PREFACE In order to attract efficiently US FDI, Vietnam requires more improvement of investment environment which is more and more increasingly attractive and competitive compared with other countries in the region The title of: “ENVIRONMENT FACTORS FOR FOREIGN DIRECT INVESTMENT FOR AMERICAN BUSINESS CORPORATION IN THREE MAIN COMMERCIAL CENTERS OF VIETNAM” is a research on 63 US investor enterprises, 30 state management agencies and 99 FDI experts was carried out in three main commercial centers of Vietnam (Hanoi, Da Nang, Ho Chi Minh city) to find advantage and/or disadvantage of sub-factors of investment environment in Vietnam, then providing some prospective solutions for investment environment improvement in coming years Chapter INTRODUCTION Background of the Study The FDI is significant capital and technical source of economic growth This is also characteristic clearly of globalization Beside that FDI is not only providing of investment capital and technology, it is also providing of managerial and technological skills, job creation, infrastructure upgrading for host country In Vietnam, FDI is an important source to help restructure and increase the competitiveness of the economy since the middle of 1980s when Vietnam began to apply new ecomomic mechanism called as “Doi Moi” and known as “open-door policy” FDI has become an important factor of economy of Vietnam in the context of deep integration with the world economy and globalization trends Statement of the Problem This study shall answer for following questions: How does political environment of Vietnam affects to the US FDI attraction? How does governmental administrative environment of Vietnam affects to the US FDI attraction ? How does infrastructure- location factor of Vietnam affects to the US FDI attraction ? How does economic and financial mechanism of Vietnam affects to the US FDI attraction? How does labor factor of Vietnam affect to the US FDI attraction ? Objectives The aim of the Dissertation was to assess the situation of FDI attraction from the United States into Vietnam, then to indicate existing shortcoming, in particularly investment environment limitation that interfere U.S FDI flows into Vietnam and finally to provide solutions to further improvement of investment environment for U.S FDI attraction and disbursement process in Vietnam Hypothesis H1 Stable political environment is factor to attract more FDI H2 Convenient, simple and prompt administrative procedure in registering shall attract more foreign investors H3 Advantage of infrastructure- location is factor to determine FDI H4 Openness of economic and financial mechanism is incentive for FDI H5 High qualification and skill labor force is factor to attract FDI in host country In order to research above factor relationship the author also assumed that total registered FDI is equal to total effectuate FDI and there is no conversion between investment form and no transfer of FDI projects between investment countries or regions Scope and limitation of study The Dissertation focuses on studying investment environment for attracting FDI from USA to Vietnam in 03 major cities (Hanoi, Danang, Hochiminh city) The investment environment includes investment environment in the host countries, investment environment in domestic country and international investment environment The Dissertation focuses on the factors of investment environments to which the Government has heavily influenced, including: environmental policy, law, administrative procedures; economic environment; infrastructure and human resources Significance of study The basic arguments of FDI theory, investment environment, and influent factors will be clarified The contents are: definition or concepts, characteristics, classification, elements of the investment environment In addition, the Dissertation points out some international experience of some countries about the improvement of investment environment in order to enhance FDI attraction in Vietnam Chương REVIEW OF LITERATURE AND RELATED STUDIES FOREIN DIRECT INVESTMENT (FDI) THEORY 1.1 Concept and features 1.1.1 Concept FDI is the type of movement of capital between countries, in which the capital owners is both direct management and operation of capital use The FDI is considered under following assessments: First, in consideration of the ownership aspect; Second, in consideration of property flow aspect; Third, in consideration of activity scope: 1.1.2 Features Foreign direct investment is the type of international investment, in which a foreign investor distributes capital to build or buy (in whole or in part) the business establishments in foreign countries and become the owner property that manages, operates or participates in the operating management of the establishments 1.2 FDI classification 1.2.1 Joint – venture company This is a form of international business organization in which participants have different nationalities between home country’s investors and the rest of the foreign partner This form is characterized by new enterprises established under the laws of the host country, having a legal entity under the laws of the host country, the partners have different nationalities contribute capital, and manage business activity, distribute profit, and share risks together 1.2.2 Enterprise with 100% foreign capital This form is the preferred foreign investment and is expanded in international economic relations as their own decisions, and management to get benefit from investing activities 1.2.3 Business cooperation contract This is a form of joint venture between a local partner with foreign investors and characterized by a contract signed that presents an agreement to conduct one or more business activities in the investment countries, based on clearly defined objects, business content, obligations, responsibilities and division of business results for the partners without setting new entity 1.2.4 Other forms of FDI In practice, FDI is also implemented under these other forms: BOT ( Build – Operate – Transfer); Build - transfer - business contracts (BTO); Build - transfer contracts (BT); Build transfer contracts (BT); Public Private Partnership (PPP); 1.3 Roles of foreign direct investment 1.3.1 Impact of FDI on investors and investor’s country a) Positive impacts - Improve efficiently capital use - Restructure the national economy towards a modern and more efficient orientation - Avoid trading or non-trading protection - Increase business profits through "transfer pricing" - Is risk diversification for investors due to economic conditions, domestic political instability b) Negative impacts - If the Governments of the investment exporting countries does not have appropriate investment policies in the domestic countries; this will encourage the attention of foreign investment over domestic investment to higher profitability Meanwhile, the domestic economy could fall into recession, political and social instability - Foreign investors may be risk of economic policy, politics, society of the investment receiving country 1.3.2 Impact of FDI on investment receiving country a) positive impacts - FDI contribute to the increase in capital investment, technology and promote economic growth and development - Technology transfer, economic management experience: - Create jobs, raise living standards and quality of human resources: - Expand markets, promote exports of goods - Promote economic restructuring - Contribute to increasing national budget and improving trade balances b) Negative impacts - The phenomenon of "transfer pricing" is quite common in foreign direct investment - Causing some imbalance and instability in the investment - Causing negative result of labor and finance in the investment receiving country - May be introduced by the outdated technology - Increase the risk of bankruptcy of local economy and traditional industries, increase risk of competitive inequality - It is losing more jobs from the traditional manufacturing industries and being not properly respected to training for employees - Negatve impact on the environment and natural resource over-exploitation - Is the risk of money laundering OVERVIEW OF INVESTMENT ENVIROMENT 2.1 Concept The concept of the investment environment has been studied and reviewed by many different aspects depending on the purpose, scope and subjects of research 2.2 Characteristics of the investment environment 2.2.1 Synthetic feature The investment environment is the sum of factors The investment environment factors affect not only on an investors or on all investors in a certain locality, but also impact on other objects (customers, suppliers, employees ) and to the entire economy 2.2.2 Mobile (dynamic) feature The investment environment is always dynamic or mobile, changeable due to movement and change over time of components constituting the investment environment The elements of the investment environment as well as their mobilization affect investment activities in general and activities of foreign direct investment in particular the investment 2.2.3 Openness feature The openness of the investment environment has expressed the changes of elements of the investment environment; it is also affected by the higher level investment environment The movement of the elements of the provincial investment environment affected by the national investment environment, and the elements of national investment environment is influenced by the international investment environment, particularly in the context of international economic integration at present 2.2.4 Systematic feature Investment environment has systematic feature because the investment environment is a sum of factors interacting with each other and being affected by international investment environment However, the national investment environment is a special system for itself because it consists of many smaller systems 2.3 Classification of investment environment 2.3.1 Classification by national management function The elements of investment environment are divided into groups: Group of strong powerful governmental element and group of less powerful governmental element: input price due to the market impact; natural features of a nation, disaster 2.3.2 Classification by channels of factors affecting investment activity The factor of FDI investment environment is divided into 03 groups: Factors affecting costsb; Factors affecting risk; Factors affecting competition 2.3.3 Classification by constituent elements The overall investment environment includes particular investment environments following: Natural Environment; Political environment; Law environment; Economic environment; Social and cultural environment 2.3.4 Classification by scopes In a country, the investment environment can be devided into National investment Environment, Regional Investment Environment and Provincial Investment Environment 2.3.5 Classification by phases of formation and investment activities FDI environment includes the following elements: Factors approaching investment market; Factors related to operating process; Factors related to the end of investment activity 2.3.6 Classification by causes for capital flows - Push factor: The elements belong to the investment environment of the investment exporting countries - Drag factor: The elements belong to the investment environment of the investment receiving countries IMPACT OF INVESTEMENT ENVIRONMENT ON FDI ATTRATION 3.1 Factors from investment environment in the host country countries 3.1.1 Natural environment The natural environment includes natural factors such as geographical location, topography, climate, natural resources of a given area 3.1.2 Politic environment The stable political system ensures the Government's commitment to the investor about the capital property, the investment incentives and the development orientation This factor specifies level of assets risk and business activities of investors 3.1.3 Law and policy environment FDI activities relate to many organizations and individuals and are conducted for a long time So the legal system of a country must ensure the following elements:adequacy and synchronization of the legal system; the ability of law implementation: working in the countries abroad with large amount of property, investors must rely on the laws of host countries to ensure their interests; administrative procedures; the preferences and restrictions given to investors by the legal system; Transparency, fairness, openness and stability of the legal system 3.1.4 Economical environment The economic environment reflects the level of economic development of a country, and may affect the attraction and effective use of FDI investors 3.2 Factors from invironment in investor’s countries 3.2.1 Macroeconomic policy - Financial and monetary policies - Foreign exchange management policy - Import and export policy 3.2.2 International legal for oversea investment - The bilateral and multilateral investment agreements - The double taxation avoiding agreements - Help for investment promoting activities - Insurance policy for capital investment 3.2.3 Economic, scientific and technological potential - Economic potential: if the economy of a country has high accumulation capacity and high levels of foreign currency reserves, the country has greater demand for foreign investment to exploit effectively excess capital - The level of research, scientific and technological development 3.3 Factors from international investment environment 3.3.1 General trend of cooperation between regions and countries The trend of increasing cooperation between the countries and territories will limit military confrontation; promote the expansion of economic relations between the countries and territories These are important conditions for investment liberalization 3.3.2 General trend of regional lingkage and globalization The trend of globalization also promotes international financial markets, which impacts strongly on FDI movements This effect is expressed by: reducing the financial institutions for international capital flows, extending the application of technology to create favorable conditions for trading business of financial markets 3.3.3 Establishment and development of transnational companies FDI activities are mostly implemented by the TNCs so the establishment and development of TNCs will impact significantly on FDI flows movement TNCs include the parent and subsidiary company in countries around the world ATTRACTING FDI EXPERIENCE WORLD-WIDE 4.1 Attracting FDI experience of some countries The desertation explained FDI experience of China, Malaysia, Thailand and Singapore 4.2 Experience for Vietnam - It is needed to determine the right content to attract FDI in each stage of socio economic development of the country - It is required to ensure security for political, social and economic stability environment and to enhance the role of state management - Improve open legal system - Focus and concentrate investment in economic infrastructure in order to create a favorable investment environment for foreign investors - Simplify administrative procedures, investment process - Strengthen the financial services and supporting services to attract FDI - Improve the quality of human resources to meet social requirements 4.3 Role of FDI on socio-economic development in Vietnam - Enhancement of investment capital - Promotion of economic structure transfer, work creation for employee - Creation of industrial and export values and GDP growth contribution - Contribution of infrastructure and techniques forming for the industrialization and modernization process - Contribution of national budget increase REVIEW OF RELATED STUDIES The author reviewed above 20 studies on foreign direct investment and investment environment in Vietnam and in the world Most of the studies focused on studying the situation of FDI attraction in a country, region, at a local area of a nation; role of FDI to the invested countries, investment countries; and investment environment factors affecting FDI attraction CONCEPTUAL FRAMEWORK It is the relationship between environmental factors in attracting FDI of a host country including five factors in the folloing Figure Framework of the research: FDI environment of Vietnam as host country FDI in the three major cities of Vietnam: The US Investors The US FDI enterprises The FDI Governmental Administrator Factors Politic, Governmental administration, Location, Economic and financial mechanism, Labor International FDI policies of the United State Determination of the US invertors Remaining investment Extending projects Encouraging other investors CHAPTER METHODOLOGY RESEARCH DESIGN Step 1: Clarify the issues to be studied Step 2: Study theorical results of foreign direct investment attration Step 3: A qualitative study Step 4: The synthesis , analysis, comparison are used Step 5: Quantitative research uses multivariate regression models LOCATION OF THE STUDY - Departments of Planning and Investment (Hanoi, Ho Chi Minh city, Da Nang) - Foreign Investment Agency – Ministry of Planning and Investment - FDI enterprises in the 03 provinces The data is collect in period of time from 1988 to 2012 DESCRIPTION OF RESEARCH POINTS A five-point Likert scale was used for the scoring indicators of indicators The results obtained from the questionnaire were entered into SPSS spreadsheet Table Factors affecting the FDI FACTORS GROUP Political environment affects to attracting FDI from the US (POE) Governmental administration affects to attracting FDI from the US (GAE) Location factor affects to attracting FDI from the US (LOE) Economic -financial mechanism affects to attracting FDI from the US (EFE) Labor affects to attracting FDI from the US (LAE) Vietnam FDI environment affects to determination of the US invertors (FVE) A model is basing on five indicators in the Table and it is estimated as following model: FVE(y) = β0 + β1POE + β2 LOE+ β3 EFE+ β4 LAE + α SAMPLE SIZE AND SAMPLING TECHNIQUE To determine the number of enterprises in research should examine this Dissertation Slovin formula used is as follows: n = N Ne where n : number of samples to be surveyed N: total business of foreign direct investment in three areas e: Standard error of sampling Due to surveyed enterprises are placed on vast areas, so it is very difficult to access them On other hand, the surveyed time and cost are limited, so the Dissertation should be using the error standard in this survey is 10% Thus, the minimum sample size to conduct the investigations would be: n= N Ne 7032 7032 * (0,1) 98,59 99 (Enterprises) The numbers of samples were selected in the area, respectively: Hanoi: 99 * 29.3% = 29; Da Nang: 99 * 11.1% = 11; Ho Chi Minh City: 99 * 59.6% = 59 DATA COLLECTION PROCEDURE Survey research was studied or conducted through articles, scientific reports, essays Get officers experts who are experienced in FDI by submitting a preliminary questionnaire Send a formal questionnaire to the investors, FDI enterprises and FDI governmental agencies Collecting qualitative data for the factors from the questionnaire Collecting quantitative data from statistic agencies and legal system Discuss and evaluate the impact of these factors work to attract the US investors Find out the relationship and affection of these factors to the US FDI in Vietnam Conclusions and Recommendations Figure Data collection process STATISTICAL ANALYSIS Average value and comparative value method Frequency scale for 05 factors ANOVA statistic to find out discrepancies between 03 areas Using the correlation coefficient (r) to perform statistic Apply model of regression linear – correlation CHAPTER RESESULT AND FINDINGS RESEARCH BACKGROUND - AN OVERVIEW OF FDI ENVIRONMENT IN VIETNAM AND THE UNITED STATE 1.1 General investment environment of Vietnam 1.1.1 Politic environment Vietnam is ranked as one of the stable political countries in the world 1.1.2 Geographic and Infrastructure environment Vietnam has a favorable geographical location for economic and social development in general, for attracting foreign investment in particular High rate of investment in Vietnam resulted in rapidly expanding volume of infrastructure and improving access and contributed to the successful growth and development of the country 1.1.3 Economical and Financial Environment Since the implementation of reforms, Vietnam has been a great achievement in economics Vietnam maintains continuous economic growth; the average growth is ranked in the high growth economies in the region and around the world However, macroeconomic instability in recent years has negative impact on attracting foreign direct investment 1.1.4 Institutional and Administrative Management environment Right from the start of implementation of open innovation policy, the Party and State of Vietnam was interested in the reform of administrative procedures and have been specified in the Resolution of the Communist Party of Vietnam 1.1.5 Labor environment Human resource of Vietnam is important factor having a positive impact on FDI attraction because of the abundant labor force, low costs, and increasing labor skills over the years 1.2 Trend of FDI attraction in Vietnam 1.2.1 Economic growth forecast for Vietnam When world economy would continue to recover in the future, Vietnam economy shall continue to grow and its structure shifts positively 1.2.2 Comments about FDI from the U.S in Vietnam during 2013 – 2020 The total investment FDI from the United States in Vietnam will rise again in 2013, and will grow rapidly after 2015 It is derived from the many causes which are explained clearly in the dissertation 1.3 Policies of the U.S on abroad investment 1.3.1 Summary of the United States In general, direct investment abroad by U.S was controlled mainly by the international bilateral and multilateral legal set by the United States (early years of the 19th century) In the framework of bilateral cooperation, the U.S government signed treaties under types, including treaties of friendship, commerce and navigation (FCNs); bilateral agreements on investment (BIts); Agreement of activities of Overseas Private investment Corporation (oPIC) 1.3.2 Practice of FDI from the US in Vietnam After the establishment of formal diplomatic relations, the United States has always been one of the ten largest countries investing in Vietnam, especially in 2009: United States has become the largest investor in Vietnam with a total registered capital of $ 9,805,824,270, accounting for 44.7% of FDI inflows into Vietnam RESULTS OF SURVEY ON FDI ENVIRONMENT IN VIETNAM 2.1 Foreign Enterprise’s Assessement 2.1.1 Process of receiving a project under OSS (One-Stop-Shopping) mechanism There are 55.2% of the interviewees said that the OSS mechanism to receive a project in Vietnam is not favorable, so it is needed further reform of administrative procedures to attract foreign investment 2.1.2 Infrastructure There are 42.5% of the interviewees said that infrastructure of Vietnam is in the normal range and 28.7% complained about infrastructure 2.1.3 Investment supporting policy Most enterprises tend to appreciate the policy supporting for electricity supply 24/24 (70.1% of opinions), supporting for electricity and water to the construction (71.2%), and ensuring of skilled labor supply (71.2%) 2.1.4 Rapid work clearance Most of enterprises consider that the work clearance in Vietnam is very weak (79.3% of opinions) Thus, in order to attract foreign investors, the local and state administrators must have solutions to improve the work clearance activity 2.1.5 Ensurement of supplying raw materials, supporting industries Only 27.6% enterprises indicated that the ensurement of supplying raw materials, development of supporting industries to provide components, details of equipment, machinery … is favorable, and 72.4% think this work is not favorable Therefore, policy should focus on attracting investment in a synchronous manner 2.1.6 Review of foreign investors about the attractiveness for FDI To attract FDI, interviewed foreign investors took interest in water supply quality (50.9%), water, electricity supply quality (20.6%), water and waste treatment (25%), Inside industrial zone infrastructure (32%), outside industrial zone infrastructure(17%), trained labor recuitment potential (22%), lower labor costs (41%), tax and other incentives (17%), ability of ancillary industries (13%) They also indicate that attitude of local civil servant is generally very low (16%) These infos represents the investment environment in Vietnam is less attractive to investors 2.2 The State administrator’s assessement 2.2.1 Politic evironment Vietnam agencies were quite highly appriciated the politic environment However, 36.66% said that the policy of Vietnam is not transparent (where as 33.33% of respomdent is disagreed and 3.33% of respondent is strongly disagreed) Therefore, it is a barrier to the process of attracting foreign investment in Vietnam 2.2.2 Institutional and management environment Vietnam agencies were not appriciated the management and institutions environment as it is not professional Proportion of disgreed opinion was high rate 2.2.3 Geographic and infrastructure environment Geographical location and infrastructure of Vietnam were not appreciated, especially for transportation (40%) and water (40.3%) 2.3 Foreign investor’s assessement The dissertation use almost secondary data to research the FDI enterprise’s assessment and the State administrator’s assessement But primary data is used to research the FDI investor’s assessment 2.3.1 Evaluating the reliability of statistic data In order to evaluate the reliability of scale, the Dissertation uses coefficient of Cronbach’alpha The Cronbach’s Alpha is used to test the reliability of variables before using statistic software Coefficient correction of all variables is at standard of above 0.3 and the Cronback’s Alpha value is higher than 0.6 For example, The Cronbach’alpha of "Political system" variable is 0.758 and the Total correlation is higher 0.3 2.3.2 Descriptive statistics The results show that the mean value of almost variables are higher than This explains that the US investors are thinking that environment factors are in good terms However, the labor variable has the lowest mean of 2.9899 It shows that Vietnamese labor factor does not meet demand of the US investor 2.3.3 ANOVA analysis This Dissertation uses ANOVA to find out difference in evaluating of investor on each investment regions, which is combined the Post Hoc Tests to analyze the discrepancy between each group When the US investors evaluate there is difference between regions, it shall result to alpha coefficient below 0.05 complying with Sig value [...]... universities; invest in upgrading and developing the training to regional and the world level to meet the labor demand Forth, performing socialization training Funds for training should be diversified, including the cost of education, business and government budgets Besides, conduct theory training in the school combined with practical training in enterprises Fifth, ensuring the interests of workers... Hochiminh City Out of the author’s expectation model, Vietnam labor affecting to FDI environment is positively associated with FDI inflow, revealing a mixed relationship between labor factors and FDI inflow in the context of Vietnam In considering the US investors' determination, the labor element is strong effecting to their maintaining their investment in Vietnam However, in the regression linear... needed further reform of administrative procedures to attract foreign investment 2.1.2 Infrastructure There are 42.5% of the interviewees said that infrastructure of Vietnam is in the normal range and 28.7% complained about infrastructure 2.1.3 Investment supporting policy Most enterprises tend to appreciate the policy supporting for electricity supply 24/24 (70.1% of opinions), supporting for electricity... of total economic and finance conditions Almost of the US investor prefer to establish new subsidiary companies in Vietnam if it is more open investment environment Because the imperfections of open economic and finance, e.g trade protection, will lead to rising transaction costs, which shall not attract more the US investors on maintaining business, expanding business or introducing new investor into... ensurement of supplying raw materials, development of supporting industries to provide components, details of equipment, machinery … is favorable, and 72.4% think this work is not favorable Therefore, policy should focus on attracting investment in a synchronous manner 2.1.6 Review of foreign investors about the attractiveness for FDI To attract FDI, interviewed foreign investors took interest in water... investors due to lower cost of training In choosing many options, foreign investor shall be forced to increase their budget for labor cost Vietnam has emerging economy market for FDI in the last years, attracting both international investors and continues to attract significant from the US Because Vietnam is undergoing a rapid transition to a market driven economy in a region of great competitiveness... become the largest investor in Vietnam with a total registered capital of $ 9,805,824,270, accounting for 44.7% of FDI inflows into Vietnam 2 RESULTS OF SURVEY ON FDI ENVIRONMENT IN VIETNAM 2.1 Foreign Enterprise’s Assessement 2.1.1 Process of receiving a project under OSS (One-Stop-Shopping) mechanism There are 55.2% of the interviewees said that the OSS mechanism to receive a project in Vietnam is not... FDI inflows tend to shift in favor for East Asia, including Vietnam, if timely capturing and having consistent mechanisms Some investors began to shift direction from China to other countries in the region to reduce risks and costs due in part to China's rising wages ASEAN and China becoming a free market also contributed to reinforce the policy to transfer a portion of the production facilities of. ..including treaties of friendship, commerce and navigation (FCNs); bilateral agreements on investment (BIts); Agreement of activities of Overseas Private investment Corporation (oPIC) 1.3.2 Practice of FDI from the US in Vietnam After the establishment of formal diplomatic relations, the United States has always been one of the ten largest countries investing in Vietnam, especially in 2009:... investor into Vietnam The Dissertation shows that after opening the "door" to foreign investors, the US investor have been increasing investing capital much more in Vietnam Fifth, labor factors play an important role in the locatiing decision of FDI, and being measured by the worker's skill, cost of labor (the salary and wage paid to the employees) Consequently, Vietnam, a country overall developing country