A Study on the Foreign Direct Investment in the Telecommunications sector in Lao PDR

1 ACKNOWLEDGMENT The author would like to express his sincere gratitude to the supervisor Assoc. Prof. Dr. Bui Anh Tuan for this precious guidance, fully supported and valuable suggestions throughout the research study. Thanks are due to and advisor: H.E. Hiem Phommachanh, Dr. Thansamay Kommasith, Assoc. Prof. Dr. Lai Phi Hung, Assoc. Prof. Dr. Hong Van Cuong, Assoc. Prof. Khampheuy Phommachanh, Mrs. Phonephet Miphenglavanh MBA, Mrs. Khamkieng Phothirath, Mr. Phakavanh Phothirath, Mr. Ketsavanh Phothirath, Mr.Bounsaleumxay Khennavong MBA, Mr. Oudasack Lasoukanh MSc, Mr. Somlith Phouthonsy, Mr. Snith Xaphakdy MSc, Mr. Hoang Quoc Khanh, Mr. Phung Huy Tam, Mr. Doan Hieu, Miss. Phuong Tran Linh for their valuable contribution in serving as committee members, as well as for precious suggestions and comments on the research study. Thanks are also extended to committee council of the national level as: Prof. Dr. Tran Tho Dat, Assoc. Prof. Dr. Ta Van Loi, Prof. Dr. Nguyen Thi Thanh Minh, Assoc. Prof. Dr. Bui Huy Nhuong, Dr. Nguyen Thi Nguyet, Assoc. Prof. Dr. Le Quoc Hoi. Thanks General Director and Deputy Director of The National University of Laos are also extended to professors and General Director and Deputy Director of The National Economics University of Vietnam, and are also due General Director and Deputy Director of Telecommunications in Laos and Vietnam. Special thanks are expressed to the Minister of Education and Training of SR Vietnam and Minister of Education and sports of Lao PDR for providing access to different departments and different companies to support and collect data. Lastly, the grateful the Laos and Vietnam Government, for giving cooperation program to upgrade our knowledge furthermore and to obtain a prestigious Ph.D. degree from two Universities as the National Economics University of Vietnam, Hanoi, Vietnam SR and the National University of Lao, Vientiane capital, Lao PDR. 2 ABBREVIATIONS ADB Asia Development Bank AFTA ASEAN Free Trade Area ASEAN Association of South East Asian Nations BCC Business cooperation contracts BDS Business Development Services BMO Business Membership Organization BOT Build, operate and transfer BPO Business Process Outsourcing Industry BTA Bi-lateral trade agreement CSA Civil Society Associations CPI Consumer Price Index EBS Enterprise Baseline Survey (2005) ES Enterprise Survey (2007, 2009, 2011) ETL Enterprise of Telecommunications Lao EXIM Export-Import Bank FDI Foreign Direct Investment HRDME Human Resource Development for a Market Economy GDP Gross Domestic Product GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH GoL Government of Lao PDR GNI Gross national income ISIC International Standard Industry Classification ICT Information and Communications Technologies IPT Institute of Posts and Telecommunications ISP Internet service provider IT Information Technology ITU International Telecommunications Union IXC Internet exchange carrier Lao PDR Lao People’s Democratic Republic LeG Lao PDR e-Government LTC Enterprise of Joint Venture of Lao Telecommunications LDC Least developed country LBF Lao Business Forum 3 LNCCI Lao National Chamber of Commerce and Industry MPT Ministry of Posts and Telecommunications MST Ministry of Science and Technology MOT Ministry of Trade MPI Ministry of Planning and Investment MDGs Millennium Development Goals MNE Micro and Nano Engineering MAI Multilateral Agreement on Investment MoES Ministry of Education and Sports MoIC Ministry of Industry and Commerce NGPES National Growth and Poverty Eradication Strategy NSEDP National Socio-Economic Development Plan NUoL National University of Laos NIPTS National Institute of Post and Telecommunications Strategy NPEP National Poverty Eradication Programme NICTA National ICT Association OoG Office of Government OSP On-line service provider OECD Organization for Economic Co-operation and Development SME Small and medium sized enterprises SOE State owned enterprise SMEPDO The National Small and Medium-Sized Enterprise Promotion and Development Office PPP Provincial Public-Private TRIMS Trade Related Investment Measures TFP Total Factor Productivity TNC Trans National Corporations USD United States Dollar VAS Value added services VoIP Voice over Internet Protocol WB World Bank WTO World Trade Organization IIA international investment agreement IPA investment promotion agency 4 LISTS OF TABLE Table 1.1: Internalization advantages 29 Table 1.2: different types of FDI can be distinguished 29 Table 2.1: ICT spending on services and hardware, 2013 87 Table 2.2: Fixed-line subscribers and market share in 2014 90 Table 2.3: Mobile subscribers and annual growth, 1995-2014 91 Table 2.4: Postpaid and prepaid mobile subscribers by operator, 2014 93 Table 2.5: ICT Development Index results for LAO PDR 103 Table 2.6: FDI’s Telecommunications sector by partner, up to 2014 108 Table 2.7: Telecommunications sector Revenue Summary year 2008 to year 2014 109 Table 2.8: Telecommunications sector Revenue Summary year 2014 to 2020 110 Table 2.9: The Company’s establish of FDI 120 LISTS OF FIGURE Figure 1.1: Porter’s National Competitive Advantage Theory 13 Figure 2.2: The international connection point 79 Figure 2.3: Fixed lines in service, 1995 – 2014 82 Figure 2.4: Fixed-line subscribers and market share in 2013 83 Figure 2.5: Mobile subscriber’s growth, 2014 85 Figure 2.6: Mobile subscribers and market share, 2014 86 Figure 2.7: Internet users, 1998 – 2014 89 Figure 2.8: Overview of the ICT Development Index 95 Figure 2.9: FDI’s Telecommunications sector by partner, up to 2013 101 Figure 2.10: The companies’ share of FDI 114 Figure 2.11: Telecommunications sector facility 122 Figure 3.3: Strategic human resource development serves as the key link between the overall strategic plan and human resource management. 146 5 INTRODUCTION 1. Rational of the research The Lao People’s Democratic Republic (Lao PDR) is developing country, it is facing critical changes. Recently, this has evolved to the stage of adopting a so-called “New Economic Mechanism” for economic reform that attempts to transform its centrally- planned economy toward a market-oriented one. Foreign Direct Investment has played a very important role in the development of the telecommunications sector in Lao PDR but inflow of Foreign Direct Investment still small and going down in the period from 2000- 2010. Party focuses on enhancing its leadership role (Choummaly Sayasone, Party Secretary General of Lao revolution people). Party Secretary General will focus on bolstering the leadership of the Party and closely monitoring the country’s top priorities to realize the resolution of the 9 th Party Congress approved in March, 2011. The commitment was made at the 2 nd session of the 9 th Party Central Committee convened in Vientiane from 16-20 May, 2011 chaired by Party Secretary General Choummaly Sayasone. The leaders have seen the need to boost Socio-Economic development based on the potential of various areas. The session proceeded as the entire Party, army and society are focusing on formulating action plans to realize the Resolution of the 9 th Party Congress and the Seventh (7) Socio-Economic development plans for 2011-2015 and all these efforts can lay the foundation for Lao PDR to rise above least developed country status in year 2020 [14]. Foreign Direct Investment (FDI) has played a very important role in the development of the Lao’s telecommunication sector in Lao PDR. The Government has formulated policies to attract FDI to this sector. But FDI inflow to Lao’s telecommunications sector is not enough as expected. This issue has affected the development of the sector as well as the economic development of the country. The results, starting from an extremely low base, were striking - growth averaged 6% per year from 1988-2008 except during the short-lived drop caused by the Asian financial crisis that began in 1997. Laos' growth exceeded 7% per year during 2008-13. Despite this high growth rate, Lao PDR remains a country with an underdeveloped infrastructure, particularly in rural areas. It has a basic, but improving, telecommunications system, and limited external and internal land-line telecommunications. Laos' economy is heavily dependent on capital-intensive natural 6 resource exports. The economy also has benefited from high-profile foreign direct investment in telecommunications, logging, and construction though some projects in these industries have drawn criticism for their environmental impacts. Lao PDR is in the process of implementing a value-added tax system. Simplified investment procedures and expanded bank credits for small companies and small entrepreneurs will improve Laos' economic prospects. The government appears committed to raising the country's profile among investors, but suffered through a fiscal crisis in 2013 brought about by public sector wage increases, fiscal mismanagement, and revenue shortfalls. The World Bank has declared that Laos' goal of graduating from the UN Development Program's list of least- developed countries by 2020 is achievable, and the country is preparing to enter the ASEAN Economic Community in 2015. This dissertation needs to be fulfilling the following tasks: to analyses the development of the telecommunications of Lao PDR from 2003 to 2013; to analyses and evaluate the role of FDI to develop the telecommunications sector in Lao PDR in the period 2003-2013; to investigate the main drivers of improve FDI to the telecommunications sector in Lao PDR in the period 2003-2013; to give the solutions to attract FDI to develop the telecommunications sector in Lao PDR in the period is better of 2015 to 2020. This study aims to analyses the current situation of FDI in the sector in the period from 2000 to 2010 and to set up solutions to attract FDI to the sector in the period from 2011 to 2015 in the new context of international economic integration. 2. Literature Review The Lao’s Telecommunications development, since then government has encouraged the expansion of foreign direct investment (FDI). The liberalization measure in 1994 has changed with foreign investments radically. The inflows will allow multiple benefits such as technology transfer, market access, improvement in voice and data quality and organizational skills. It increases the flow of foreign currency and helps in maintaining harmonious relationship with the country from which the investment is made. It has been decided to enhance the FDI in telecom services in areas like basic telecom, cellular unified access services, internet and intranet, long distance vast, public mobile, radio service and radio frequency services. 7 The above services would be subject to licensing and security requirements, wherever required. The FDI is limit increase, any change of investment flowing into Lao PDR and have a magnanimous effect on the telecom sector by way of economic reforms and would also affect the economy as a whole, and would likely have a chain reaction on various other sectors. It has been proclaimed by the Finance Minister of Lao PDR that the decision about increasing the FDI in the Lao telecom market has been taken as telecom sector is perceived as the capital intensive and thus the aim is to draw more and more capital investment in this sector. Moreover the aim was also to make the whole system in the telecom market lucid and methodical. FDI in services responds well to openness especially when it comes to the telecoms sector. This is quite evident looking at the recent boom in the Lao Telecoms sector. Further liberalization of services involves potential advantages for Lao economy. Benefits can arise from increased competition, lower prices, and better quality of services. FDI in services like telecommunications provide key inputs to other productive activities that lead to further investment and competitiveness of an economy. Efforts should be made towards attracting efficiency seeking FDI through a right policy that expands operation, improve local skills, establish linkages and upgrade technology. However, precautions should be taken to avoid the risk of foreign investors out- competing domestic investors especially in case of infrastructure services like telecommunications. Services where domestic investors are not able to cater to the growing demand, or where domestic service-providers do not have the ability or capacity to provide the required quality of services. To circumvent such spirals it is important for the region to have appropriate domestic regulations or enabling environment in place, which will assure better quality of services at affordable prices. Clear domestic regulations increase transparency in the system and encourage FDI. To sustain the momentum of growth in services trade in the region, conscious efforts should be made to improve the competitive advantage of the region as a whole. Inclusion of trade in services may help attract FDI in services and lead to greater intra-regional trade. Access to more efficient services could lead to higher growth in productivity in other sectors, which, in turn, could improve the overall competitive strength of the region. 8 Thus it can be concluded that the recent upward swing in the telecommunication sector in Lao PDR is due to the introduction of FDI in this sector by the Lao Government since 1991 but at the same time we must also be careful and not get carried away by this development and should have proper regulations in place to actually utilize this situation to our advantage. Laos and Vietnam will struggle strive target for a 20 percent trade growth in two-way trade next year, up from the US$1Billion expected for the year ending on December, 2012. Two-way trade between Laos and Vietnam over the first 10 months of 2013 reached US$817Million. In addition, Vietnamese enterprises have invested in 412 projects in Laos totaling US$5Billion, which rank the country second after China. [31]. To circumvent such spirals it is important for the region to have appropriate domestic regulations or enabling environment in place, which will assure better quality of services at affordable prices. Clear domestic regulations increase transparency in the system and encourage FDI. To sustain the momentum of growth in services trade in the region, conscious efforts should be made to improve the competitive advantage of the region as a whole. Inclusion of trade in services may help attract FDI in services and lead to greater intra-regional trade. Access to more efficient services could lead to higher growth in productivity in other sectors, which, in turn, could improve the overall competitive strength of the region. Thus it can be concluded that the recent upward swing in the telecommunication sector in Lao PDR is due to the introduction of FDI in this sector by the Lao Government since 1991 but at the same time we must also be careful and not get carried away by this development and should have proper regulations in place to actually utilize this situation to our advantage. 3. Research of objectives and tasks. The objectives of this study and research aims to identify the important role of FDI related to improve and success of the telecom business performance in the Lao PDR in order to recommend some solution to attract FDI into Lao PDR and suggestions for new potential foreign direct investors. The Lao PDR is still young country and telecommunication market is small too, but really wants to be successful in doing business in the world new market management for improving to best for Lao’s economic. 9 To meet above objects, this dissertation needs to be fulfilling the following tasks: - To analyses the development of the telecommunications of Lao PDR from 2003 to 2013. - To analyses and evaluate the role of FDI to develop the telecommunications sector in Lao PDR in the period 2003-2013. - To investigate the main drivers of improve FDI to the telecommunications sector in Lao PDR in the period 2003-2013. - To give the solutions to attract FDI to develop the telecommunications sector in Lao PDR in the period is better of 2015 to 2020. 4. Research Questions. - How does Lao’s telecommunications sector contribute to the development of Lao’s economy? - How the FDI have played in the development of the telecommunications sector in Lao PDR in the period 2003-2013? - What is the current situation of FDI in the telecommunications sector from 2003- 2013? - What are factors to improve the FDI inflow into Lao’s telecommunications sector? - What and how to improve FDI in to Lao’s telecommunications sector in the period 2015-2020? 5. Research Methodology. Overall, the section of this paper is concerned with the social construction and disbursement of rationality and the way in which this rationality affects the power and political structure of organizational functioning through a variety of organizational and sociological theories. The organizational and sociological theories utilized are referred to as interpretive perspectives, which also draw from the organizational decision-making perspective. Exclusively, a number of organizational and social theories including institutional theory, resource dependency theory, political perspectives, and the sociology of professions are looked at to examine the relevance of interpretive perspectives. In summary, "interpretive perspectives of managerial accounting have begun to see managerial accounting practices and information as socially constructed phenomena with the full implications of the power and politics of social construction rather than as a technically rational function driven by and serving the internal operations of 10 organizations." Managerial accounting is seen as being implicated in the social construction of reality rather than as being passively reflective of the reality as depicted in contingency theory. Main research methods will be used in this study are desk study and field study, comparative study with figures. The field study includes interview, questionnaires and observations. 6. Expected Results The economic reforms that the Lao PDR has undertaken from 2011 to 2015 have produced significant progress. Over this period, gross domestic product (GDP) in real terms grew by about 8.3% per annum on the average. Foreign Direct Investment (FDI) has contributed greatly to changing the economic landscape of the country. The telecommunications is also very fast growth and first economic in Lao PDR. And also all telecom operators will be convergence to the centralization in the one gateway and also will be develop well for the future. Foreign Direct Investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firm’s home country, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property, in the past decade, FDI has come to play a major role in the internationalization of business. 7. Structure of Dissertation. 1. Introduction 2. Chapter 1: FDI Theories framework and the important of FDI attraction into telecommunication sector in Lao P.D.R [...]... Licensing The so-called OLI-factors are three categories of advantages, namely the ownership advantages, locational advantages and internalization advantages A precondition for international activities of a company are the availability of net ownership advantages These advantages can both be material and immaterial The term net ownership advantages is used to express the advantages that a company has in. .. establish all elements required to satisfy of these regulations, as appropriate 35 If the Department finds that an application establishes a basis for granting the application, it shall notify the applicant and the registrant that the application has established a basis for further review and has been accepted for further consideration in accordance with these regulations An application that, after... 3 Chapter 2: Situation of FDI attraction into telecommunication sector in Lao P.D.R 4 Chapter 3: Solutions and recommendations in FDI attraction into telecommunication sector in Lao P.D.R 5 Conclusion 12 CHAPTER 1 FDI THEORIES FRAMEWORK AND THE IMPORTANT OF FDI ATTRACTION INTO TELECOMMUNICATION SECTOR IN LAO P.D.R 1.1 The theory of FDI There are two main categories of international investment- Foreign. .. defined as a company from one country making a physical investment into building a factory in another country The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition... techniques as well 1.3.4 Flowcharts of FDI attraction An application that satisfies relevant formal requirements as described in the subject to a substantive examination by the Department to determine whether the application establishes a basis on which to grant the application For purposes of these regulations, a basis is established where the application and evidence contained in the application, if... refers to an investment in or the acquisition of foreign assets with the intent to control and manage them (1) Porter’s National Competitive Advantage Theory In the continuing evolution of international trade theories, Michael Porter of Harvard Business School developed a new model to explain national competitive advantage in 1990 Porter’s theory stated that a nation’s competitiveness in an industry... like having knowledge about the target market abroad, for example staff with language skills, information about import permissions, appropriate products, contacts and so on, it can do a licensing The licensing is less cost-intensive than the other forms of internalization If there are internalization advantages, the company can invest more capital abroad This can be achieved by export in form of an export... spur innovation and competitiveness Figure 1.1: Porter’s National Competitive Advantage Theory Source: Theory of International Trade and Investment International Business, the challenge of global competition, twelfth edition Dolnald A. Ball, J.Michael S.Minor, Jeanne M.McNett 14 In addition to the four determinants of the diamond, Porter also noted that government and chance play a part in the national... role in the internationalization of business Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and methods of FDI New information technology systems, decline in global communication costs have made management of foreign investments far easier... address is known to the applicant The applicant shall thereafter file with the Department a statement that the application was served on the registrant, as applicable, together with evidence supporting such statement If service has been attempted but is not successful, that applicant shall file a declaration that it has attempted to serve a copy of the application and its accompanying material on the . Universities as the National Economics University of Vietnam, Hanoi, Vietnam SR and the National University of Lao, Vientiane capital, Lao PDR. 2 ABBREVIATIONS ADB Asia Development Bank AFTA ASEAN. flowing into Lao PDR and have a magnanimous effect on the telecom sector by way of economic reforms and would also affect the economy as a whole, and would likely have a chain reaction on various. Situation of FDI attraction into telecommunication sector in Lao P.D.R 4. Chapter 3: Solutions and recommendations in FDI attraction into telecommunication sector in Lao P.D.R 5. Conclusion