, according to this regulation, compared with the concept of FDI enterprises, current Vietnamese Law recognizes the activities of foreign investors in our economy in a broader scope than that of enterprises with foreign investment (Vy, n.d.) 3) Characteristics of forms of foreign direct investment:  Characteristics The main purpose of FDI is none other than to bring profits to investors The regulation on the minimum amount of FDI that investors need to contribute to having control and control in each country is not applicable The business results of the invested enterprises are the basis for calculating profits from FDI Most forms of FDI investment are accompanied by technological superiority, so work productivity is significantly improved The investor decides the investment field and location (htt) (Vy, n.d.)  The characteristics of FDI are all aimed at profit purposes  Classify forms When operating, FDI will be categorized based on a wide range of factors, including penetration, industry relations, investment orientation, the orientation of the FDI owner and legal foundation You may get a deeper understanding of each category right below o According to the method of infiltration of FDI when operating, it will manifest as follows: It consists of New investments, Acquisitions and Mergers New investment is the form that the company will invests in a new working facility for production or advertising or as an administrative center Everything will be entirely new to serve its intended use The acquisition is a form of investment or acquisition by a company in an operating unit or production plant to reduce costs A merger is a unique type of investment firm when two units pool their cash after purchase to establish a new, stronger company Because there is a chance to combine their operations on a relative equilibrium basis, this is often done amongst entities of the same size o According to the orientation of investment, FDI can also use the orientation of investment to operate as follows: Import substitution: Investment countries will produce and export to the markets of the countries where it is investing in all the products that the government previously had to import Active export: Investment countries target more markets instead of focusing on the host country Government-oriented to promote investment from abroad It depends on the government orientation of each country receiving FDI o According to the legal form, FDI will be invested in the following activities: Business cooperation by signed documents Venture business Enterprises with wholly foreign capital The two sides will apply in the direction of BTO - BOT – BT (Build – Transfer – Operate)  Therefore, businesses in the receiving nations know the immense growth potential, regardless of how FDI is utilized At the same time, money from abroad will keep pouring into that nation (Vy, n.d.) 4) The influence of FDI on the world economy and investment in a country: Foreign direct investment offers advantages to the investor and the foreign host country, and these incentives encourage both parties to engage in and allow FDI Some of the advantages for businesses are as follows:  Market diversification to expand market share or enter new markets  Tax incentives  Lower labour costs  Preferential tariffs  It is helping investors take advantage of the host country's advantages, reducing production costs So it keeps prices low for consumers (htt15) Attracting FDI is the goal of numerous countries, especially developing countries, including Vietnam In Vietnam, attracting foreign direct investment (FDI) associated with sustainable development has become an important goal in the socio-economic development strategy The reason is that investment brings many advantages to the countries receiving investment, such as:  Promote technology transfer, thereby creating more pressure in the market, making competition among enterprises more intense, forcing domestic enterprises to invest in technological innovation, and technology for business  Promote economic restructuring and improve industrial production capacity  FDI promotes technology transfer and development, especially in developing countries  FDI contributes to improving the balance of payments  FDI contributes to helping investment recipient countries, especially developing countries, integrate deeply into international economic life, and join with economic organizations in Asia and around the world  Through FDI, jobs are provided, and the development of local human resources Despite its many advantages, FDI still has disadvantages that make investment recipients hesitant such as:  Easy to leads to an imbalance in investment structure by industry or region  The phenomenon of "transfer pricing" is quite common in foreign direct investment  Can cause environmental pollution to increase rapidly  Creating competitive pressure on domestic companies, leading to the risk of increasing the bankruptcy of domestic economic establishments and traditional industries and unequal competition  Losing many traditional jobs and not paying due attention to training for workers  The risk of money laundering (htt10) Thus, in addition to the benefits that FDI brings to the host country, some limitations must be kept in mind (Vy, n.d.) (htt11) 5) FDI in Vietnam: As one of the investment recipient countries, Vietnam has many conditions to attract investors, such as:  Stable and flexible politics  The government runs the country decisively  Important geographical location: Vietnam is centrally located in Southeast Asia with a long coastline; owns a considerable advantage with essential trade routes around the world  Abundant and cheap young labour force  Good production and circulation infrastructure and investment incentives (htt1) There are some examples of FDI companies in Vietnam: VEDAN-VIETNAM CO., LTD; HanSung Haram Vietnam Co., Ltd/Han Sung Yarn and Thread Manufacturing and Dying Factory; Pepsi Vietnam Company; Coca-Cola Vietnam Beverage Co., Ltd; … Since 1987 when the Law on Foreign Investment was promulgated, Vietnam began to open its doors to foreign direct investment However, Vietnam's FDI attraction flourished when our country joined the World Trade Organization (WTO) in 2007 (Ngọc, n.d.) After 2007, the FDI capital in Vietnam increased sharply, making Vietnam a large FDI attraction country in Southeast Asia Most notably, by 2020, Vietnam has been in the top 20 countries attracting the most FDI globally Since 2020, due to the impact of the Covid-19 epidemic, FDI capital in many countries has decreased significantly Still, Vietnam has only been affected slightly, which has proven the great attraction of Vietnam in attracting FDI Vietnam is one of the top 20 host economies inflowed by Foreign direct investment in 2020 (htt13) Table 1: Foreign direct investment inflows, top 20 host economies, 2020 (Source: UNCTAD) For the first time, Vietnam is among the top 20 countries attracting the world's most foreign direct investment (FDI) capital, according to World Investment Report 2021 by the United Nations Conference on Trade and Development (UNCTAD) The latest data from the Foreign Investment Agency (Ministry of Planning and Investment) shows that in the first half of 2022, there were 487 projects registered to adjust investment capital (up 5.9% over the same period), with the total additional registered capital reaching nearly 6.82 billion USD (up 65.6% over the same period) Vietnam's overall FDI inflows in 2021 are expected to exceed 31.15 billion USD, a 9.2 percent increase over 2020 Foreign investors have invested in 18 of the 21 national economic sectors, with the processing and manufacturing industry leading the way with over 18.1 billion USD in total capital, accounting for around 58 percent of total registered investment capital (htt14) FDI structure by industry in Vietnam 3% 7% 5% 9% 58% manufacturing and processing industry Production and distribution of electricity, gas, water, air conditioning Real estate business Wholesale, retail, repair of cars and motorbikes Professional activities, science and technology Other industries 18% Table Structure of foreign direct investment by industry in 2021 (Source: FIA) Although the electricity production and distribution of electricity has attracted a small number of new projects, adjust as well as contributed capital to buy shares, there are projects with large capital scale, so it ranks second with a total investment of over 5.7 billion USD, accounting for 18.3% of total registered investment capital Next is the real estate business; wholesale and retail with a total registered capital of over $2.6 billion and over $1.4 billion (ĐTNN, n.d.) II TNCs In the long-term economic development orientation, attracting transnational corporations (TNCs) is one of the ways to help promote foreign investment and enhance the positive influence of FDI Therefore, countries open their markets, encourage FDI and even compete with each other in attracting TNCs As a result, TNCs have expanded quite rapidly 1) Definition of TNCs Business that are worldwide in scope are referred to as global business They sell their goods by utilizing the same image or brand across all markets A transnational corporation that operates on a worldwide scale is fundamentally a global company 2) The main characteristics of TNCs  Diversification: To satisfy the diverse needs of foreign target markets, TNCs have no other active choice but to diversify their products, and thus each of the company's product groups must be in the direction of "Differentiation"  Standardization: To focus on standardized products to meet the uniform wants of customers, TNCs identify the identical needs and tastes of various international markets across a vast geographic region most items, especially on the worldwide market, which has the most markets  Globalisation: This feature of TNCs is most often expressed in phase of the international opening process The entire marketing mix strategy activities of large TNCs often extend on a global level, such as global market strategy, global product strategy, global pricing strategy  Internationalization: This is a prominent feature of TNCs taking place mainly in phase in the process of international opening It is also a process of efforts to expand TNCs' business activities to a series of countries across the region that have the most advantages This feature is also known as multi-nationalization/regionalization (such as the entire Asia-Pacific region or the whole of Europe ) (htt2) 3) Strategy of TNCs: TNCs attach great importance to the formulation and implementation of business strategies These strategies are often long-term in nature, some of which are used such as: Globalization, diversification, localization, technology transfer and development, human resource development, merger and acquisition (M&A), Here are some frequently used strategies:  Global integration: about conducting the management of scattered activities in localities in the international scope Ex: Canon factories in Europe or IBM Toyota factories all over the world  Diversification strategy: Normally, each TNC base on its advantages to build a key product as a mainstay and then gradually expand to other areas (obtain high profits and minimize risks) Ex: Kinh Do Confectionery JSC has diversified its by-products and launched products into the market  Mergers and Acquisition (M&A): This is an activity to gain control of an enterprise through a merger or acquisition between two or more businesses to own part or all of that business Ex: ThaiBev - Sabeco, Central Group - Big-C, GIC Private Limited - Vinhomes  Local Responsive-ness: Based on local demand and competition, each subsidiary makes its own policy on resource allocation (Ngọc, n.d.) 4) The role of TNCs in the world economy and the host country  Promoting international trade o Changing structure of international trade o Exchange of goods and services by TNCs (Exchanges between TNCs' branch companies are often associated with transfer pricing → causing damage to the host country) o Changes in partnership structure  Promoting international investment o Promoting investment liberalization among countries o Promoting the flow of investment capital around the world o Increase the capital accumulation of the host country  Human resource development and job creation o Create direct and indirect jobs o Improve working conditions  Role for technology transfer o TNCs are the main actors in world technology transfer o Technology transfer through: direct investment, equity investment, alliances, (Ngọc, n.d.) 5) TNCs in Vietnam Evaluate: - Below are the top 10+ reputable and leading TNCs listed in the Vietnamese market such as: Procter & Gamber (P&G)  Unilever  Microsoft  Pepsico Foods Nestlé Honda  Abbott Coca Cola  Samsung  10 IBM Table top 10+ reputable and leading TNCs listed in the Vietnamese market (Source https://glints.com/vn/blog/cac-cong-tyxuyen-quoc-gia-o-viet-nam/#.Y3Nd03bP25c ) => This not only helps solve the problem of jobs for Vietnamese workers but also helps Vietnam's economy become more attractive in the eyes of investors III Vietnam's FDI attraction policy In 2022, foreign investment is increasing Therefore, the Government has been implementing policies to attract foreign investment as follows:  Create an attractive investment environment: investors have to adjust the purposes, forms and scope of activities accordingly, creating favourable conditions for business activities and leading to high business efficiency  Ensuring the basic interests of investors: o Guarantee not to be deprived of benefits: this is stipulated in the first provisions of the Law on Foreign Investment o Guarantee for loss: because of nationalization (In Vietnam, the Law stipulates that foreign-invested enterprises are not nationalized), destroyed by war, or nonconvertible currency o Foreign exchange transfer/send: in all cases, foreign investors must be repatriated if they want  Have a protection and priority strategy for investors and foreigners: o Recruiting foreigners: to ensure benefits for investors The State of Vietnam has regulations on the recruitment of foreigners, such as the number of foreign workers, the issuance of residence cards, and the necessary industries to employ foreign workers o Ensure intellectual property rights: on inventions, trademarks o Government priority: Government loans or grants are considered as one of the incentives for investment o Ensure a fair, competitive environment: (Ex: to protect imported goods of the infant industry, the State and Government must clearly distinguish the preferences for each region) o Fairness in taxation and tariff barriers  Incentives on land for foreign investors: for investors, the most favourable thing is to own real estate Because it gives foreign investor confidence in the stability of the investment as well as other rights  Tax exemption and reduction: a part of FDI policy Focus on tax policies such as corporate income tax, import and export tax, personal income tax  Government subsidies: o Allow operating costs to be included in the project's costs for a certain period of time o Enjoy certain incentives if using profits to reinvest o Investment subsidy, not subject to investment obligations for a certain period of time  Special incentives: The Government ensures the principle of a "level playing field." o Treat multinational companies as listed companies on the stock market and enjoy similar incentives o Allow multinational companies to establish joint stock companies o Encourage multinational companies to transfer technology and conduct internal procurement, as well as encourage the establishment of headquarters by allowing the establishment of shopping centres of multinational companies in the host country and simplify the procedures o Encourage the establishment of offshore financial institutions to encourage foreign enterprises to invest in the host country Host governments tend to waive taxes and financial obligations as well as facilitate the establishment and operation of offshore financial institutions  There are laws to help foreign investors operate smoothly: including non-financial incentives such as allowing unlimited recruitment of foreign workers, guaranteeing the transfer/remittance of capital and profits back home; signing agreements; Authorization to sell consumer goods to end consumers, not through an agent or trading company, and own real estate (htt3)  Attract and Investment in TNCs and MNCs for the development of supporting industries in Vietnam is an urgent need to help domestic enterprises participate in the global production network and global value chain (htt4) IV The main issues of inadequacies, difficulties and problems around the attraction of FDI of Vietnam today  Vietnam's supporting industry is developing quite slowly Because in order to develop Vietnam to develop supporting industries, businesses need medium and long-term capital while banks usually only provide short-term loans Moreover, the supporting industry requires intensive technology while the science and technology level of domestic enterprises is still weak => Solution: Develop specific policies to attract FDI in an effective way to have large capital, improve capacity, science and technology level Enterprises producing products belonging to supporting industries in the country develop, creating favorable conditions for Vietnamese enterprises to participate in the global value chain (htt5)  Environmental issues after more than 30 years of attracting FDI: Environmental protection is a requirement throughout economy the development process As most of the trend of exporting pollution from developed countries to developing countries through FDI is increasing, Vietnam is at risk of becoming one of the countries with a high level of pollution imports 11 => Currently, Vietnam continues to attract "green" FDI Changing policy to appropriate with the goal of sustainable development The state follows the policy: “Fast, effective and sustainable development, progress, social justice and environmental protection"; "Socio-economic development is closely linked with the protection and improvement of the environment, ensuring the harmony between the artificial environment and the natural environment, preserving biodiversity" (LOAN, 22/11/2019)  The issue of bribery and corruption diverting investment capital makes foreign donors more hesitant when pour capital into Vietnam (htt7) => Vietnam is committed to administrative reform and raising the ethical standards of cadres and civil servants at all levels V Achievement -At the Prime Minister's Conference with foreign-invested enterprises on 17/9–20/8/2022, According to the report, Vietnam has attracted more than 35.5 thousand valid FDI projects with a total registered capital of over 430 billion USD Realized capital of FDI projects is 264.4 billion USD, equal to 61.5% of the total valid registered investment capital In the eight months of 2022 alone, 94 countries and territories have invested nearly 16.8 billion USD in Vietnam - According to the survey results of the Japan Trade Promotion Organization (JETRO), currently, 55% of Japanese enterprises in Vietnam have plans to expand their operations (the highest in ASEAN) And Vietnam ranks second in terms of where businesses want to expand their operations (after the United States) - From 2013 to 2022, FDI capital in Vietnam maintained a relatively high growth rate in terms of the number of newly registered, supplemented and disbursed projects FDI inflows account for a significant proportion of the total investment capital of the whole society FDI capital is disbursed quickly, which means that the production scale of economic sectors is expanded, creating conditions to promote economic growth - In addition, during more than two years of the Covid-19 epidemic, the FDI sector has always trusted and accompanied the Government of Vietnam, maintaining production and business activities, ensuring jobs and income for people Labor, and prevent supply chain disruption This has made an important contribution to realizing the Government's dual goals of epidemic prevention, recovery and socio-economic development (htt8) VI Vision By 2045, Vietnam will become one of the leading smart manufacturing and service centers, start-ups and innovation centers in Asia - In 10/2022, the Ministry of Planning and Investment, in collaboration with the Central Committee of the Ho Chi Minh Communist Youth Union, organized a workshop on "Mechanisms and policies to create a breakthrough for innovation and entrepreneurship in Vietnam" The delegates discussed mechanisms and policies to attract FDI, obstacles, pointed out the advantages of leading countries such as Singapore and Saudi Arabia, and learned about the "Innovation Economic Strategy" - In addition, representatives of investment funds, businesses, and youth start-up communities suggested that the Government soon issue guidelines on the establishment of innovation and start-up centers with private capital and receive private funding preferential policies as stipulated in the Law on Investment 2020 - Identify strategic partners in attracting FDI and effective approach C Conclusion In the medium and long-term vision, attracting FDI is an important factor contributing to Vietnam's economic growth And attracting TNCs is one of the ways to achieve effective FDI However, we must have a comprehensive view of all aspects of attracting FDI to the economy, politics, and society, especially paying attention to the environment Then, offer appropriate solutions and develop specific plans to overcome the inadequacies and challenges being encountered (htt9) 13 References  https://revisesociology.com/2017/03/03/what-are-transnational-corporations/TNCs.docx  https://digitalcommons.lasalle.edu/cgi/viewcontent.cgi? article=1051&context=undergraduateresearch  https://www.emerald.com/insight/content/doi/10.1108/CFRI-10-2021-0207/full/pdf? title=investigating-the-determining-factors-of-sustainable-fdi-in-vietnam  https://nhadautu.vn/fdi-voi-chuyen-giao-cong-nghe-d313.html  Vietnam_in_the_Regional_and_Global_TNC_Value_Chain.pdf  https://luatminhkhue.vn/nhung-chinh-sach-nham-thu-hut-dau-tu-nuoc-ngoai-tai-viet-nam.aspx  https://www.gso.gov.vn/du-lieu-va-so-lieu-thong-ke/2022/04/thu-hut-dau-tu-nuoc-ngoai-nam-2022-ky-vongkhoi-sac-2/#:~:text=Trong%20n%C4%83m%202021%2C%20m%E1%BA%B7c%20d%C3%B9,tr %C6%B0%E1%BB%9Dng%20%C4%91%E1%BA%A7u%20t%C6%B0%20Vi%E1%BB%87t%20Nam  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NewsID/5d476094-8272-4d9d-b810-1609ce7b67b3/MenuID  https://hbs.unctad.org/foreign-direct-investment/  https://delco-construction.com/en/which-manufacturing-industry-will-attract-fdi-invietnam-in-2022/  http://demo103.chillipages.com/cloud-advisory-services/foreign-exchangemanagement-act.php/ 15 ... n.d.) 4) The influence of FDI on the world economy and investment in a country: Foreign direct investment offers advantages to the investor and the foreign host country, and these incentives encourage... will become one of the leading smart manufacturing and service centers, start-ups and innovation centers in Asia - In 10/2022, the Ministry of Planning and Investment, in collaboration with the... attractive in the eyes of investors III Vietnam''s FDI attraction policy In 2022, foreign investment is increasing Therefore, the Government has been implementing policies to attract foreign investment