Trang 1 FACTORS AFFECTING BUSINESS ENVIRONMENT OF HAI PHONG CITY A DISSERTATION PAPER Presented to School of Graduate Studies Trang 2 ACKNOWLEDGMENTS It is hard to imagine how this di
Introduction
Background and Rationale of the Study
In the recent decades, business environment is very vital for enhancing competitiveness that led in attaining boom in the economies of some successful cities worldwide Some scholars have judged this approach as an integral device for the increase of city economies in the international context (Kotler et al., 2002; Luo & Zhao, 2003; Wells & Alvin, 2000) They have been generalizing and conceptualizing this phenomenon in an effort to construct a mannequin of area planning based totally on principles of marketing Improving competitiveness is an essential strategy which consists of the procedure of creating techniques so that a region can attain its growth targets by figuring out and meeting expectation of investors
There is a two-way relationship between the business environment and the business
On the one hand, the business environment facilitates the business, if the business takes advantage of these advantages, it will be easier to operate On the contrary, it also has challenging constraints on the business if it inhibits the development of the business or if the business has not adapted to the environment
On the other hand, businesses also have impacts on the business environment that can generate positive responses to the environment such as creating capital contributions, and infrastructure development But it can also destroy the business environment of enterprises by pollution, causing unemployment, social evils, and corruption
As such, the business environment greatly affects the business both negatively and positively Facing the impact of the business environment, enterprises need to have the willingness to control the situation, manage their production process, products and services so that the negative impact is at the least if not avoided
The new business environment is the decisive factor in choosing a Foreign Direct Investment (FDI) destination According to a study by VEPR (2020), there are huge tax incentives for multinational corporations with no real benefits Instead of focusing on the key factor in deciding the FDI sector to build a business environment that has proven to be the key, regional governments are adopting tax policies beneficial only for large foreign companies To deal with the pandemic and achieve sustainable development, Vietnam should avoid falling into the trap of an unnecessary race For the past 10 years, all provinces, especially Hai Phong, have been competing with each other in a race to the bottom by lowering the corporate income tax rate (CIT) and continually offering huge tax incentives for multinational corporations
Experts say that tax incentives can create negative externalities, adversely affecting economic efficiency It is difficult for developing countries to cope with those consequences, especially in the context of the economic and health crisis that all countries are facing There is a need to choose between building sustainable societies with good land policies, or just benefiting companies that are working to minimize their tax bills Whose interests will come first should be considered
In addition to tax incentives, the use of non-tariff incentives is also widespread in developing countries, such as Vietnam, and contributes to exacerbating the race to the bottom in the region Competition in the provision of non-tax incentives is evident in land incentives The forms of long-term land lease available allow foreign investors to own land in some special cases Vietnam exempted or reduced land rent for investment projects in remote areas to boost production activities
Place marketing is said to be an outcome of, as properly as a necessity for, extended competition among places for the improvement of resources The notion of metropolis competitiveness has received growing interest as a capacity of improving the enterprise surroundings of cities (Short & Kim, 1998) In the effort to reply to the demands of competition and to entice the preferred goal corporations of investors, vicinity directors have recognized in advertising idea and practice a precious ally (Kavaratzis, 2005:329) Some scholars pointed out that competition among places is not new Cities have usually existed inside a market context of one sort or another, and they compete among one another for resources, activities, residents and services (Boisen et al., 2018) Many examples of advertising and marketing solutions, basically promotional measures, which cities used in a whole lot earlier time are provided (Ward, 1998) However, these early region advertising and marketing activities had been intuitive and random (Kavaratzis, 2005), whereas a more focused, built-in and strategic implementation of location advertising and enhancement of business environment has been evident in a long time (Kotler et al., 2002) The motive given for this trade is expanded competition amongst places as a response to integral modifications in markets, funding and technology as a result of a common globalization vogue in which people, capital, and agencies have end up more footloose (Kotler et al., 2002)
Place marketing/local marketing is an extremely necessary activity in the socio- economic development strategy Currently, in many countries around the world, place marketing is popular and offers outstanding competitive advantages more sustainably than localities, other passive countries, with new thinking, the government serves people Local people, businesses and themselves are also a brand Success in place marketing demonstrates the local's efforts in implementing the marketing strategy for their locality
To attract investment effectively, it requires localities to have ways and solutions to propagate, advertise and invite investors to get interested to their localities In order to do this task well, having a local marketing strategy is essential
Place approach as a product that needs to be marketed to target customers requires a marketing strategy that is built with the aim of assessing strengths in terms of local resources, forecasting future development trends, and ways of improvement From there, one of the basic strategic tasks of place marketing is to attract investment in industrial zones to promote local economic development The place marketing strategy with the aim of attracting FDI is closely related
Development of a place marketing strategy should aime at answering three (3) questions: (1) the current position of the locality in the FDI market; (2) the desired local future position in the FDI market; and (3) local solution to desire to achieve that position Designing a place marketing strategy is the way that local marketing actors need to invest in improving the quality of their local marketing elements and directly influence the business environment This is also one of the important issues that need to be overcome
Hai Phong is one of the important central cities in the country Compared to other cities, Hai Phong has significant advantages with the largest seaport, a large consumer market, large industrial parks, many preferential policies of the government, and good transport infrastructure that connects with all provinces in the North of Vietnam, especially Hanoi, the capital city With such advantages, Hai Phong should be the leading province in attracting investment However, according to the Vietnam Chamber of Commerce and
Industry, Hai Phong's competitiveness index in 2018 was only 16/63 (VCCI, 2018) The investment projects in Hai Phong in terms of size and quality are not worthy of the city's potential and did not meet the people and the government's expectations (VCCI, 2018) Therefore, the analysis and assessment of factors affecting the business environment are critical, and it will be an essential study for Hai Phong city to aim for strong and sustainable development
Further, the competition is among developing places and/or among post-industrial cities which has resulted in more aggressive and complex forms of competition As a consequence of the increasingly wide-ranging and aggressive competition, enhancing business environment for retaining and attracting investment has become essential
These are important reasons for the author in deciding to select the topic, “ Factors
Affecting Business Environment of Hai Phong City ” for doctoral dissertation
Review of Related Literature and Studies
This Chapter discusses the literatures and the studies having significant bearing on this study which was aimed at providing relevant inputs to the Hai Phong City’s formulation of strategic market plan to market its place, particularly, among investors
As this research project carries an inherent responsibility to be able to contribute to the development of theory in the field of business administration, it was but necessary that the researcher must possess a thorough familiarity with both the related theory and previous research outputs This is the reason why this review was conducted Specifically, this review allowed the assessment of the amount of work done in the area of place marketing as well as in the general context of strategic market planning as a tool for enhancing competitiveness Needless to say, the review has provided some strong bases for formulating relevant insights regarding strong points and limitation of the previous studies while enabling the creation of unbiased perspective which led to the improvement of the current investigation
Business Environment, Local Reviews and how to evaluate
Any use of resources intended to increase future industrial output or revenue is considered an investment The ability to spend, to sacrifice, in current assets in order to achieve outcomes that are deemed worthwhile in the future is what it means to invest The sacrifice of current benefits for a great gain of revenue in the future is known as investing
Financial resources, natural resources, human resources, and intellectual capital may all be referred to as resources A new application of these findings may be applied to many corporate entities via different asset classes, such as money, property, minds, and human resources Traders may be classified in three main categories: money investment, the kind that individual’s loans cash or buys certificates that have interest payable at pre-determined intervals investing funds to buy products, advertise them, and then selling at a higher price to generate a profit
Investing in activities that result in new assets for the economy, giving people an opportunity to do things they couldn't otherwise, and providing a way for a company to expand its operations When you look at it this way, it's obvious that creating employment and enhancing the lives of all citizens is a crucial piece of the social puzzle The goal of foreign direct investment is to gain an enduring stake in an economy other than the investor's through acquiring ownership of a resident entity in that economy Having a long-term connection between the direct investor and the business and a significant degree of influence on the management of the company are both indicators of a lasting activity The definition of direct investment includes all the preliminary and subsequent transactions between the two companies as well as any transactions involving associated firms, whether incorporated and unincorporated
FDI was described as an investment made to accumulate lasting activity in organizations operating outside of the financial system of the investor in the fifth edition of the Balance of Payments Manual (BPM5) and the third edition of the Detailed Benchmark Definition of Foreign Direct Investment (BD3) Also, foreign direct investment (FDI) occurs when the investor purchases a seat in the management of the company An entity that invests directly is called a "direct investor" This is called a "direct investment enterprise" or
"subsidiary" The vast majority of business owners assume that having a certificate of equity ownership is almost always connected to an exceptional ability to lead a business
In addition, it says that in order to qualify as a foreign direct investor, an investor must own at least 10% of the company's stock It is important to specify which capital transfers between the company and other economies' organizations must be categorized as FDI after a direct financing organization has been established A lasting pleasure for direct investors is seen as the main reason for FDI, which means only money provided by those investors either without delay or by utilizing linked companies is defined as FDI The many investment types which are classed as direct investment (FDI) include capital, income which has been reinvested, and intra-company loans (between guardian and affiliate enterprises) A direct investment firm is an incorporated or unincorporated business in which a single overseas investor either owns 10% or more of the firm's ordinary shares or voting power or owns less than 10% of the firm's ordinary shares or voting power, but nevertheless has a positive influence on the business As long as direct investors are able to have an effect on the administration of an organization, an outstanding voice in administration is in place Foreign direct investment has a key characteristic that sets it apart from foreign portfolio investment This characteristic is that it is conducted with the aim of controlling a company
The idea of environmental enticement to investment capital has been studied by economists and businesspeople in many nations, including the United States The economic transformation in Vietnam needs the execution of innovation insurance policies in an open economy that has been established alongside the globe, thereby drawing investment from outside The environmental issues have struck a chord with fresh investment money, as well as enticing additional researchers to investigate the subject
Environment to draw in funds has a number of different variables, such as those that enhance the performance of investment projects simultaneously or those that have an indirect effect Covered in this information packet are the structural realities of infrastructure; such as tax regimes, labor expenses, physical assets, hiring policies, mortgage terms, pricing tactics, political stability, and administrative measures to guarantee security and social order The aforementioned positive aspects will boost the financing and attract more investment capital, which will enable the nation to raise funds for equipment upgrades and increase the country's financial security
To do this, the authorities provide insurance policies to entice investors funds that are likely to go towards projects that have the following attributes: objectivity: There is no such thing as an individual investor or company All investors and companies exist as objects Receiving money is an incentive for investing in an environment that puts a bound ceiling on investing activities, on the other hand, promising investment opportunities have more room to expand (2) Integrated: integrated with every other aspect of the experience, which consists of several separate parts The degree of progress and socioeconomic, managerial, and appropriate main components of the environment are all variables that affect the amount and types of funds that are attracted Diversity: Funding money may be attracted to the environment through environmental components As a result, an in-depth analysis of data as well as information search are required in order to get a comprehensive connection between environmental factors and the components (4) Dynamic: The context to catch capital as well as many influences triggers the up-and-coming fashion to rally as it shifts on a continual basis due to the operation of capital combined with the prevailing state of affairs Funding operations in business or funding endeavors, on the daily, are influenced by factors and requirements of the environment that provide funding resources Systematic: The complexity and variety of the interactive environment affect the overall balance of the environment in order to increase financing (Radukic and Stankovic, 2015; Berchicci and King, 2007)
Approaching investments in a methodical manner on a regular basis to evaluate their efficacy and efficiency is an absolute need Investing in a TNC is often made up of three phases: I choosing the TNC, (ii) securing funding, and (iii) implementing the plan An undisclosed location in the U.S has been identified for investment the primary factors to assess the source of the money are A market in which the amount of money flowing through, the per capita income, import regulations, and customer preferences are all significant factors is called a market Price: the total cost of the inputs, factors, and raw materials; cost, quality, availability, and productivity of the employees capable of being trained; Natural resources: Herbal assets (schools, colleges, universities) (5) Guiding Principles: the stable, consistent economic, political, and social progress; implementation of insurance policies in the non-public sector; and privatization of corporations, both public and private; as well as agreements on currency exchange and jail policy in general The listing of FDI merchants today includes those who are seeking for environment-friendly and strategic search assets, alongside purchasers shopping for raw materials Moreover, carrier customers represent the largest percentage of purchasers across the globe, even if this may not be true for all nations in the FDI situation Networks, partnerships, and agreements are often used to build a venture Activity merger and acquisition is furthermore a significant pattern of foreign direct investment People nowadays are experiencing a problem due to the relationships between records and geography
Additionally, the flow of foreign direct investment (FDI) indicates the US's relative superiority and aggressive investment methods As a result, geography, history, and other connections helped to shape the decision to attract investors (Neequaye and Oladi, 2015) When businesses invest in another country, they bring with them the following advantages: Employment: Foreign direct investment has the ability to increase the tax base of local revenues and contribute to government income Even if investors are given tax breaks to help them invest in a foreign country, the government gains more revenues through taxing personal income tax returns In addition, export-oriented projects provide currency income for the foreign investor Thus, the FDI inflow tends to boost domestic investment since the TNC provides distribution channels for the business Access to a country's technology may be improved via licensing and joint ventures The people who work for TNC may deal with the confidential information they possess and establish another business or become involved in other companies operating in the nation Gifting technologies, on the other hand, usually causes productivity to rise The TNC does things to raise the skill levels of its employees When workers discover new employment or starting up their own businesses, they frequently transfer their talents to different areas and occupations Workers are frequently assigned tasks on improving the capabilities of the business and implementing new management strategies This may improve productivity, mental workload, and comprehensive learning
FDI projects are often export-oriented, and they will get the share of the nation receiving investment's exports Since most foreign businesses have better access to export networks, they are more easily able to reach the export market Countries with emerging economies understand how to utilize foreign direct investment as a method to boost export income and enhance foreign currency Moreover, the existence of exporting businesses that are already invested overseas is a critical component in many nations in spurring on local firms to enter the export market enhanced national competitiveness of firms The expansion of global opportunities for selling goods and materials helped businesses in the U.S to enhance the quality and dependability of their products and services A new product for the home economy will be offered by most foreign businesses, and local businesses are frequently expected to emulate this Investing and growing an enterprise are often necessary to generate increased levels of investment, production, and innovation It leads to a better level of economic efficiency for domestic firms, with consequent higher-quality goods being produced FDI may enhance overall economic development by increasing competition in previously concentrated industries (Tsai, Mukherjee and Chen, 2016)
The three major types of investment in Vietnam now are: Companies in which a company is owned and controlled by foreign investors in which 100% of the equity is foreign invested those engaged in the running of businesses, the sharing of earnings, and the mitigation of risk among the many parties This kind of company operates with varying liability limits based on the level of investment and investment areas There is an agreement between two parties and two or more defined responsibilities and the division of business results, with the division of business results distributed equally to each party, with the participants in the investment business conducting their activities without any governmental personnel (VCCI, 2018)
A business environment consists of many variables that are influencing both the viability of small businesses and the incentive for larger businesses to make efficient investments and generate new employment Thus, businesses regard the business environment International investors may have a greater capacity to invest in interest (or to take risk) because of a synchronization or a combination of variables Our issue is that we must understand everything about the business environment, both current and new, in order to enhance it and draw in new investors
Methodology
This Chapter presents research methods applied in the dissertation, including both quantitative and qualitative approaches
This study basically used the descriptive method of research It is the appropriate method used for collecting, processing, and analyzing data on the factors affecting the business environment of Hai Phong City, namely: Entry costs, land access and tenure, transparent, informal charges, time cost, pro-activeness, business support services, labor training and legal institutions Further, this paper also used a correlation method which involved using regression statistics to analyze the factors which influence the business environment of Hai Phong City
This research intended to introduce some innovations in business environment of Hai Phong City This was carried out using both descriptive and correlational research methods It utilized the investors’ perceptions of the factors affecting the business environment as inputs for formulating some insights on the marketability of Hai Phong City as investors’ site for putting in their valuable resources including FDIs
The analytical model has two (2) parts
The first step of research is to adjust the measuring scale Adjustment and additional variables to suit the contents are prepared under the scales which were made available by direct discussion with academic advisor and other experts who are famous researchers and provincial authorities about business environment The discussion was recorded, and summarized as basis for the adjustment and additional variables The methods to carry out the interview used open-ended guide questions
Detailed information about the following was collected:
- Investors’ perception on business environment of Hai Phong City According to them, which factors do attract them investing more to Hai Phong in the future?
- Factors affecting business environment of Hai Phong city
- Their recommendations for government of Hai Phong
Preliminary research results are used as bases for designing the questionnaire in the formal study The content of the questionnaire is referred to experts and investors of Hai Phong city for validation and modification based on their comments and recommendations
This is the main research process of data collection by interviewing 400 investors of Hai Phong city Collected data is processed by SPSS software After coding and data classification, data is analyzed using the following:
- Descriptive statistics: Arithmetic mean, median, mode, variance, and standard deviation
- T-test and Analysis of Variance (ANOVA) was used to find out whether there are significant differences in the perception of respondents according to their personal characteristics
-The correlation matrix is also considered to determine the relationships between the independent and dependent variables
- Evaluate the reliability and the value of the measuring scale: the reliability of the measuring scale was assessed by the coefficient of Cronbach's Alpha, which variables do not match were disqualified if the correlation coefficient of the variable are small (