CHAPTER IV PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.4. Applying two theoretical models to test the impact of FDI on shifting
4.4.3. Assessments on the impacts of FDI on shifting exports structure of the Northern Coastal Region
Some noticeable assessments can be withdrawn from the results of the models as follows:
1. Making comparison between the effects of FDI input (FDImade) and FDI output (GOindustry and EV of FDI sector) as a basis for suggestions.
- Effects of the FDI input on shifting exports structure shown in model 1, 2 firmly revealed positive impacts of realized FDI on improving exports structure of the region both in terms of quantity and quality. This result indicated a positive role of FDI in terms of quantity, but more importantly in terms of quality to shifting exports structure. This result is consistent with the theory because FDI inflow is represented as tangible assets and intangible assets, technology, production experience, management experience, market exploring experience, etc. when investing into the host country. It can be said that these factors play a decisive role in creating the output products of FDI sector such as GDP, GOindustry and EV; and in paving the way for the export target and export structure shift towards improving exports quality.
Therefore requirements are to prepare carefully, sufficiently and actively right when intending to call this capital for specific targets relating to improving the exports structure. This orientation of FDI in the early stage will affect significantly exports structure shift. Some questions needed to answer are: which sector should be invested by FDI sector? Which is the minimum amount of realized capital required? How can technology be transferred? How much is the added value of each product group in exports structure improved?
The fact is that for electronics and computer components not only in the northern coastal region of Vietnam, but also in other developing countries, are specialized in certain simple stages and assembled to final products while sophisticated components and machines are imported from abroad.
- Impacts of the FDI output on shifting exports structure are shown in both the qualitative and quantitative analysis results in model 2. In general, this factor affected exports structure shift in both sides (quantity and quality). But each element of FDI output affected differently. Generally, the effects of FDI output on the quantity were bigger rather than on the quality of exports structure. This shows that FDI sector has not created a strong impact on increasing per capita income by technology as analyzed in the theory. Technology of this area has been mainly at average and low quality, therefore it is impossible to take advantage and consistent with previous findings, and surveys on technology of FDI sector in Vietnam.
2. The FDI and the improvement of quality of three exports groups: computers and components, power cables and electronics.
- Exports groups including electronics, computers and components, power strings and cables of the region had increasing growth quality, but only at an average stability level (as analyzed in Table 4.11.). On the other hand, among three these groups, VA of power strings and cables was bigger than their IC. The electronics group had low VA and VA of the computer and components group creating was very low (3% GO).. The role of FDI in increasing the VA was still too low. It is, therefore, vital to promote FDI aiming at strongly increasing VA of exports in the years to come. In order to do this, it is necessary to attract FDI in these goods groups provided the foreign investors apply modern technology to replace intermediate input import for the products. In other words,
- FDI increased the quality of exports but there was still limitation when exports considered to be of high quality still had low PRODY index. In addition, GO created by FDI sector increased the quality of the region's exports at limited level, even contradictory. In fact, FDI did not have great impact on the quality of exports. This raises an issue about how to use FDI to serve the region's export. The fact of FDI sector in Vietnam in recent years has been that FDI enterprises have produced products serving mainly for domestic consumption rather than export. For example, 90% products of Sony Vietnam Company are produced for consumption in Vietnam market and only 10% are for export. Jomo (2009) confirmed that "If FDI inflow does not help to increase export turnover, that inflow does not contribute much to the development of the country". He also said that FDI enterprises in Vietnam mainly took advantage of cheap labor in Vietnam to reduce the cost of production, but did not increase the competitiveness of Vietnam products. In other words, FDI enterprises did not make connections with local businesses so that local businesses are capable of competing on the world market. It must be added that according to research by Xu Bin, Lu Jiangjong (2009), the GO of 100%
foreign investment enterprises in China had an important influence on improving the quality of exports.
3. FDI and supporting industry for export production
- Result from testing GO in FDI enterprises in the northern coastal region reveals that FDI did not have much impacts on improving the quality of exports, even had adverse effects; one of the main reasons was the weakness of supporting industries in Vietnam. It can be said that supporting industries provide parts, intermediate products for the production of final products. These include many kinds of businesses providing accessories such as metal, plastic, rubber, electricity for businesses assembling machinery and equipment in industries such as electronics, automobiles, motorcycles,
appliances, etc. The value of intermediate products affected the quality of final products, and had significant impacts on attracting FDI and transferring technology. It, however, should be noticed that it is not easy to produce supporting products without technical assistance by foreign countries. Therefore, not only in Vietnam but also in other developing countries, the development of supporting industries and taking advantage of this sector is still a target. In addition, the value of intermediate goods was high and FDI enterprises in the Northern Coastal Region imported much components and accessories and made VA be negative. Moreover, the high cost of the intermediate goods pushed the price of final products of FDI enterprises up leading to a decrease in competitiveness when exporting. As the result, final products did not have competitiveness and FDI enterprises sough the way to consume at the domestic market as past practice in Vietnam in stead of exporting.
- Weak and insufficient supporting industries reduced the connection between FDI enterprises and domestic ones. The domestic businesses cannot neither improve their competitiveness, and establish corporations with strong competitiveness in exports nor develop in line with FDI sector. Weak supporting businesses are not just the situation of the region but also of Vietnam, which reduced the ability to attract FDI and FDI sector had to import almost all of accessories for exports production. Thus, the price of final products was pushed up, and the high cost of imported intermediate goods made VA of these products reduced.. It is proved by the fact that PRODY index of high-tech products of the region still increased slowly and unstably.
4. FDI replacement and FDI addition with shifting exports structure
Theoretically, the replacement of FDI, not the addition of FDI will lead to take advantage of the investment-receiving countries to reduce production costs, and to avoid
particular is mostly FDI replacement leading to the situation that FDI enterprises mainly produced goods for domestic consumption instead of promoting export. This situation needs to be thoroughly reviewed and to actively choose FDI flows based on the development needs of each sector and the export target for shifting exports structure.
Currently, additional FDI flow is necessary for the North Coastal region and for Vietnam..
5. Technology of FDI sector with the added value of some commodities having significant comparative advantages including electronics and computer and components.
The test results showed that FDI has helped to increase the VA of products, however this contribution has been too limited. There are several reasons that can be considered as follows:
- 90% of the products of this industry were audio and visual equipments while this rate in other countries was only 11%, electronics and computer components accounted for a small percentage because only 21.5% of investment was used for component productionleading to produce low value of electronic products for audiovisual equipments only.
- Technology applied to electronics industry of Vietnam after 30 years was regarded as remained unchanged and out of date whereas other countries have used modern technology for mass production. This has made electronics products of Vietnam have low value or their quality has not been improved, the high-value products have not produced in Vietnam and even big screen TV, plasma, etc have had to be imported.
Meanwhile, the electronics industry has mainly attracted foreign investors (accounting for 90% of businesses in the industry); however, there has had no positive changes in terms of product quality.
- The situation is that FDI enterprises in electronics industry only eyed domestic consumption while export was limited. In fact, the existence of these businesses is related to the protection policy of Vietnam. This poses a question for the development of the electronics industry in Vietnam in general, and the Northern Coastal region in particular and the role of FDI has not really been promoted.
In short, it is revealed from the analysis of impacts of policy of attracting and using FDI on shifting exports structure in the northern coastal region and the results of quantitative analysis that FDI has had positive influences on restructuring exports towards improving both quantity and quality. In particular, though impacts on the quality are significant, they are still small compared to the goal of building a progressive structure of goods.
Therefore, it must have specific solutions to best use these funds for restructuring exports in the Northern Coastal Region in the years to come. In addition, attention should be paid to exchange for contribution to exports and shifting export structure. Since FDI is mainly based on the exploitation of cheap production factors or huge import.
CHAPTER 5