Foreign Direct Investment in Vietnam.

Abstract

Following gradual liberalisation over 15 years, FDI had surged in Vietnam, and foreign investment firms made a major contribution to the domestic economy in terms of for instance output and exports. A survey of 171 firms provides new insights in the nature of this foreign investment and its potential contribution. Foreign investors in Vietnam, especially more recent entrants, were often small focused firms with little international business experience. In contrast, most large multinational firms had little interest in FDI in Vietnam. The data illustrates several features that vary substantially across countries of origin. For instance FDI from NICs appears to show different characteristics such as labour intensity, export-orientation, and regional clustering. Rising costs in some of the neighbouring countries appear to be an opportunity for Vietnam to attract FDI. Thus, country-of-origin influences on FDI were an area requiring further investigation, while sector variation seems to have little explanatory power. Entry modes available to foreign investors in Vietnam are more constrained than in other emerging economies, such that there are no partial acquisitions and very few full acquisitions in the sample. In part, foreign investors have used joint ventures to effectively acquire control of an existing operation, classified as JV type II. Over the decade of the 1990s, there has been a clear trend from JV to greenfield entry, and to a very limited extend acquisitions. The entry modes also vary across countries of origin, and across locations within Vietnam. Hence, an analysis of entry mode in Vietnam has to pay careful attention to the institutional context prevailing at the time of entry. Foreign investors in Vietnam report managerial capabilities and machinery as their most important resources, ahead of both technology and networking assets. This applies in particular to large and wholly owned affiliates. Managerial capabilities appear important across all industry sectors, while machinery and equipment is naturally more important in the manufacturing and infrastructure sectors. This pattern suggests a traditional pattern of competition.

Citation

In: Investment Strategies in Emerging Markets by K. E. Meyer and S. Estrin, Edward Elgar Publishing Ltd, pp. 249-275

Foreign Direct Investment in Vietnam.

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