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Ibsm Fdi
1. International
Business
Study Mission
2009 (IBSM)
Edwin Yeo (GM)
Shannon Zhang (CrM)
Koh Bee Ling (CoM-1)
Jean Lee (CoM-2)
Tan Jun Rong (LM)
Richie Hideaki Mui (WM)
2. Contents
• What is FDI?
• How FDI started in Vietnam?
• Top ten FDI investors
• What does Vietnam offers which attracts FDI?
• Which countries have the highest investment in
Vietnam?
• Which provinces attract high FDI?
• How can firms enter Vietnam to invest?
3. What is FDI?
•Foreign Direct Investment
•Source of funding for development
•Means of acquiring foreign technology
•Meet demands for Goods and Services
•Weak & Underdeveloped domestic supplies
•Shift towards Comparative advantage
•Lower production costs
•Multinationals Enterprise
4. History
Introduction
• Command economy to Market-driven economy
• Key economic policies were implemented
(Doi Moi)
Aim
• Reduce poverty
• Generate economic growth
5. History – Economic policies
• The decentralization of state economic
management, which allowed state industries
some local autonomy
• The replacement of administrative measures by
economic ones, including a market orientated
monetary policy
• Adoption of an outward orientated policy in
external economic relations; exchange rates and
interest rates were allowed to respond to the
market
6. History – Economic policies
•Agricultural policies that allowed for long term land
use rights and greater freedom to buy inputs and
market products
•Reliance on the private sector as an engine of
economic growth
•Letting state and privately owned industries deal
directly with the foreign market for both import and
export purposes
7. History – Effect of policy
• GDP , GDP Per Capita
• Additional capital flows into the Vietnamese
economy, FDI can also bring more industries,
jobs and products, modern technology as well as
managerial expertise
• Promote better utilization of domestic resources
• Accelerate economic structural transformation in
the direction of industrialization and
modernization
8. History – Law on Foreign
investment
• ‘Law on Foreign investment’ in December 1987
The law states that:
“Vietnam welcomes and encourages foreign
organizations and nationals to invest capital and
technology in Vietnam “on the basis of respect for
national independence and sovereignty, full
observance of the Laws of Vietnam, equality and
mutual benefit. The State shall guarantee the
ownership of the invested capital and other rights of
the foreign investors, and extend to the latter
favorable conditions and easy formalities”.
10. Top ten FDI investors
FDI in Vietnam in 2008 (Mil USD)
16000
14000 14969.2
12000
10000
8000 8851.7
7578.7
6000
4000 4495.8 4417.8 4237.7 4052.6 4046.2
2000 2712.2
2200.1
0
Malaysia Taiwan Japan Singapore Brunei Canada British Thailand Cayman Cyprus
Virgin Islands
Islands
Specialize in financial services
In developing countries
11. What does Vietnam offers that
attract foreign investors?
1. Strategic location
– Located in a rapidly growing economy
– Domino effect for Vietnam
2. Stable economic & political environment
3. Large natural mineral resources
4. Abundant, relatively well educated labour force
– Twelve years universal compulsory education
12. What does Vietnam offers that
attract foreign investors?
5. Large & growing domestic market
– GDP increased 3.5 times from 1986 to 2008
– A population of 84 million people which
commands a vast potential for consumption
– GDP has a positive relationship with FDI flows
Therefore, the larger the GDP of Vietnam, the
greater the FDI inflow would attract.
13. What does Vietnam offers that
attract foreign investors?
6. Liberal investment & Government’s commitment
to economic reform
– Multinational firms engaged in export oriented
investment may prefer to locate in a more
open economy
– Effect of the degree of openness on FDI is
mixed
14. What does Vietnam offers that
attract foreign investors?
7. Infrastructure development
– Roads
– Ports
– Railways
– Telecommunication system
– Institutional development (i.e. accounting
legal services)
8. Exchange rate
– Favorable price competitiveness
9. Potential to be an export for EU & US market
15. Which provinces are the most
attractive?
Top Three
1. Da Nong
2. Binh
Duong
3. Vinh Phuc
17. Entry modes to Vietnam for
investment
1. Exporting
(Direct)
• Negotiation to be done with client
• Products are produced in home country and sold to foreign
customers
(Indirect)
• Uses an intermediary/agent to contract(sell) your
services(products)
18. Entry modes to Vietnam for
investment
1. Exporting
Advantages Disadvantages
Gain global market shares Additional costs
Speed of entry High transport costs
Company is being viewed as an
Diversification
‘outsider’
19. Entry modes to Vietnam for
investment
2. Licensing
• The Licensor will grant a foreign organization the license to
produce the specific product, use the brand name etc in
return that they will receive a royalty payment.
Advantages Disadvantages
Low financial risk Licensees become competitors
Speed of entry Limited license period
20. Entry modes to Vietnam for
investment
3. Franchising
• A form of licensing
• The franchisor grants the right to distribute its products,
techniques, and trademarks for a percentage of gross
monthly sales and a royalty fee.
• The franchisor governs the method of conducting business
between both parties.
• 3 types of franchising:
- Product/Trade Name Franchising
- Business Format Franchising
- Distributorship
21. Entry modes to Vietnam for
investment
4. Joint Venture
In order to share the risk of market entry into a
foreign market, two organizations may come
together to form a company.
• Extensive form of cooperation
• Share in-depth knowledge
• No full control of management
22. Entry modes to Vietnam for
investment
5. Turnkey projects
• Contractor agrees to handle every detail of the
project for a foreign client
• Built, Operate, Transfer
23. Case studies
• Licensing
– Man B&W and Vinashin
– http://marinelink.com/Story/MAN+B&W+Adds+Vietn
am+Licensee-15558.html
• Joint Venture
– Furniweb Industrial Products Berhad Group and
Trunet (Vietnam) Co. Ltd.
– http://www.massa.net.my/news/y7_q2_a11.htm
• Turnkey project
– Binh An Water Treatment Plan
24. Ways to open up their
economy
Current situation
• WTO in 2007
• AFTA
• AANZFTA
Future prospects
• More FTA
• Bilateral agreements
• Better infrastructure
25.
26. What is FDI?
A. Foreign Direct Investment B. Foreign Direct Intervention
C. Foreigner Do Investment D. Fraud Detection Institute
Transfer of ideas and information are often more important that technology.
History of FDI in vietnam/
Red – bring financial know how and specialize in banking services.
Countries that have high and sustained growth rates receive more FDI flows than volatile economies
Multinational firms engaged in export oriented investment may prefer to locate in a more open economy since increased imperfections that accompany trade protection generally imply higher transaction costs associated with exportingEffect of the degree of openness on FDI is mixed as the openness is not only attracting the foreign capital to the host area, but also taking the competition between the foreign and domestic firms on it
Depreciation of Vietnam Dong (VND) favoring price competitiveness of Vietnam’s exports and attracting foreign investors using Vietnam as the export base.
Those who decide to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee.
