Mncs group 6 final samsung motivations to conduct fdi in vietnam

NATIONAL ECONOMICS UNIVERSITY -*** - GOVERNMENT POLICY FOR MULTINATIONAL CORPORATIONS MIDTERM EXERCISE TOPIC: SAMSUNG MOTIVATIONS TO CONDUCT FDI IN VIETNAM & DEPENDENCE ON FDI OF VIETNAM'S ECONOMY CLASS: INTERNATIONAL ECONOMICS EEP 62B GROUP 6: Nguyễn Tuấn Sơn Phạm Đức Minh Tạ Xuân Sơn Nguyễn Cảnh Qn Nguyễn Hồng Tuấn Lê Quang Huy LECTURER: Ngơ Thị Tuyết Mai HA NOI, 2023 Table of Contents I OVERVIEW FDI SAMSUNG SAMSUNG IN VIETNAM II MOTIVATIONS FOR SAMSUNG TO CONDUCT FDI IN VIETNAM VIETNAM SIDE (WHY VIETNAM NEED FDI) SAMSUNG SIDE 2.1 RESOURCE-SEEKING 2.2 MARKET-SEEKING 2.3 EFFICIENCY-SEEKING .9 III THE DEPENDENCE OF THE VIETNAM ’S ECONOMY ON FDI 10 CONTRIBUTION OF FDI TO VIETNAM 10 GOVERNMENT SOLUTIONS 13 IV CONCLUSION 14 V REFERENCES 15 This is a preview INTRODUCTION Do you want full access? Go Premium and unlock all 19 pages Access to all documents Samsung is one of the largest multinational corporations in the world, and Vietnam is a key investment destination in their strategy However, with the Get Unlimited Downloads large number of foreign investors coming to Vietnam, the question arises as: Improve youras grades Why Samsung has chosen Vietnam one of their most important investment points? noteworthy issue, as FDI can play a crucial role in promoting economic Upload growth and industrial development in Vietnam In this context, researching Share your documents to unlock the motivations and impacts of Samsung on the Vietnamese economy is of great significance Therefore, the research of Group with the topic "Samsung motivations to Free Trial conduct FDI in Vietnam & Dependence on FDI of Vietnam’s economy" Get 30 days of free Premium will address the issues and propose government solutions to tackle these dependencies Already Premium? Log in I OVERVIEW FDI Foreign direct investment (FDI) is a type of investment that involves the establishment of a subsidiary or taking control of another firm by a foreign company FDI entails real investments in factories, capital goods, land, and inventories where both capital and management are involved, and the investor retains control over the use of invested capital There are four main types of FDI, which are classified based on their objectives: + Resource-seeking FDI: Investments made to acquire production chains and other resources such as cheap labor or natural resources that are not available in the investing country + Market-seeking FDI: Investments made to enter new markets or maintain existing ones + Efficiency-seeking FDI: Investments made to enhance efficiency by leveraging the advantages of economies of scale or scope, or both + Strategic-Asset-Seeking FDI: Investments made to prevent the loss of resources to rival competitors SAMSUNG Samsung Group is one of the largest multinational corporations in the world, headquartered in Seoul, South Korea The company was founded in 1938 and has undergone rapid development, from a company manufacturing lamps to a diversified conglomerate with activities in various fields such as technology, electronics, home appliances, energy, finance, and real estate Currently, the position of chairman of the corporation is Lee Jae-yong (J.Y Lee) In terms of finance, according to PWC, Samsung Group currently has a total market capitalization of approximately 342 billion USD (as of 2022) The corporation is one of the largest companies in the world with annual revenue of hundreds of billions of USD SAMSUNG IN VIETNAM In 2022, Vietnam has successfully attracted over US $21 billion in foreign direct investment (FDI), with Samsung taking the lead as the largest investor thanks to its massive additional investments With six factories and one research and development (R&D) center in Vietnam, Samsung has established a significant presence in the country's technology and electronics industry The Samsung Electronics Vietnam Complex, which includes SEV (Bac Ninh) and SEVT (Thai Nguyen), are two of the manufacturing factories that produce Samsung's largest mobile phone globally In addition, SEHC (Ho Chi Minh City) is home to an electronics factory, while SVMC (Hanoi Capital) is Samsung's largest R&D center in Southeast Asia Samsung's sustained investment in Vietnam has contributed to the country's economic growth and created employment opportunities for the local workforce Mr Park Hark Kyu, the General Director of Samsung Vietnam, believes that Samsung's subsidiaries and other global businesses will continue to invest in expansion and development in Vietnam This is a testament to the favorable business environment and potential opportunities that Vietnam offers to foreign investors This is a preview Do you want full access? Go Premium and unlock all 19 pages Access to all documents II MOTIVATIONS FOR SAMSUNG TO Get Unlimited Downloads CONDUCT FDI IN your VIETNAM Improve grades VIETNAM SIDE (WHY VIETNAM NEED FDI) Vietnam is an attractive destination for foreign investors due to three main reasons: Upload First, the country has a surplus of labor and a young population, providing a large Share your documents to unlock workforce for potential investors Free Trial Get 30 days of free Premium Second, Vietnam has recently entered the world market, creating many opportunities Already Premium? in for accessing significant investment capital fromLog multinational corporations Third, despite Vietnam's potential, the country still lacks advanced technology and labor techniques As a result, foreign direct investment is critical in enabling Vietnamese businesses to learn from multinational companies and foreign countries The presence of companies like Samsung in Vietnam has been instrumental in sharing knowledge and expertise in technology and management practices Furthermore, attracting foreign investment can contribute to the development of Vietnam's infrastructure, creating a more favorable business environment for both domestic and international businesses Foreign investors can also bring advanced technology, equipment, and management techniques, improving the quality and competitiveness of Vietnam's economy SAMSUNG SIDE According to objectives, we divide reason why Samsung invest in Vietnam into motivations: 2.1 RESOURCE-SEEKING + Low-cost labor: Vietnam is being a developing nation with a large population and currently in a favorable economic phase, is renowned for offering low-cost labor In fact, the cost of labor is significantly lower in Vietnam than in China According to an estimate from 2016, the average salary of a Chinese worker was approximately six times greater than that of a worker in Vietnam In addition, Vietnamese workers are known for their diligent work ethic and innovative thinking + Infrastructure: Enhancements in infrastructure are also crucial The World Bank reported in 2006 that approximately to 10% of Vietnam's GDP was allocated to investments in areas such as telecommunications, energy, water, sanitation, and transportation Over the past few decades, Vietnam has made significant progress in expanding and improving its road network, with a length that has more than doubled since 1990 and an overall improvement in quality Furthermore, from 2021 to 2025, Vietnam's Ministry of Transport plans to invest more than $5 billion to upgrade the country's road transportation infrastructure (with 22 major traffic projects)1 2.2 MARKET-SEEKING + Vietnam is a country that joined global economic organizations and opened to foreign trade activities recently Therefore, from the perspective of multinational companies, Vietnam market will be newer and more potential than countries that have joined before such as China and India + If a company sees an opportunity to generate sales and provide quality customer service, it may choose to expand its operations overseas In the case of Samsung, Vietnam has proven to be a lucrative market, with the company achieving significant success there Due to its large population, there is a strong demand for mobile phones in Vietnam As per the Asia Pacific Quarterly Mobile Phone Tracker by IDC, Vietnam According To Department of Investment Construction This is a preview had the highest growth rate of smartphones among ASEAN countries, with a rate of Do you want full access? Go Premium and unlock all 19 pages 57% in 2014 + Moreover, Samsung's investment in Vietnam is also driven by the country's strategic Access to all documents location as a gateway to not only the Vietnamese market but also the ASEAN market Unlimited Downloads and other markets within Get Vietnam's free trade agreements (FTA) Improve your grades Upload 2.3 EFFICIENCY-SEEKING Share your documents to unlock + Government Support: Vietnam has eliminated any regulations that conflict with the TRIMS agreement as Free Trial part of its admission to the World Trade Organization Additionally, foreign investors in Vietnam can benefit from various appealing Get 30 days of freeinvestment Premium incentives For example, according to the Embassy of the Socialist Republic of Vietnam in the United States, international companies are subject to a corporate tax rate of 10% for 15 years from the first year of revenue generation Already Premium? Log in + Political stability + No extra cost Vietnamese-made products have a competitive edge as they can be sold without any additional expenses This is due to Vietnam being a member of 15 free trade agreements that span across over 50 countries worldwide + Strong supply chain Vietnam boasts two international airports, multiple sizable ports, dependable access to electricity, and straightforward internet connectivity Furthermore, because of Vietnam's relatively small land area, the majority of suppliers are situated near major airports or seaports, facilitating the transportation of finished products from the factory to the consumer In addition, in strategic-asset-seeking: Samsung is interested in investing FDI in Vietnam because Vietnam is a new market participating in the global economy Therefore, investing as early as possible will enable Samsung to compete more effectively with other multinational corporations This strategic move will give Samsung a competitive edge in the market and provide opportunities for growth and expansion By investing in Vietnam, Samsung can leverage the country's favorable business environment, abundant resources, and skilled workforce to enhance its global position and further strengthen its brand image Overall, Samsung's decision to invest in Vietnam reflects its commitment to expanding its global footprint and staying ahead of the competition Samsung invest in Vietnam is the win-win situation for both parties III THE DEPENDENCE OF THE VIETNAM ’S ECONOMY ON FDI CONTRIBUTION OF FDI TO VIETNAM In overall, Vietnam benefits from foreign trade and FDI, as it creates jobs and upskills the workforce, contributes to tax revenue, and increases workers' incomes FDI projects also facilitate the transfer of technology, management knowledge and labor 10 techniques to Vietnam from MNCs, creating a spillover effect through which domestic enterprises are connected with global value chains through FDI enterprises As of March 2020, Samsung is Vietnam's largest foreign investor with accumulated investment capital of more than 17 billion USD In 2019, Samsung's revenue in Vietnam was about 68.3 billion USD, equal to about 26% of Vietnam's GDP In 2019, this group exported products worth US$51.3 billion, accounting for 19.4% of Vietnam's export turnover 11 This is a preview Do you want full access? Go Premium and unlock all 19 pages Access to all documents Get Unlimited Downloads Improve your grades Upload Share your documents to unlock Samsung is also one of the largest employers in Vietnam, with a total staff of more Free Trial than 110,000 people However, they were overwhelmingly semi-skilled: 89 percent Get 30 days of free Premium high school graduates, percent with post-secondary vocational qualifications, and just percent with university degrees In addition, there are currently many Vietnamese businesses associated with Samsung Already Premium? Log in global suppliers But local firms serve as lower-tier suppliers because they are constrained by their capabilities and production capacity and fall short of the product and process standards required by Samsung suppliers Our reliance on exports and FDI makes the economy very vulnerable to external shocks 12 Therefore, if Samsung decides to stop or reduce the scale of operations in Vietnam, the Vietnamese economy will be affected, which mainly affects: However, the effect won't be too severe First, on the export side: the nature of the large export surplus of FDI enterprises will not bring much added value to the economy This comes from the fact that FDI enterprises that export a lot, also import input materials from countries of origin, not in Vietnam, leading to low domestic value added The reason is that Vietnamese enterprises are not eligible to become direct suppliers of input materials for Samsung's production and have to supply to Samsung's official suppliers In other words, Vietnamese enterprises are second-tier suppliers Second, the numbers of contributions to the Vietnamese economy from Samsung as outlined above are not too large to make the Vietnamese economy dependent on Samsung GOVERNMENT SOLUTIONS 1) Remove & Priority Remove some of the incentives that FDI enterprises have enjoyed over the years Priority should be given to the FDI sector only on products and production details that create added value and have high technology content 2) Negotiate Negotiate with Samsung to strengthen linkages between Samsung and domestic enterprises, especially small and medium enterprises Vietnam government also requires domestic enterprises to change & restructure to meet the conditions of association with Samsung, in order to become the first-tier suppliers 3) Encourage Encouraging the attraction of FDI projects that create great spillovers Encouraging increase connectivity with the domestic sector, thereby helping 13 Vietnamese enterprises grow up, be able to become partners of FDI enterprises, participate in deeper in the global value chain and gradually increase its share in exports 4) Support Create conditions for the development of small and medium enterprises At the same time, encourage private enterprises to expand their businesses, especially into high-tech manufacturing sectors, to strengthen Vietnam's domestic industry For example: Vin Group, FPT group, etc 5) Diversity & Promote Diversify and further promote FDI investment categories to prevent risks when there is a negative change from FDI companies IV CONCLUSION In conclusion, Samsung is one of the largest multinational corporations in the world, and Vietnam is an important destination in their investment strategy Samsung's investment in Vietnam has contributed positively to the Vietnamese economy by promoting economic growth, reducing unemployment rates, and making Vietnam one of the leading technology access countries in the world Despite not having a significant dependence on FDI, it remains a concern for the Vietnamese economy Focusing on FDI brings risks to the Vietnamese economy, affecting many aspects of it To prevent negative impacts, the government has implemented several solutions such as prioritizing and focusing on FDI capital, enhancing competitiveness for Vietnamese enterprises, and particularly promoting research and development to produce alternative materials to reduce reliance on imports and incorporate Vietnamese enterprises directly into the supply chain Additionally, the Vietnamese government needs to strengthen policy management and adjustments to create favorable conditions for domestic businesses to develop and compete with FDI enterprises 14 This is a preview V.youREFERENCES Do want full access? Go Premium and unlock all 19 pages Access to all documents Get Unlimited Downloads Improve your grades Upload Share your documents to unlock Free Trial Get 30 days of free Premium Already Premium? Log in 15 QUESTIONS & ANSWERS GROUP - TOPIC Question 1: If Samsung does not plan to reduce the scale of operations in Vietnam or does not make a bad move to the Vietnamese economy, will the Vietnamese economy benefit? Yes, but it will benefit in terms of contributing jobs, skills and technological knowledge to Vietnam In fact, the increase in exports from Samsung's FDI doesn't really contribute much to the economy The nature of the large export surplus of FDI enterprises will not bring much added value to the economy This comes from the fact that FDI enterprises that export a lot, also import input materials from countries of origin, not in Vietnam, leading to low domestic value added So, export dependence too much on Vietnam's FDI sector is a potential problem for the country For example, Samsung companies in Vietnam that export a lot of phones also need to import a lot of components from abroad because currently businesses in Vietnam are not able to supply them In addition, this benefit also entails some potential risks, such as the possibility of mass unemployment and the displacement of individuals with a sub-college education level if Samsung initiates reductions or withdraws from the Vietnamese market Question 2: Assume that Samsung decides to stop or reduce the scale of operations in Vietnam, will the Vietnamese economy be severely affected? If Samsung were to reduce or stop its operations in Vietnam, this would have a ripple effect throughout the economy Suppliers and other businesses that rely on Samsung's operations would also be impacted, potentially leading to job losses and decreased economic activity The government of Vietnam would also see a reduction in tax revenue from Samsung, which could impact public services and infrastructure development Samsung's decision to pull out of the Vietnamese market would have a significant impact on the country's supply chain, causing a ripple effect on both domestic companies and other multinational corporations investing in Vietnam Samsung is one of the largest foreign investors in Vietnam and has a significant presence in the country's electronics industry, serving as a key supplier for many local companies The company's withdrawal could result in a gap in the supply chain, causing disruption and delays in production for those companies relying on Samsung's components This could ultimately lead to a 16 decline in productivity and could cause some firms to relocate their operations to other countries, resulting in a negative impact on Vietnam's economy However, it's worth noting that Vietnam's economy is diversifying and growing, with several other foreign investors and industries making significant contributions to the country's economic growth Therefore, while Samsung's departure will certainly have an impact, it may not be a catastrophic blow to the Vietnamese economy Question 3: What kind of support does the Vietnamese government need for its small and medium enterprises to join Samsung's chain of corporations? The government needs to negotiate with Samsung to commit to supporting and training small and medium-sized enterprises At the same time, it should require these enterprises to transform and restructure themselves to provide products that meet Samsung's requirements, thereby contributing to Samsung's supply chain This will support small and medium-sized enterprises in joining the production supply chain By doing so, the government can help these enterprises improve their competitiveness and become more integrated into the global value chain Additionally, it will reduce their dependence on a single market or a single partner, such as Samsung This approach will ultimately benefit both the Vietnamese economy and Samsung, as it will ensure a more diverse and resilient supply chain for Samsung's operations in Vietnam At the same time, the Vietnamese government can support small and medium-sized domestic enterprises by providing capital sponsorship, tax and fee reduction, training, and creating opportunities to develop the workforce so that these businesses have enough capacity to become direct suppliers of raw materials for multinational corporations 17 This is a preview XÉTGo KẾT QUẢ HO ĐỘNG Do you want NHẬN full access? 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