This slide is our team's preso for paper "Foreign Investment Strategies and Sub-national Institutions in Emerging Markets: Evidence from Viet Nam" of by Klaus E. Meyer and Hung Vo Nguyen (Journal of Management Studies 42:1 January 2005 0022-2380) ------- I got a chance to attend Micro-Economics course at Fulbright School of Public Policy and Management - Fulbright University Viet Nam. A very interesting and useful teaching method of this class is that teachers require students to carefully digest content of research papers published on top social science journals then present to classmates about: - Which micro-economic theories did authors use? - What is research design? What are the research questions? How did they collect data? How did they analyse the data? - What are team's criticism? If we can re-do the research, what would we change? Thanks to this course, we learned variety of types of micro-economic analysis and understood some different research methodologies in different settings. *This file became low-res when uploading on SlideShare :'(

1. (*) Source: https://www.reuters.com/article/us-samsung-elec-vietnam/samsung-electronics-to-expand-production-in-vietnam-idUSKBN1HR1SD

3. Agenda
01
02
03
04
05
Location – “Where” question
Entry mode – “How” question
Overview
Appendix
Sum-up
Journal of
management studies
Vol 24 – Issue 1
Pages 63-93
Publication date 2005/1
Cited by 641

4. Overview
The Puzzle – Research Questions – Theory

5. The Puzzle
Foreign investors (FI)
have to decide where
and how to set up
operations abroad.
National institutions
were proved to have
significant influence on
multinational company
(MNC)’s entry strategy.
Much focus on FDI
among mature market
economies.
How about sub-national
institutions in emerging
markets? Can it effect
MNC’s decision through 2
key aspects: location and
entry mode?

6. Research Questions
How do sub-national
institutions influence MNC’s
strategies via the choice of
location?
1. The “Where” question
How can FI overcome the
institution barriers via the
choice of entry mode?
2. The “How” question

7. Why Viet Nam?
• VN had complex local institution settings
where informal institution gained much
influence.
• Appeared paradoxical discrepancies but
offer both opportunities & risks for FIs.
Reform 1986
Marketization
Barriers & Challenges
• Major economic transition process.
• Weakness in institution remained
obstacles.
• Liberalization has been implemented
unevenly.
• Growth of Private-firm continued to be
inhibited by institutional framework
favoring SOEs.
• FDI legal & regulations were developing,
gradually removed restriction & limits.
• Many aspects of economy are subjected
to regulation & direct interference.
• Decentralization: i) provincial authorities
varied in how they use newly gained
responsibilities; ii) ambiguity of laws
gave local level an important role in
interpretation & implementation.
FDI to VN in 1988 – 2004
Source: General Statistics Office (2004)

8. Theorical Foundations
Transition
&
Emerging
Markets
• Foundation: Coase (1937),
Williamson (1975, 1985)
• International Business - FDI
Entry Mode Strategy:
Anderson & Gatignon (1986)
…
Transaction cost (TCE)
• Explanation of Joint-Venture
(JV): Hennart (1988)
• OLI paradigm: Dunning 1993
and internalization theory:
Rugman & Verbeke 1990
…
Resource-based (RBV)
• Co-evolution of institutions and organization (Lewin and Kim, 2004; Lewin et al.,
1998) at both the national and local levels
• Relationship between countries’ institutional framework and business strategies
(Oliver, 1997; Peng, 2000a)…
Institution-based view (IBV)

9. Theorical Foundations
In order to expand to foreign markets, MNCs need
to combine their firm-specific advantages (FSAs)
with country-specific advantages (CSAs).
Much focused on Ownership - drivers of
international business and Internalization -
incentives for explaining organizational modes
-> Location - ‘neglected factor’ (Dunning 1998)
(*) Image source:
Source: Dunning 1993(*)
OLI/ Eclectic Paradigm

10. Theorical Foundations
(*) Image source:
Source: Root 1994(*)
Entry Mode
Based on the degree of control, risk & return,
and MNCs’ need for control.
MNCs often consider JVs as the second-best mode of entry
because JVs provide only a limited degree of control over
the local operation and reduce the investor’s flexibility to
change the arrangement. May apply if:
(1) the project depends on contributions from two or more
partners;
(2) the markets for the contributions from the parents are
subject to market failure, i.e. transaction costs are high;
(3) it is not feasible to internalize the whole operation with
one partner taking over the other(s).

11. Theorical Foundations
(*) Image source: http://theses.univ-lyon2.fr/documents/getpart.php?id=lyon2.2001.miribel_f&part=49389
Source: Bogart 1998(*)
Economies of
agglomeration
Cost savings arising from urban agglomeration:
production cost is cheaper if more activities are
going on nearby.
-> Relating to economies of scale and network
effects.
Popularized by Krugman (1991)
Ex: Silicon Valley, UK East Midlands car industry…

12. Theorical
Framework
Co-evolution
Co-evolution of institutions and
organizations (Lewin and Kim,
2004; Lewin et al., 1998) at
national & sub-national level.

13. Location
“Where” question

14. Proposition 1
Ho 1a
The more sub-
national institutions
facilitate access to
scarce local
resources, the more
FDI the sub-national
region receives.
The more developed market-supporting institutions in a region are, the
more likely foreign investors are to invest in that sub-national region.
Ho 1b
The more state-
owned enterprises
dominate a sub-
national region, the
less FDI the region
attracts.

15. Data
Collection
Secondary Source
Provincial level

16. Data Collection 1
The Logic Behind
Theory base Measurements
Sub-national institution
i) Business locates where inst are most conductive to its type
& where barriers least inhibit the access to local resources.
ii) Incumbents SOEs may control local resources.
Existing of economic zone –
Sum square
State-ownership (%GDP)
Traditional location advantages
i) Factor endowment
ii) Market attraction
iii) Labor costs
iv) “Created assets”: infrastructure & human capital
GDP growth, population
Wage level
Transport, education
Economic agglomeration effect
i) Where other firms exist
ii) New FDI locates near existing FDI
iii) New FDI locates near existing ones of the same source
country
FDI t-1
Outward FDI stock from
source country

17. Data Collection 1

18. Model 1
• Used for regression with dependent (Y) variable which is an observed
count that follows the negative binomial distribution. Possible values of
Y are the nonnegative integers: 0, 1, 2, 3…
• Poisson model: failed the restrictive assumption test (variance is equal
to the mean) -> overdispersion which causes an inadequate fit.
• Stata command: nbreg y x
Negative Binominal Regression Model (NBRM)

19. Result 1

20. Conclusion 1
Hypothesis 1a
Not rejected -> availability of
real estate as increasing FDI,
receives strong support.
Hypothesis 1b
Coefficient is negative as
predicted, but never significant
-> still have a signal that the
more SOEs dominate a region,
the less FDI region attracts.

21. Entry Mode
“How” question

22. Proposition 2
Ho 2a
The more sub-
national institutions
facilitate access to
scarce local
resources, the more
FDI the sub-national
region receives in the
form of Greenfield.
The more developed market-supporting institutions in a region are,
the more likely foreign investors are to establish Greenfield
operations in that sub-national region.
Ho 2c
Local-market-
oriented FDI projects
are less likely to be
in the form of
Greenfield.
Ho 2b
The more state-
owned enterprises
dominate a sub-
national region, the
less FDI is in the
form of Greenfield.

23. Data Collection 2
• Random sampling 900/2454 FDI
• The questionnaire was translated to Vietnamese & Chinese
• 171 completed questionnaires (23.4% contacted)
• Respondents are CEO (33%), manager (40%), who have
been for average 4.3 years.
• Final usage: 152 observations

24. Data Collection 2

25. Model 2
𝐥𝐧
𝑷𝒊
𝟏 − 𝑷𝒊
= 𝒁𝒊 = 𝜷 𝟎 + 𝜷𝒊 𝑿𝒊 +𝜸𝒊 𝑪𝒊 + 𝒖𝒊
Whereas:
𝑃𝑖= Prob (Greenfield =1| 𝑋𝑖); 1 - 𝑃𝑖= Prob (Greenfield =0| 𝑋𝑖);
𝑋𝑖: explanatory variables (IP real estate, State-ownership, Market orientation)
𝐶𝑖: control & independent variables
Logistics Regression (Logit)

26. Result

27. Conclusion 2
Hypotheses Conclusion
2a: The more sub-national
institutions facilitate access to
scarce local resources, the more
FDI the sub-national region
receives in the form of
Greenfield.
Not rejected, the easier to access to scarce
local resources, the more Greenfield choice. In
spite of the coefficients in 4 equations are
small but they are significant.
2b: The more state-owned
enterprises dominate a sub-
national region, the less FDI is
in the form of Greenfield.
• Agree with the hypothesis, the coefficients in
3 equations are significant from 0,5% to 1%.
• Coefficient is negative as predicted and the
effect are much more than IP real estate.
2c: Local-market-oriented FDI
projects are less likely to be in
the form of Greenfield.
• Agree with the hypothesis, the coefficients in
4 equations are significant at 0,5%.
• Coefficient is negative as predicted and the
effect are less than state-ownership.

28. Sum-up

29. Final Conclusion
• FIs are likely to locate where institutions facilitate access to
resources (province with industrial zones attract more FDI).
• Institutions influence patterns of FDI not only at national but also at
local level. They establish the range of permissible strategies (in VN:
Greenfield vs JV). Informal institutions play an important role.
Incumbent SOEs appear to influence the institutional framework.
• FIs exposure to local institutions in turn affects their need for a local
partner, especially early entrants and local market-oriented
businesses.
-> People cannot understand business strategies without
understanding the context.

30. Contribution
Developed a theorical framework to
analyze how national & sub-national
institution influence entry strategies of FIs.
Became 1st empirical study of impact of
sub-national institution on entry strategies
in an emerging market.
Provided results from one of the most
representatives surveys of FDI in VN.

31. Team’s Comment
Nowadays:
- Many policies of recruiting FDIs are different.
- Sub-national institution can be measured through tax
policy or other incentives apart from real estate.
- SOEs don’t produce goods for consumption within
province only.
- Human capital has become key attraction which needs
other proxies…
-> Need to review & revise many variables; increase number
of observations; diverse types of JVs + other entry modes…
Moreover, the puzzle should focus on how institution both
national & local levels can attract new good FDI flows
(orienting toward high tech, sustainable, green economies…)
+ encourage big ones (Samsung, Intel…) to extend business.

32. Thank you
For your attention

33. Appendix - Psychic Distance
Made up of the Greek word "psychikos – ψυχικός",
an adjective referring to an individual's mind
and soul, and "distance" which implies differences
between two subjects or objects.
Differs from cultural distance because it is the
distance formed in an individual's mind due to
perceptual differences between the individual's
native country and a foreign country (Sousa,
Bradley, 2006, p. 54). Perceptions differ
depending on exposure to different cultures,
values and norms taught growing up, many other
factors.
Hofstede Insights – VN vs Singapore