Determinants of FDI inflows to Vietnam in the context of China trade war and pandemic

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Abstract:

With a strong speed of growth rate, Vietnam becomes one of the most promised

emerging markets for FDI investment among Asian nations. That creates

motivation for research to study the business opportunities of Vietnam in terms of

a fast-growing economy to cope with the global rapid growth. However, the

context of the key determinants for the FDI impacts in Vietnam is still rare and

out of date. Especially, the world economy has changed dramatically under the

attack of COVID 19 and US-China war trade, leading to the gap with the

previous research results applied to the theory. Therefore, the research

highlighted the main features of the Vietnam economy in terms of import and

export in the comparison with China. After review, the OLI framework and

Dunning’s International Production theory applied to test the fundamentals of the

potential content to advance the locational advantages.

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Table of ContentsChapter 1 : Introduction, Aims and Objective 5

1.1. Background 5

1.2. Aims and Objective of the Research 7

1.3. Expected Contributions 9

1.4. Research Outline 10

Chapter 2 : Literature Review 13

2.1. Advantages and disadvantages of Dunning OLI Framework 1000 13

2.1.1. Ownership sub- paradigm 14

2.1.2. Location sub- paradigm 14

2.1.3. Internationalization sub paradigm 15

2.1.4. Limitation 16

2.2. Application of Dunning International Production theory in Vietnam 17

2.2.2. Resource- seeking strategies 17

2.2.3. Market- seeking strategies 100 18

2.2.4. Efficiency- seeking strategies 20

2.2.5. Asset- seeking strategies 21

2.3. Historical information 22

2.3.1. FDI flows in Vietnam 22

2.3.2 FDI flows in in China 23

2.3.2 Global economic shocks 24

2.4. China- US trade war and pandemic on FDI inflows 25

2.4.1. China-US trade war 25

2.4.2. Covid-19 pandemic 26

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2.4.3. The linkage of these crisis on FDI 27

2.5. Economic elements of Vietnam during economic crisis 29

2.5.1. Overview 29

2.5.2 Vietnam economy during economic crisis 30

2.5.3 Key investors in FDI inflows 32

2.5.4 Impact of Covid 19 on consumption expenditure by sectors. 33

Chapter 3 : Methodology 35

3.1 Research approach 35

3.2 Hypotheses 36

3.3 Research method 37

3.4 Data collection 37

3.5 Data analyst 40

3.6 Ethical issues 41

3.7 Limitation 42

Chapter 4 : Data 42

4.1. trading activities countries 42

4.1.1 Inflow trade 42

4.1.1 Outflow trade 43

Chapter 5 . Results 44

5.1. The relationship between locational factors with the international production

theory 44

5.1.1 Resource seeking strategies 44

5.1.2 Market seeking elements 45

5.1.3 Efficiency seeking strategy. 45

5.1.4 Strategic asset-seeking strategy 46

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Chapter 6 . Findings, Analysis and Discussion 47

6.1 Vietnam’s trade performance 47

6.1.1 Vietnam becomes attractive place for relocation factory 47

6.1.2 The risk of Vietnam during the trade war 50

6.1.3 Main trade categories of Vietnam to China and America 54

6.1.4 Main majors impacted by the Covid 57

6.2. Application of Dunning International Theory in Vietnam 61

6.2.1 Resource-seeking strategies 61

6.2.2 Market seeking elements 62

6.2.3 Efficiency-seeking strategy. 64

6.2.4 Strategic asset-seeking. 66

Chapter 7 : Conclusions 67

Chapter 8 : Reference 71

List of tables and figures

Table 1: Descriptive statistics of FDI net inflows in period of 2010-2020. Source: World

Bank (2020) and Trading Economics (2020).

Table 2: Descriptive statistics of FDI net outflow in period of 2010-2020. Source: World

Bank (2020) and Trading Economics (2020).

Table 3: Correlation of FDI and resource-seeking strategies. Source: author’s

calculation

Table 4: Correlation of FDI inflows and market-seeking strategies. Souce: Worldbank,

(2020)

Table 5: Correlation of FDI inflows and Efficiency -seeking strategies. Source: Molisa

(2020)

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Table 6: Correlation of FDI inflows and Strategic -seeking strategies. Source: Ho et al.,

(2020)

Figure 1. Global FDI inflows and by group of economies (2008-2019) 5

Figure 2: historical FDI flows in Vietnam. Source: Foreign Investment Agency from

VietnamNews (2017) 22

Figure 3: the GDP growth of China over the year. Souce: China’s National Bureau of

Statistics from BBC (2020). 23

Figure 4: GDP growth rate prediction of the Southeast Asia countries in 2020. Source:

Asian Development Bank from Vietnam Briefing, 2020. 28

Figure 5: Impact on shopping and out-of-home activities due to coronavirus COVID-19

among urban citizens in Vietnam in 2020. Source: Statista, 2020. 33

Figure 6: Change in consumption expenditure due to coronavirus COVID-19 outbreak

among Vietnamese in 2020 compared to 2019, by sector. Source: Statista, 2020. 34

Figure 7: import of Vietnam with main countries between 2010 and 2020. Sourrce: UN

trade and Vietnam Custom (2020). 49

Figure 8: Trade impact of the Coronavirus epidemic until 2020. Source: UNTAD, 2020.

50

Figure 9: export of Vietnam with main countries between 2010 and 2020. 53

Figure 10: trading categories between Vietnam and China, United State between 2010

and 2020. Source: UN trade and Vietnam Custom (2020). 55

Figure 11: growth rate of main export categories between Vietnam and China, United

State in 2010 - 2020. Source: UN trade and Vietnam Custom (2020). 55

Figure 12: Contribution to GDP by industry in Vietnam. Source: Statista, 2020. 57

Figure 13: International tourist trend and scenarios for 2020. Source: UNWTO, 2020. 58

Figure 14: Accumulated registered projects and total registered investment by sectors to

May 2020. Source FIA, 2020. 60

Figure 15: Annual growth rate of energy sector of the world, 2017–2020. Source:

UNTAD, 2020. 61

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TOPIC: Determinants of FDI inflows to Vietnam in the context of China trade war and pandemic

Chapter 1 : Introduction, Aims and Objectives

1.1. BackgroundGlobalization and strategic alliances between countries has resulted in massive

Foreign Direct Investment (FDI) inflows to emerging countries in recent years.

Moreover, FDI is considered the most effective ways to access advanced

technology and knowledge with minimal cost as well as utilizing country

resources in the absence of domestic capital. Therefore, attracting inward FDI is

an important strategy of developing countries to deal with the lack of capital and

knowledge to reach the highest speed of development.

In recent years, global FDI flows have been falling, 2018 recorded a decrease of

13 percent to USD 1.3 trillion. The three consecutive year’s fall in FDI was mainly

due to the fall in FDI flows to developed economies reaching the lowest point

since 2004, declining by 27 percent (UNCTAD, 2019).

Figure 1. Global FDI inflows and by group of economies (2008-2019)

Source: UNCTAD, 2020

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However, FDI inflows to developing countries has been rising slightly, the figure

increased by 2 percent in 2019. Due to fall in FDI flows to developed countries,

the contribution of developing countries in global FDI increased to 54 per cent

(UNCTAD, 2019), which implies the important role of developing countries in the

global investment.

In 20th century, Vietnam is one of the most outstanding emerging economies in

South- East Asia. Since the Economic Reform in 1986 to joining WTO in 2007

until now, globalization has been an important factor of Vietnam development,

together with several economic liberalization policies as well as regulations (e.g

the Law of Foreign Investment in 1988 and 1996), boosting the country inward

FDI, reaching 15.5 billion USD in 2018 (The World Bank, 2020a).

Due to the China- US dispute1 since 2018, there has been growing desire of

MNEs to transfer capital away from China to avoid risks of higher taxes and

tariffs exporting goods manufactured in China. Moreover, in early 2020, the

outbreak of Coronavirus begin from China has cause bad impacts on the global

supply chain as well as economic development. Because of the pandemic and

China is closed, the supply chain is broken, many country leaders realize that the

world should reduce the dependence on manufacturing in China. Having the

similar country advantages as China: low- cost labor, FDI attract policies,

geographical benefits, signing in many FTAs, Vietnam is a good choice to move

capital outside China.

1.2. Aims and Objective of the ResearchAs discussed above, China is losing its location advantages therefore investors

and researchers are concerning whether moving capital to Vietnam is a right

strategy. The main purpose of this research is to understanding the determinants

of FDI including economic and non- economic factors. Based on that, the author

would like to focus more on the location advantages to explain the drivers of FDI

inflows to Vietnam. Furthermore, the research would give out the perspective of

1 The dispute has seen the US and China impose tariffs on hundreds of billion dollars on one another's goods. So far, the US has slapped tariffs on US$250 billion worth of Chinese products. China, in turn, has set tariffs on US$110 billion worth of US goods (Federation of American Scientists, 2019).

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FDI in the future in the context of China- US trade war, the opportunities and

risks for country economic development and suggest some strategic solutions for

policy- maker. The specific research objectives include:

Objective 1: Evaluate how much location factors affect the motivations of FDI

inflows in Vietnam by quantitative method.

Objective 2: Evaluate the context of US- China dispute and Covid19 pandemic

and the impacts on FDI in Vietnam as well as the opportunities.

By achieving these objectives, the author would like to carry out the changes in

FDI inflows in the context of economic shocks.

Objective 3: Give suggestions for investors and policy makers in the next 5 years

based on the research results.

In order to find the determinants of FDI inflows, this study will evaluate the

economics and non- economics factors that attract capital to Vietnam based on

Dunning OLI Framework as well as explain the motivations of investors based on

Dunning international production theory. Relating to above objectives, these

research questions would be answered:

Question 1: What are the most important factors determine the motivations of

FDI inflows to Vietnam?

Question 2: What are the impacts of the dispute and pandemic on FDI inflows?

Question 3: Why will the US- China trade war and Covid19 pandemic bring

opportunities for Vietnam?

Question 4: How will the country response to these economic shocks?

Question 5: How should investors and policy – makers facing with those

changes?

1.3. Expected ContributionsThe foundation of research in FDI is Dunning (1993) Eclectric Theory and

International Production theory. Due to the importance of FDI in global economic

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development, there have been several studies working on this topic based on

Dunning’s theoretical framework. For example, Franco et al. (2008) stated in their

research that there are four motivations for firms to invest abroad to look for

Ownership, Location and Internationalization Advantages. In 2011, Wadhwa

published a further article using quantitative method to evaluate the impact of

four motivations on FDI inflows to emerging markets. There are other authors

study the impact of specific factors on FDI. Kayalvizhi and Thenmozhi (2017)

implied that innovation, culture and government drive FDI inflows to emerging

markets while another study gives prominence to volatility and employment as

determinants of FDI inflows.

In general, the existing study determinants of FDI inflows in emerging markets

and in Vietnam still have limitation due to difference approaches, limited research

area allowance and different methods. Moreover, existing studies that evaluate

the impacts of China trade war and pandemic on FDI flows to Vietnam are still

rare. This research aims to fulfil these gaps. It will apply both qualitative and

quantitative methods to evaluate the factors impact on FDI to explain why some

factors are more important than the others. Therefore, this research is expected

to contribute persuasive results to answer the question: “Which really are the

determinants of FDI in Vietnam in the context of economic shocks?” and “How do

these factors affect investors’ decision?” for further studies. In addition to the

academic contribution, this study also provide investors and policy- makers some

strategic suggestions to gain success in investments as well as attracting FDI.

Because of the fast changes in the global market and the impacts of economic

shocks are unexpected and unpredictable, investors and government have to

cope with those change quickly. This research will help by evaluating the impact

of China trade war and pandemic on FDI inflows to Vietnam. Moreover,

suggestions based on these findings are expected to be used for further strategic

planning.

1.4. Research OutlineThis research will be divided into six chapters with the main contents as below:

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Chapter 1: Introduction, Aim and Objectives

This chapter gives out the overview of the research topic and briefly

explains why it is important to conduct the research. The chapter includes

four parts: the general background of global FDI and FDI inflow to

emerging countries especially Vietnam, the main aims and objectives of

the research interpreted by research questions, the results contributed to

fill the gap of previous articles and the structure of the research.

Chapter 2: Literature Review

The previous research articles about FDI and international business will

be reviewed in this chapter to provide the theoretical background for the

topic. This chapter will focus on Dunning Eclectic Paradigm and

International trade theory and other researches about FDI based on these

theories. Moreover, it will point out the gap of these researches and the

way this research fill in those gaps.

Chapter 3: Methodology

This chapter explains the method of collecting data, the sources of data

using in this research. It justifies the research approach and mixed

methods using to analyze collected data and interpret the results.

Chapter 4: Data and Results

Collected data of all the factors affect FDI in Vietnam are summarized and

analyzed using Stata to points out which factors are the determinants. FDI

data since the trade war and pandemic are also analyzed. The results will

be interpreted based on quantitative standard. Moreover, this research

also combines quantitative and qualitative method to evaluate the results.

Chapter 5: Findings and Discussion

This chapter will show the findings from the results of data analysis and

research questions will be answered. It firstly points out the determinants

of FDI inflows to Vietnam and explains why the factors are significant. The

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opportunities from the China trade war and pandemic are discussed in this

chapter. Finally, some suggestions for policy- makers and investors will be

given.

Chapter 6: Conclusions

This is the last chapter of the research, summarizing the main ideas,

research results, conclusion and recommendation. This chapter also

provide directions for further researches in FDI sector.

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Chapter 2 : Literature ReviewThis chapter aims to provide the background knowledge of the research, the

theories and information which are highly relevant to the topic chosen.

Specifically, the literature reviews are well- addressed the deep understanding of

Dunning’s Eclectic Paradigm or OLI framework and international production

theory and the significance of these theories on defining the determinants of FDI

inflows to Vietnam. Moreover, the works of literature explain the context of China

trade war and pandemic as well as the impacts on Vietnam’s FDI inflows.

2.1. Advantages and disadvantages of Dunning OLI Framework 1000With the fast growth economy, the flows of foreign investment transferred from

developed nations into the emerging markets. In fact, the FDI capital for

developed countries has dropped 27% in 2018 by the research of UNTAD

(2019). The research of Rugman (2002) presented that the growth of

internalisation theory consists of the concept of FDI. While Dunning (1981)

argued about the development of globalisation theory is only the part of FDI

framework. The author also investigated the Dunning Eclectic paradigm to

analyst determinants of FDI and the performance of MNEs in the global market.

Due to the rapid changes in the globalisation, the OLI Framework has developed

through several types of research in response to those changes (Narula, 2010).

For example, Li et al. (2010) have expanded the OLI framework to evaluate the

impact of the September 11st terrorist attack on MNE’s performances. The OLI

framework implies that the interaction of three useful sub- paradigm: ownership

advantages (O), location advantages (L) and internalisation advantages (I)

determine the international business strategies of MNEs.

2.1.1. Ownership sub- paradigm

Ownership advantage points out the competitive advantages of the firms seeking

for expanding to foreign markets. The better the competitive advantages of the

FDI, the more the firms seem to engage with the oversea business entity. Those

competitive advantages could be a trademark, economy of scale, cost-efficiency,

etc. which can be transferred across countries and cannot be obtained by any

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competitors. According to Dunning, if other factors remain unchanged, the firms

hold more competitive advantages than competitors in-home or host countries

are more likely to succeed in expanding their production globally (Dunning,

2000). The other benefit of the owner is the ability to obtain tangible resources,

technological innovations, or implemental effectiveness in which local entities

could advance. On the other hand, the transaction cost theory implies that the

cost of transferring funds and services across countries is the determinant of

MNE strategies (Greve and Argote, 2015). Therefore, this sub- paradigm only

suggests doing FDI when the benefits of expanding to new countries outweigh

the transaction cost.

2.1.2. Location sub- paradigm

Location advantage focuses on choosing investment places since there is

another country, which holds more benefits than the home country such as

geographical advantage, cheap labour, materials, individual taxes and tariff.

Based on these criteria, the selection of foreign countries to set up a business

line plays an essential role for a firm to achieve long-term financial benefits and

business strategy (Narula, 2010). For example, a firm created much more

resources and revenues than the requirements. They could utilise those

materials combining with their strength to enter the foreign market and discover

their specific benefits by engaging in FDI. Moreover, the sub-paradigm viewed as

external elements to get a decision about the potential nations to investment.

2.1.3. Internationalization sub paradigm

Internationalisation advantage is to answer the question of whether the company

should produce and run the business itself or cooperate with a third party. The

report of Johanson and Vahlne (2017) emphasised the deep understanding of

foreign business influences on future commitment with the business

environment. The idea of the international business advantage came along with

the ownership sub-paradigm when the company believed to expand its affection

in the foreign market by a private corporation such as strategic engagement

contracts with local partners. A company assumed to hold internalisation

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advantage when it can self- handle more effectively than transfer to the external

company does. If a company does not have this advantage, they should license

their business to another company in the host country, who thoroughly

understands the market and skilled labours to improve the excellent quality.

Therefore, the competitive advantage starts with implementable and conceptual

contracts to manage profit from the oversea market. However, using outsourcing

needs to be concerned about the financial effectiveness and product quality to

ensure cut-off cost than the insource production line.

To sum up, each stage of economic growth required different conditions to

achieve comparative advantages with other nations. The listed elements could

be converted into two main types such as push elements (ownership and

internationalism elements) and pull elements (locational elements), relying on the

historical development and economic conditions of specific markets. Among

these factors, Vietnam could apply the locational advantages to attract foreign

investment flows since the government could be able to control the elements

through the location sub- paradigm (Nguyen et al., 2016). Therefore, the

locational determinants of FDI are going to carry out in the analysis of

Vietnamese conditions.

2.1.4. Limitation

The practical concept of OLI determinants explained clearly the entry approach

strategies of MNEs but limited in figure out the recommendations for the

international firms (Dunning, 1993). It explains that the firm deals with the

abundance of numerable OLI components and business targets, which involved

with different activities such as policy, market value, hi-tech innovation, business

performance, etc. which together may affect competitive advantage. Besides,

based on the research of Root (1994), the entry-mode strategies present the

highest risk of external investment directly involved with joint venture and FDI

activities. By the way, the business entities may suffer from the high risks of the

new markets.

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2.2. Application of Dunning International Production theory in Vietnam Based on the theory of Dunning (1981), multinational corporations have typical

benefits to survive during the adapting period in foreign countries such as stable

capital, innovative technology, etc. To select a suitable investment location, the

locational determinants of Vietnam is investigated in term of the research.

Therefore, this section included the conceptual practice of investment

development path to understand the phase of investment development. Then, it

classified foreign direct investment (FDI) selections of international companies

into four types of advantages such as resource-seeking, market-seeking,

efficiency-seeking, asset-seeking (Dunning, 1998). The combination of those

motives draws the foundation for firms to set up a global approach. The Dunning

International Production theory is going to explain in Vietnam to show the

potential resources of the nation in attracting FDI.

2.2.2. Resource- seeking strategies

One of the reasons for oversea investment relates to seeking natural resources,

new materials, labour, and other types of resources. It is probably those

resources presenting more affordable cost or is not available in the home

country. It could be related to “location advantages” from the OLI Framework

(Dunning, 1993) which mentions the activities of seeking advantages in another

country. These resources may be the primary material for production companies

to run business. The public funds relate to natural assets such as natural

products, labour, land. By the way, companies can improve their sustainable

competitive advantages through reducing costs and maximizing revenues for

human resources. It required the oversea nations to offer a massive number of

employees at a low price.

In the case of Vietnam, the nation presented as young and cheap labour cost,

attracting more and more foreign investors (Lim, 2017). Vietnam has a large

population of 95,540,395 in 2019 with the majority are at labour age. A well-

planned education system provides the country with a well-educated and large

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workforce. Dunning’s term of resource- seeking mentioned unskilled labour, but

according to further research, both unskilled and skilled workers are potential for

MNEs expanding to a new market (Franco et al., 2008). Also, unskilled workers

could train, and they will bring back higher value to the company. As Dunning

has updated his theory, that “location advantages” do not only allow firms to

access to better resources, it also helps to promote MNEs’ ownership

advantages (Dunning, 2001). However, the nation achieves an impressive raise

in GDP that also affected the minimum wages of 5.7% in 2020 (Samuel, 2019).

Investors should research about the target labour cost before carrying out market

entry.

2.2.3. Market- seeking strategies 100

Market-seeking is the motivation of MNEs that want to expand to a higher

potential market or follow customers and suppliers to save costs as well as

prevent competitors from occupying those markets (Franco et al., 2008). Three

critical factors are defining a country's economic growth and market size: Gross

domestic product (GDP), population growth, and export (Wadhwa and S, 2011).

Half of the Vietnamese are under 35 years old which means a sizeable

empowered consumer market (Bernardi and Floyd, 2018). According to Dunning

(2001), market size is an essential factor for FDI flow. Besides, the country’s

GDP is increasing rapidly in a recent decade along with raising minimum wages

leading to a growth rate of the middle-income class.

Moreover, because of the low level of domestic production, the Vietnamese

government has been applying policies to encourage importing goods and FDI to

respond to the rising demand. It also helps to increase the average household

consumption per capita of 5-8 percent per year (Statista, 2020). Therefore,

Vietnam is a rapidly developing market with high purchasing ability, which is a

huge advantage for investors.

However, investing in specific ownership or a foreign country to provide products

to the new markets may cause the lack of demand in the home countries, as well

as the new market, has more potential needs (Eden and Dai, 2010). The

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products or services require adjustment to adapt to local desires and market

trends. A direct appearance in a domestic market is necessary for the

multinational companies to understand the local market. One of the signature

cases about successful local customisation is Nestle Vietnam. The firm has

entered Vietnam since 1912, but it failed to catch up with the taste of coffee in

Vietnam. However, the gain group attempted to enter Vietnam again in 1992

through a joint venture with a local company and created La Vie. By the way, the

firm adopts the taste of domestic customers and changes the coffee ingredients

to match the market needs. As a result, the company has achieved considerable

succession with 89% of customer satisfaction (Nestle Vietnam, 2020). Besides,

there is the market risk that may affect the decision of corporate governance in

the company. Vietnam is a developing nation attracting various international

companies, which may lead to a lack of revenue or increase the competitive

market for new companies.

2.2.4. Efficiency- seeking strategies

Another type of strategy regards efficiency in improving the importance of

existing business abroad nation. Efficiency seekers enhance effectiveness by

reinforcing the advantages of economic scale and scope from the differentiation

between diverse countries (Dunning, 1993). Improvement describes from

distinction from diversified available resources in multiple nations. Notably, the

essential business operation such as governance, innovational, or strategy

creation located in developed countries while adding profits from human forces

and resource relations mostly came from developing nations. Efficiency seeking

tactics motivates the feature endowments between diversified nations to

withdrawn benefit for business implementation (Lim et al., 2015).

Nevertheless, multinational companies may reduce tax through diversified

taxation systems for business development (Chen, 2018). However, the local

government should control the different business activities to avoid the tax

burden. For example, the research of KPMG (2020) stated that the corporate tax

of Vietnam is 20%, which is lower than the tax rates of central investment nations

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such as Korea (25%), Japan (30%) in 2020. Also, the adjustment of the

corporate tax from 25% (before 2014) to 20% (2014 – 2020) of Vietnam

governance motives multiple international companies to put their footprint in the

emerging market.

2.2.5. Asset- seeking strategies

Asset seeking strategies concentrate on the longstanding engagement through

FDI to prevent resources taken by other international competitors. Focus on the

enhancement of strategic assets will support the firm to obtain its future target.

Vital resources typically describe as intangible resources such has knowledge

and the unique capability of the enterprise. The primary type of necessary

provisions such as acknowledge, expertise, etc. frequently often through

acquired the assets of international organisations. By the way, the strategy

focuses on future value and considers the current or short-term losses as

investment capital (Pak, 2002). The main reason for that is to sustainable

competitive advantages or preventing the achievement of other competitors. It is

necessary to keep business information confidentially from the rivals (Groh and

Wich, 2012).

It disputes that individual business enterprises can apply strategic resources

seeks to build a connection with local governance for their long-term purposes

(Lim, 2017). Notably, Vietnam is a communist country with developing a legal

system that may be affected by political power. The real estate sector motive by

the impact of the authority department since the land law, investment law, and

bidding law is confused and conflicted for investors. Therefore, developers must

build an excellent personal relationship with political influencers to process

application documents and to reach their future targets. The nation's motives to

classify and improve the legal system to generate a productive business

environment.

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2.3. Historical information

2.3.1. FDI flows in Vietnam

After the economic reforms in the late 1980s, Vietnam utilised different methods

to attract investment resources from other nations. Vietnam issued the new legal

structure to encourage FDI injections such as the establishment of hi-tech parks

and industrial clusters, a corporation with other governments for strategic

alliances, free tariffs, and land use fees, etc. The change in legal structures and

investment procedures leads to a favorable business environment for inbound

FDI and attracted various foreign investment. For example, the Japanese

government decided to support FDI inflows for Vietnam in a long-term

perspective. Nevertheless, there is some problem in the implementation of the

FDI inflows, specifically in the cut-off lobbying costs and the low operation of

oversea funds, and the lack of experience to control the cash flow of these FDI

criteria (Tri and Anh, 2016).

Figure 2a: historical FDI flows in Vietnam. Source: Foreign Investment Agency

from VietnamNews (2017)

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● By geography

With over 38 percent for the FDI inflows, Ha Noi passed the financial spot of

Vietnam – Ho Chi Minh to become to lead FDI in 2019. The city became the new

FDI attraction hubs in Asia with the fast growth in GDP per capita with over

$5,100 US Dollar, huge GDP contribution with 16.5 percent (figure 2b). However,

the policy of expanding area by merging nearby provinces challenged the city to

build up suitable future master plan.

In the other hand, Ho Chi Minh was a new bright star, remaining as the lead of

FDI capital previously. Regarding to Customs News (2020), the city attracted

nearly 7,500 projects with the total FDI investment of $8.3 billion USD in 2019.

Arise demand for diversification investment motivated investors from developed

nations such as Japan, EU and US to find a new market with less risk and fast

turnover. Ho Chi Minh concentrated on qualified labour resource, technological

innovation and completed infrastructure, creating promising condition for FDI

growth.

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Figure 2b: Hanoi and Ho Chi Minh’s geography. Source: GSO (2020)

2.3.2 FDI flows in in China

The China government opened for FDI strategy since 1979 and dramatically

grew since then. In the 2000s, the nation has passed many developed countries

and become the leader for FDI attraction by the vast local market and affordable

labour cost (Zhang and Corrie, 2018). Moreover, the nation created various

investment prospects by offer liberalisation plans, the fast growth of technological

trend and free trading area. Due to the rapid growth of the domestic economy,

investment to China brings a wide range of benefits. It could be substantial local

consumers, fully enlargement production business. Besides, business investors

could locate in the prime area connecting with other nations, skilled labour at a

low ratio, etc. However, some disadvantages need to consider, such as

government corruption, unclarified legal situation, lack of intelligent creation

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protection, etc. (Ali and Guo, 2005). Therefore, the GDP growth of China

expected to drop nearly 7% in 2020 (BBC, 2020).

Figure 3: the GDP growth of China over the year. Souce: China’s National

Bureau of Statistics from BBC (2020).

2.3.2 Global economic shocks

The macro economy experiences the change in the business criteria and

variables, resulting in the shift in financial profits and economic portrayals such

as corruption, joblessness, and inflation (Investopedia, 2019). The global

economy has faced with the two most significant crisis in the development

history, which are the Great depression in 1993 and the financial crisis in 2008.

One of the devastating economic shocks was the Great Depression, which

disturbs the growth of manufacturing production at the beginning of the 1900s

from the United State. By the way, Eichngreen (2014) believed the crisis had

become a typical example of the global crisis to show the weakening economic

system. It started with a significant decline in the stock market in the United

States. It spread out the international stock crash, responding to a 15% reduction

in the global gross domestic product (GDP).

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The global commercial trading market observed the second fall as the most

precarious crisis in 2008 since the Great Depression. The downturn started from

the dropping in the real estate market and winged quickly to the bank business

through a subprime mortgage loan, then affecting the entire financial system in

the United States and global banking system through bridging transactions. Many

bank corporations fell due to their dependence on credit loans. For example, the

most well-known case is Lehman Brothers, which contributed 5% of the global

derivative revenue (Wiggins and Metrick, 2014). The commercial enterprise

emphatically replied on the housing mortgage loans and failed in sustainable

liquidity ratio.

2.4. China- US trade war and pandemic on FDI inflows

2.4.1. China-US trade war

The economic battle between the United States and China started in March 2018

when the Trump President decided to tax 50 billion USD on the Chinese import

product based on Commercial Trading Law in 1984. The action explained as the

effort of the US government to stop China from stealing technological innovation

and bad commercial trades. In April 2018, the American government set tariffs

barriers imposes steel and aluminum from China, Europe (Washington Post,

2018). As a result, the trading profit between the United States and China

decreased at 100 billion USD. Moreover, the high taxation ratio created a

negative impact on the economic performance of China and responded to nearly

a 6% deduce in forecast income in 2020 (Paszak, 2020).

Regarding that decision, President Trump believed that the aluminum tariffs

weaken intellectual property rights by a joint venture with multinational

corporations to increase capital. By the way, foreign firms have access to the

intelligent database to share advanced technologies. The action aimed to cope

with the “Made in China 2025” strategies of the China government for robotic

manufacturing processes and increasing the market share of Chinese products

worldwide.

24

2.4.2. Covid-19 pandemic

The pandemic is the global disease with a high speed of infection and untypical

symptoms to identify. In March 2020, the World Health Organization (WHO)

announced COVID-19 becoming a global pandemic. With over six million of

infected cases, most of the nations have locked the boundaries and isolated with

foreigners. The fact of the United States is the strongest affection by over 1.7

million of positive cases and over 100,000 death cases. That directly influences

in the economic wealth of international business when there are lack of trading

activities, no consumer demand, no outdoor activities, no oversea flights, etc.

(The New York Time, 2020).

In Vietnam, the first case reported in January 2020. Until May 2020, the countries

presented over 300 positive cases, 279 recoveries, and no related death. The

country has stood out as one of the best nations for epidemic management

operation in the world by taken strict action since the starting stage of the disease

to protect citizens.

2.4.3. The linkage of these crisis on FDI

Since logistic barriers for the trade war and excellent performance during the

pandemic, there were various researchers suggested the high potential

beneficiation of Vietnam through shifting manufacturing line from China to other

Southeast countries and low trading expenses (Vu and Nguyen, 2019). The

optimistic influence caused the relocation of factories from China to Vietnam. The

Chinese Yen and US dollars firmly in contradiction of value, following by the

value of the Vietnam Dong. Therefore, Vietnam could save costs from

outsourcing industrial material supply from China at low cost, export products to

the United States at more reasonable prices, and obtain more shares from the

absence of Chinese goods in the market. According to Financial Times (2019),

even the global economy faces a new crisis, the ware of FDI inflows to Vietnam

will continue to increase and enhance the local business. For example, Samsung

diversified its manufacturing line to Vietnam due to the FDI attraction policy and

the complicated political situation of China. Regarding to Vietnam Investment

25

Review (2017), Samsung invested in Vietnam with the amount of USD $17.3

billion which is ten-fold higher than 2012. The Biggest corporation of Korea

contributed to the fast growth socioeconomic of Vietnam with a large amount of

capital, transferred technology, and GDP contribution. Particularly, the

corporation boosted the local economy by the contribution of 99 and 75 percent

in the export value of Thai Nguyen and Bac Ninh, respectively. At the same time,

the firm benefited from the local government with special tariffs discounts, cheap

labour cost land, and other support services. Therefore, the firm expanded its

footprint in the emerging market with the increasing employees at 160,000, equal

to 30 percent of the international human resource.

However, there is a high probability of Vietnam to become a transit station for

Chinese products exporting the United States. For example, steel products from

China have transferred to Vietnam and re-export to the American market under

Vietnamese merchandise. According to Reuters (2018), the Department of

Commercial in American slaps heavy import duties on Vietnamese steel initially

manufactured in China at 456%.

2.4.4. Future world growth after pandemic

In the financial crisis in 2008, the commercial entities have aware of the role of

corporate governance in regulating liquidity ratio conditions (Mills and Haines,

2015). Presently, the worldwide recession utilises complicated undertakings

affecting the global supply chain and financial regulations. The global supply

chains have suffered the most from the non-stop growth of trade war, and

pandemic will high potential of a new economic crisis. The pandemic

phenomenon predicts damage to future economic development. Manufactory

industries experience the most solid negative influence by countering trading

implementation and factory establishment in oversea nations (Cortina et al.,

2018). The second impact involves the high risk of financial crisis relates to high

liquidity demand and restrict loan conditions. Cutting expenses for innovation and

research activities shifts to the production line. The limitation fund for creative

and technology entities creates an inheritance of outdated capacity, resulting in

26

the pathetic progression. Due to the experience from Financial Crisis 2008-2009,

the regulatory framework supports a positive impact on financial sustainability.

The practice aims to defend the financial crisis and sustain monetary stability

(Davies and Green, 2013). Comparing with other emerging market within South

East Asia, Vietnam obtained the best performance in remaining the growth rate

at nearly 5% during the crisis.

Figure 4: GDP growth rate prediction of the Southeast Asia countries in 2020.

Source: Asian Development Bank from Vietnam Briefing, 2020.

2.5. Economic elements of Vietnam during economic crisis

2.5.1. Overview

Vietnam is rich in developing nations that have opened for business transactions

since 1986 and had an impressive growth rate of GDP with nearly seven percent

in 2017 from logistic and production business. However, the new market has

converted from agricultural economy to industrial industry has created

advantages for investors since they have more experience with technological and

intelligent knowledge (Dunning, 2000) as to ownership sub- paradigm.

Besides, the developing country offers cheap labor costs with a young and high-

educated population, improving infrastructure with multiple international airports,

seaports, and great ways to create a worldwide network. To support economic

27

development, the government promotes particular tax reforms for reducing

corporate taxes and increasing business clearness. By the way, the MNEs could

classify the features of the new market in improving competitive advantages as

location sub-paradigm.

Moreover, Vietnam has taken part in a different global economic corporation. It

involved various Free Trade Agreement (FTA) with multiple nations and groups

of nations such as Korean, European, WTO, APEC, etc. Vietnam presents as a

motivating country to attract international enterprised for development, invention,

and reinforcement. It matches with the idea of internationalisation sub paradigm

when MNEs could obtain global advantages to control their business in the host

nations.

2.5.2 Vietnam economy during economic crisis

Regarding the Dunning eclectic paradigm (1998), China has lost the L factor for

the country's definite advantages such as economic, social, and political stability.

In which, the economy suffers from the trading war and the source of a

pandemic. At the same time, setting premium tariffs and create fences with the

US affecting on the society and investment policy of the country. It becomes the

entry barrier for the investors to this market. The FDI flows switched to other

nations. The report of Paszak (2020) in the Warsaw Institute showed that the

United States recognised the growth of imported goods from other countries such

as Taiwan and Canada with eight billion USD, Vietnam with over 16 billion USD.

In the list of stock of direct foreign investment, Vietnam was 22nd of the most

attractive country for FDI inflows in 2017, increasing 26 ranks since 2012 (The

World Factbook, 2017). Due to the trade war, Vietnam FDI has experienced

significant growth at 7.2% in the first semi-annual 2019. There is no doubt that

the Vietnam economy achieved a massive beneficiary from the trade war

between the United States and China. It creates both opportunities and threats of

the Vietnam economy with FDI flows that will classify in the following content.

Tien and Anh (2019) believed that the US and China economic conflict would

bring benefit to Vietnam by the relocation of US manufactories and investment

28

flow, creating new business orientation. Also, China used to be the leading

suppliers for the United States market, but it is not favourable during the trade

war. Therefore, factors relocate to other neighbour markets in South East Asia

such as Vietnam, Campuchia, and Lao. As stated in this research about the

Dunning International Production theory, Vietnam consists of all the needs for

resource, asset, efficiency, and strategic seekers that potentially profitable

market for investors. For example, the article of Nhan Dan News (2020)

presented that the companies from United States, Japan, and Europe planned to

transfer business lines out of China to avoid the negative effect of the trade war

and increase labour price of China. Mainly, the Japanese government released

2.2 billion USD to support its entities to relocate production to other Southeast

Asia countries.

Besides, there are potential risks that Vietnam should consider before the FDI

movement. Vietnam imports and export heavily depends on the two gain

economies. Notably, most of the import goods and materials came from China to

the trade pressure of the United States and China strongly effect on Vietnam

commercial business. Since Vietnam benefits from the trade war, it raises

concerns about the influence of China on the Vietnam economy. For instance,

the Huawei has banned by the US government, which China may produce low-

cost items to avoid tax for high-value products. By the way, the Chinese

government can subsidies the manufacturing costs to attract investors. This may

limit the FDI into Vietnam. Moreover, Vietnam related to the resources from

China for manufacturing and trading business is unable to take steady action to

defend the power of China.

2.5.3 Key investors in FDI inflows

With the advantage of geographic features and national conditions, there are four

main countries contributing the most for the FDI inflows of Vietnam including

Korean, Japan, China, and the United State.

29

⮚ Korea is the top FDI investment in Vietnam. To 1H/2020, the total valid

investment projects of the nation are 8,785 with total charter capital is 68,159

million US dollars (MPI, 2020). However, each project scale is at a small size of

around 9.3 million US dollars. The big enterprise from Korea such as Samsung,

LG and Lotte has a huge contribution to the development of Vietnam.

⮚ The second investor was Japan with over 4,500 projects, equating to 59,940

million US dollars. Most project is a huge scale with around 13 million US Dollars

for each. Japanese corporations have entered the Vietnam market since the

early stage with the appearance of Honda, Toyota, etc. with high-quality

products.

⮚ The accumulated projects of China to Vietnam were around 3,000, with the total

charter capital was $21,000 million US Dollar, equating to around 5% of the total

registered capital in Vietnam. The nation mostly invested in real estate, finance,

and infrastructure under direct or contractual investment.

⮚ With the encouraging policy for FDI in Vietnam and the ongoing trade war with

China, there are more and more big multinational corporations of United State-

related manufacturing lines to Vietnam. The total valid investment project of

United State entities to Vietnam was over 1,000 with over 9,300 million US Dollar

in term of total charter capital.

Investment projects Total charter capital (million US Dollars)

Korea 8,785 68,159Japan 4,500 59,940China 3,000 21,000

United States 1,000 9,300

Table: Main inward FDI nations to Vietnam. Source: MPI, 2020.

2.5.4 Impact of Covid 19 on consumption expenditure by sectors.

The COVID 19 pandemic has no sign of a break, leading to multiple negative

impacts in terms of the economy and social healthy systems. Regarding the

30

research of Statista (2020) about the effect of COVID 19, the strong impact of

COVID reflected through the drop-down demand for visiting supermarkets and

grocery stores and wet markets (50%) and changed to online shopping activities

(25%). It results in a significant decrease in demand for leasing commercial real

estate for displaying products (figure 6).

It matched with the research about the customer behaviors after COVID 19.

People preferred to shop online and delivery service with an increase of 20%

(figure 5). Following the increase in transportation and household sector for 12%

and 11%, respectively. However, the social distancing directly affected the

communications with the decrease of -21%, entertainment, and dining industries

dropped to -19% compared with 2019. All the service industries included

hospitality, tourism, and entertainment, etc suffered from the COVID 19 affection

Figure 5: Impact on shopping and out-of-home activities due to coronavirus

COVID-19 among urban citizens in Vietnam in 2020. Source: Statista, 2020.

31

Figure 6: Change in consumption expenditure due to coronavirus COVID-19

outbreak among Vietnamese in 2020 compared to 2019, by sector. Source:

Statista, 2020.

32

Chapter 3 : Methodology

3.1 Research approachThe target of the report is to test hypotheses between independent such as

locational factors and dependent variables such as resource, market, efficiency,

and asset seeking approaches. Since the global economy faced with a potential

new crisis from the global pandemic. Therefore, it is important to review the issue

from the macro to the micro-scale to justify the Vietnam economic position. By

the way, the research adopted the deductive approach to give overview opinions

than a particular result (Saunders et al., 2012). It explained Jonker and Pennink

(2010) that researchers and implement hypotheses and test the results through a

research approach. It causes the deduction method to perform unique functions

such as examining the relationship between variables, therefore the connection

between the location factors and the four advantages will classify. Based on the

topic area, the deductive method is going to investigate to prove the positive

connection between independent and dependent variables.

3.2 HypothesesAfter review the research questions and objectives, these include the

determinants of FDI inflows, the US-China trade war, and global pandemic

creating opportunities for FDI in Vietnam. The research will test the relationship

between locational factors in four types of advantages in the Dunning

international production theory including resource-seeking, market-seeking,

efficiency-seeking, asset-seeking (Dunning, 1998). The set of hypotheses

presented below:

H1: locational determinants create positive impact on the resource-seeking

strategies.

H2: locational determinants create positive impact on the market -seeking

strategies.

H3: locational determinants create positive impact on the efficiency -seeking

strategies.

33

H4: locational determinants create positive impact on the asset -seeking

strategies.

3.3 Research methodThe section function is to find a situation research method to conduct an analyst

data to prove the correlation of hypothesizes is the basic step of methodology. In

the study of Peffers et al. (2007), there are two types of data including quantity

and qualitative concepts. In which, quality research prefers to non-numerical data

and words such as interviews (Saunders et al., 2012). On the other hand, a

quantitative approach related to a substitute for data collection methods that

concentrate on mathematical data such as surveys and questioners. Regarding

the research, the quantitative approach applied to test significant the impact of

FDI inflows in Vietnam under the economic shocks. To be specific, the

quantitative approach applied to test the correlation of locational determinants on

the four factors of the Dunning International Production theory. The study of

Kothari, (2004) identified that the quantitative data with survey strategy could

able to support the researcher to conduct and analyse descriptively statistics.

3.4 Data collection3.4.1 Type of data

The economic crisis including the United States-China trade war and COVID 19

strongly affected the worldwide economic and financial system including

Vietnam. Through the review, secondary data of economic factors supports

giving a solution for Vietnam to sustain its competitive advantages. The type of

data presented to the past researches, reports, and reading by other authors and

scholars, which involved with the topic of the paper. Currently, the United

Kingdom and other nations practiced the concept of social distance; therefore, it

is a limitation to conduct the primary data (Chen et al., 2020). Regarding the

reason, secondary data provisions to answer the research questions and cover

the objectives (Saunder et al., 2012). The research focused on trustable sources

of secondary information from government official data, which obtained from the

General Statistical Office (GSO), Ministry of Planning, and Investment of Vietnam

34

(MPI) through online websites and yearbook. However, these sources of data are

lack of issued lack of information in the differentiation between accumulated FDI

and FDI inflows, no implementation capital (Nguyen et al., 2016). Therefore, the

data sources from other consistent worldwide data took into account such as

OECD, The World Bank, UNCTAD, etc.

3.4.2 Sampling

Choosing an accurate sample supports for effective data collection (Wilson,

2014). Stated in the research of Saunder et al. (2012), the Convenience

sampling method related with the random selection of easy target sampling to

match with the research topic. Regarding the topic area, the research covered

various perspectives of FDI, which select the random sample with the best

choice for selecting suitable data within the limited timing. Aiming to understand

the research area, the sample focus on the cumulative FDI, GDP growth rate,

graduated high school employees, average salary, etc. In which, the group of

variables will split into four sets presenting for the top FDI investment nations

including China, the United State, Japan, and Korea.

3.4.3 Variables and measures

The dataset will conduct to serve the purpose of research; this section aims to

explain the variables and measures. To understand the effect of economic

shocks, the dependent factor will be the FDI features. The number of investment

projects and the cumulative FDI inflows from the main sources of investment

nations. The research samples collected in the period of 2010-2020.

In addition, dependent variables are resource-seeking, market-seeking,

efficiency-seeking, and strategic asset-seeking strategy. Data of dependent

variables will obtain through Vietnam legislative sources (GOS and MPI)

combining with the worldwide database such as OECD, The World Bank,

UNCTAD, Trading Economics. The mix between different groups of data set

brings a widen view about the switch of FDI flows into Vietnam, then, predicting

35

future scenarios for the Vietnam economy. The specific contents of each factor

took into account as below:

+ To test the relationship of a locational factor with the resource-seeking

strategies, the production and distribution resources such as electricity, water,

and factors applied. It presents the available resources of the oil industry in

Vietnam. The exploring mineral resources estimated in the number of project

developments, registered capital, and implemental capital for the public

government databases.

+ In terms of market-seeking elements, the variable is the growth rate and capital

of GDP, aiming to highlight the effectiveness of domestic economic performance

in the five years’ periods. GDP per capita, government debt to GDP, and fiscal

expenditure represent the local market scale in Vietnam and the efficiency in

trading activities of Vietnam with other nations. A high growth rate and a fast

developing market will attract more and more foreign investors.

+ Variable of efficiency-seeking method related to labor factors. The ratio of

skilled workforces is used to scale of educational and quality of current human

resources of Vietnam (Pham, 2002). Moreover, the average salary also included

estimating the labour expenses. The effectiveness of working capacity measured

by the earning per labour.

+ Strategic asset-seeking strategy innovation applied the technical factors. This

variable shows the stage of the invention of Vietnam. The variable scales based

on the number of authors and articles participating in scientific and humanities

researches in Vietnam.

3.5 Data analyst The effective data analyst will support to create reliability outcomes and support

for proving the hypothesis, therefore, the role of data collection is extremely

important (Bromley, 1986). In the scale of the research, the data analysis aims to

test the positive relationship between the dependent and independent variables

to approve the research topic. The data analysis method follows the concept of

36

Creswell (2003) about the univariate analysis. Particularly, the practice of

univariate analyst to prove the relationship between individual variables such as

the locational factors and the four factors. In which, these variables will compare

through the growth rate year over year.

The study will apply the univariate analysis to statistical analyst the hypothesis

with the calculation of Weighted Mean, Standard Deviation, Covariance, and

Correlation to test the relationship between variables. In the statistical theory, the

covariance test presents for the positive or negative covariance between two

factors. In addition, the correlation reflects the strength of the relationship

between variables.

After that, the Excel analysis utilized to run the analyst test based on the

formula below:

⮚ Standard deviation: ¿√❑

⮚ Variance: ❑2 ¿∑❑

❑

(x i – μ )❑

❑

⮚ Covariance: Cov (x , y )=∑❑

❑

(x i – x )∗( yi – y )❑

⮚ Correlation coefficient:

r=n∑

❑

❑

xy−∑❑

❑

x∑❑

❑

y

❑

3.6 Ethical issues The research used public online data from statistical global organizations and

Vietnam government official websites; it requires the legal permission to use the

databases. By the way, data authors need to recognise in the reference list. If the

required data source is not available, the form of permission request needs to

submit the data author for access and use. The secondary data conduct to serve

37

for the purpose of the research and must protect from anonymous access, loss,

or destruction (Tripathy, 2013). The data collection support to keep in encrypted

files in computers. The researcher also needs to ensure the secondary data are

appropriate and match with the topic area.

3.7 Limitation The selection of the deductive approach and secondary data sources causes of

reflection of the biases for the research such as the absence of new information.

Utilisation of quantitative data limited the accessibility to enter non-numerous

data and create challenges to acknowledge to the content of a phenomenon.

Moreover, the application of secondary data from different sources may cause

conflicts in the covariance between factors and the author has no power to test

the legitimacy of data. The original database did not conduct for the research

topic; therefore, the combination of different data sources may not logical and not

strong enough to investigate the topic issues. Therefore, the documents may lack

authenticity and not representative of the entire population. The future researcher

should include a qualitative method combining with primary data to present more

convincible results.

38

Chapter 4 : Data

4.1. trading activities countries

4.1.1 Inflow trade According to table 1, the import level of the United States takes lead the market

in terms of average value, following by China with 324.7 billion US dollars and

222.7 billion US dollars for the period of 2010-2020, respectively (World Bank,

2020). Korea is the nation presented the least imported goods or services with

10.7 billion US Dollar. Moreover, the United States and China also the top of

sampling units in the scale of a wide range. Particularly, the range of the United

States was 258.7 billion US dollars while China performed 139.2 billion US

dollars. It presented the leading role of America in the global trading economy. In

the scale of Vietnam, the nation presented the effective import value with 11.9

billion US Dollar from 2010 to 2020.

Table 1: Descriptive statistics of FDI net inflows in period of 2010-2020.

Source: World Bank (2020) and Trading Economics (2020).

4.1.1 Outflow trade In table 2, even China achieved a really good performance in exporting activities

with 112.8 billion US Dollars on average, only equal one-third of exporting goods

and services of the US in a total period of 2010-2020 (World Bank, 2020). The

United States' position was nearly incompatible with the average export of 293.7

39

billion US dollars. It reflected the stronger competitive advantages of the United

States in the trade war with China by the trading value. BBC (2020) claimed that

America attempted to boost power to maximise its global power in front of China.

Table 2: Descriptive statistics of FDI net outflow in period of 2010-2020 .

Source: World Bank (2020) and Trading Economics (2020).

40

Chapter 5 . Results

5.1. The relationship between locational factors with the international production theory

5.1.1 Resource seeking strategiesFrom the result of table 3, it is clear to see the strong relationship between the

FDI inflows created a positive impact on the performance of resource-seeking

planning. In which, the correlation between the FDI inflows and the resource

factors achieved 0.75 and 0.72 in terms of total projects and registered capital,

respectively. It reflected the effective in mobilization locational factors for

resource production schemes.

FDI net

inflows

Total resource

projects

Accumulated

register capital

FDI net inflows 1 FDI net inflows

Total resource

projects0.752 1

Total resource

projects

Accumulated

register capital0.720 0.960 1

Accumulated

register capital

Table 3: Correlation of FDI and resource-seeking strategies. Source:

author’s calculation

5.1.2 Market seeking elementsThe flow of FDI into the Vietnam business market was in the same line with the

growth of GDP per capita, government debt to GDP, and fiscal expenditure with

a correlation of 0.59 and 0.65 and 0.56. in which, the connection between FDI

inflows and the fiscal expenditure showed the part of FDI used for social benefits

such as unemployment, retirement plan, etc. of the government to a citizen due

to the pandemic.

FDI net

inflows

GDP per

capita

Government debt to

GDP

Fistal

expendire

41

FDI net inflows 1

GDP per capita 0.594 1

Government debt to

GDP 0.658 0.893 1

Fiscal expenditure 0.568 0.997 0.892 1

Table 4: Correlation of FDI inflows and market-seeking strategies. Souce:

Worldbank, (2020)

5.1.3 Efficiency seeking strategy.The outcome of the impact of the locational element on the efficiency-seeking

strategy did not really strong even there was a positive correlation between these

factors. It presented in the correlation with the average income of skilled labor.

The faster rise of average salary than the flow of FDI could be the main reason

for the medium strength of the relationship between the two variables.

FDI net

inflows

Skilled

employees

Average income

(USD/ year)

Working capacity

(VND/ labours)

FDI net inflows 1

Skilled employees 0.508 1

Average income (USD/

year) 0.522 0.998 1

Working capacity (VND/

labours) 0.556 0.966 0.970 1

Table 5: Correlation of FDI inflows and Efficiency -seeking strategies.

Source: Molisa (2020)

5.1.4 Strategic asset-seeking strategyThere was a weak relationship in the linkage of locational factors on the strategic

asset-seeking tactics through a number of authors and articles for social science

researches. The input of FDI in Vietnam does not courage the new innovational

creation in term of technical factors.

FDI net inflows No of researchers No of articles

42

FDI net inflows 1

No of researchers 0.359 1

No of articles 0.386 0.997 1

Table 6: Correlation of FDI inflows and Strategic -seeking strategies.

Source: Ho et al., (2020)

43

Chapter 6 . Findings, Analysis and Discussion

6.1 Vietnam’s trade performance

6.1.1 Vietnam becomes attractive place for relocation factoryFrom table 1 and 2, it described the main trading activities including import and

export between Vietnam and the main partners. The presented the role of China

and the United State in Vietnam’s economy. While China is the biggest supplier,

the United States' performance as the largest export market for Vietnam.

Specifically, the imported good of China to Vietnam increased triple times in the

beginning period of 2010 at $20 billion USD and estimated to reach $75 billion

USD at the end of 2020. Japan and Korea will geographic advantages with short

distance following with around $18 billion USD to $20 billion USD in both trading

activities in recent years.

From the point of view, Vietnam presented the surplus trade with America and

the extra deficit with China. Since the US increased tariffs to hence the

international business of China, a wide range of Chinese firms were losing

market share with other Southeast Asia nations such as Vietnam. In the study of

Vu and Nguyen (2019), the authors believed that the pandemics and trade war

could bring multiple benefits and threatens to Vietnam by the switch of the

production line from China such as Samsung (Korea), Apple, and Nike

(America), Daikin (Japan), etc. For instance, Nike is the typical case for the

benefit of manufacturing relocation. Regarding to the article of Intouch Quality

(2019), the global footwear chain decided to move its production chain to

Vietnam since 2010 with 37 percent, taking over the China-based factories with

34 percent in market shares. In 2018, the gap between the two factoring nations

has been extended with over 21% by the increasing to 47 percent and reducing

to 26 percent for the Vietnamese and Chinese manufactories, respectively.

Firstly, the Vietnam economy takes advantage of the trend of the relocation of

factories to other Southeast nations (Tien and Anh, 2019). Based on the

44

research of Asian Development Bank from Vietnam Briefing (2020), Vietnam is

the top nations in Southeast Asia achieved the highest positive growth rate in

GDP with 4.8% while the other nations decreased such as Thailand (-4.8%),

Singapore (0.2%) and Malaysia (0.5%) in 2020. In the past 20 years, the growth

rate of Vietnam always remained over 5%, presenting the young and fast-

developing economy. It showed that even the international business faced with a

new crisis, the demand for trade in Vietnam will be continuous growth. Moreover,

the increasing wage in the basic salary of China increased the product cost

which is one of the main reasons for the relocation of international companies in

this nation (Vina Capital, 2018).

By the way, Vietnam caught the attention of investors with attractive offers to the

relocation of manufactories. Vietnam with stable policy and government

management creates a safe and sound business environment. Additionally, the

labor cost in Vietnam is still cheap with a high knowledge level. Another attractive

factor includes the geographic location next to China and the South Pacific,

convinced for companies to transfer machines and production lines to Vietnam

as well as export goods to other nations through seaports. The investment policy

of Vietnam offers a different range of discounts such as free tariff for Corporate

Income Tax in the first 4 years of investment for industrial zones and other tax

discounts with relaxing investment schemes. While the Chinese government set

restraining rules for investors in manufacturing, electronics, and supplements

OECD, (2019). With all of the reasons, there is no doubt that Vietnam creates an

ideal atmosphere for a sustainable business raise.

Regarding import operation, China leads the market over the last decade with 3

times since 2010 (figure 7). In the study of Chowdhury and Mavrotas (2006), the

inflow of FDI presented for the flow of FDI injecting into a country, which foreign

firms undertaking direct investment in the host country. In terms of the

investment amount, China ranked 7th in the top nations for new FDI registered

capital. China enterprises contributed over 3,000 accumulated projects in

Vietnam with the total charter capital at $21 billion US Dollar, approximating

45

about 5% in the total FDI capital. It followed the study of Zhang and Corrie (2018)

about the strategic management of China to invest in developing nations in the

2000s. Even it is a good sign to gain more foreign capital from China into

Vietnam market, it remains a high probability of anti-Chinese products due to the

bad reputation of China in term of product qualities (Vina Capital, 2018).

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Est 2020

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

$80,000,000,000

Import value

China Japan Korea USA

Figure 7: import of Vietnam with main countries between 2010 and 2020.

Sourrce: UN trade and Vietnam Custom (2020).

6.1.2 The risk of Vietnam during the trade warThe export goods to the United States expected to reach $62 billion USD,

becoming the leader in the export partner of Vietnam with a surplus of $48 billion

USD in 2020 (figure 9). China ranked in the second rank with $41 billion USD in

expecting export value in 2020. Vietnam’s exports to China grew by 0.3 percent

over the same period. It can be seen that the increase in Vietnam’s exports to

China is much lower than the increase in Vietnam’s exports to the United States.

Moreover, due to the trade war between the two gain economies, Vietnam with

trade reliability with the two countries deals with a wide range of issues including

the risk of direct competition with China and transiting of Chinese products to the

US market.

46

Moreover, in the table (Figure 8), UNCTAD (2020) highlighted that the

developing nations replying on automatic precision, technology, and technical

factories. In which, Vietnam with the industrialist strategy is at the top of the

impacted economy by the global pandemic with $2.3 billion USD, listed as the

fifth of most trading damage (UNTAD, 2020). China presented as the biggest

manufacturing center of the world, therefore, shut down production disturbs the

regional and global supply chain and created a hard time for depending countries

to find replaceable methods. Currently, the second wave of the disease has

nearby passed and most nations resume the international flight routes. For

example, Vietnam reopened international commercial flights since 15th

September. It encouraged the country to attract foreign tourists and investors to

support for recover economy. Moreover, it benefited from the swift waves to

developing nations.

Europe

an U

nition

United

Stat

esJa

panKore

a

Vietna

m

Singap

ore

United

King

dom

Mexico

Switzerl

and

Malays

ia

Thaila

nd

Canad

a

Turkey

India

Indon

esia

-

5,000

10,000

15,000

20,000 million USD

Figure 8: Trade impact of the Coronavirus epidemic until 2020. Source: UNTAD,

2020.

● In term of export goods to China

47

The first challenge is the increased export of China to Vietnam, leading to a trade

deficit that threatens local business firms attracting customers. China still

remains the competitive advantage by advanced technologies and infrastructure

which could support international firms to outsourcing their products easily. While

Vietnam is a developing nation with under completing infrastructures and

economies, which concern investors to enter the market. The other limitation

related to the US tariff on Chinese products will be switch to import of other

nations such as Vietnam to share the tax cost. Lastly, the biggest issue deal with

goods that could not export to the United States will domestically consume in

China, narrowed the export market for Vietnam. It explained the dropped of 0.43

billion USD in export value to China market.

Moreover, there is another apprehension about Vietnam to become the yard of

China in order to transfer its product to another market for tariff deduction. The

concern is that Vietnam may be turned into China's ‘backyard’, which may result

in adverse consequences. By ‘exporting’ models such as cross-border economic

cooperation zones, Chinese businesses may seek to move out obsolete

technologies from their countries to reduce pollution. Thus, it will be difficult for

Vietnam to avoid receiving outdated technologies from China. The Vinh Tan coal-

fired power plants in Binh Thuan province and Formosa steel mills in Ha Tinh

province are such examples. Furthermore, by being seen as China’s backyard,

Vietnam runs the risks of being subject to more punitive US measures in the

future.

● Export to the United States

The most trouble to Vietnam is becoming a convenient transit platform for

Chinese products to avoid the high tariffs of the States on China (Washington

Post, 2018). The idea supported by the research of Paszak (2020) by the case

study of China’s steel elated into Vietnam and labeled as Vietnamese products

before shifting to the United States. The report of Vietnam Insider (2019) pointed

48

out that Vietnam’s steel industry got pressure by a maximum of 400 percent of

the tax charge on the cold-rolled product to America.

However, the technological product is mostly heavy and difficult for

transportation, which could limit the illegal transport to Vietnam in order to defend

the high tariffs of the United States. Moreover, America kept tracking the transit

product of China to other nations to prevent illegally imported items. From the

point of Vietnam, the nation may suffer from the raise tariff of the United States

but it has improved the business environment, attracting more and more US

enterprises for FDI projects. Not only the US, but the other developed nations

from Europe and the United Kingdom also showed their interests in Vietnam after

shifting away from China. For example, Vietnam has joined EVFTA in 2019,

which offered new trading opportunities with the global market, reduce reliance

on the United States during the sensitive timing. Moreover, the US government

promoted the campaign to defend the trade deficit with Vietnam, regarding

encourage Vietnam to import the United State goods and solving market entry

barriers such as tariffs, custom policies, geophysical distances, etc.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Est 2020

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

Export value

China Japan Korea USA

Figure 9: export of Vietnam with main countries between 2010 and 2020.

Source: UN trade and Vietnam Custom (2020).

49

6.1.3 Main trade categories of Vietnam to China and America

● Main export items to China

The main export product to China included electronic equipment such as

computers and phones with a value of $5.4 and $3.7 billion USD, up 36% and

50% year over year in 2020 (figure 2). With the fast growth rate in exporting,

Vietnam factories replaced the role of manufactories of China in producing

basic materials and basic compositions for manufactories in China. However,

these types of products easily processed and could easily replace by other

nations with cheaper labour costs and more attractive tariff policy. In addition,

China with gain international supply chain networks, and a professional

management system supported the nation to compete with other Asian nations

such as Vietnam. In the near future, the export market of Vietnam will be

narrow and threaten by the expansion of China, mostly in textile fibers and

electronic industries.

● Main export items to the United States

The main export items to America including textile fibers (20%), computer

(14%) and phones (19%), machinery (9%), wood products (8%), vegetables

(3%), and seafood (2%) for the first haft 2020 (figure 10). Regarding the figure

3, the export situation of textile fibers to the United States reached over $6

billion USD in the first haft of 2020, dropping 12% compared with 2019 (figure

11). While, the following most export categories belonging to technological

products such as computers and phones with nearly $4.5 billion USD and $4

billion USD, respectively. The import of computers and phones in the United

States increased impressively at 190% and 5.2%, respectively. In addition,

there is also a significant surge of machinery with $2.9 billion USD, up 73%

YoY. The increase in technological products and machinery supply, which was

the key export goods of China previously, suddenly becoming the main export

products of Vietnam. It leads to the concern for the US government about the

ability of Vietnam to increase the level of inventory in a short period.

50

China United State$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Textile fibers Computers and equiqments Phones and equiqments Machinery Wood products Vegetables Seafoods

Figure 10: trading categories between Vietnam and China, United State between

2010 and 2020. Source: UN trade and Vietnam Custom (2020).

Figure 11: growth rate of main export categories between Vietnam and China,

United State in 2010 - 2020. Source: UN trade and Vietnam Custom (2020).

Vietnam beneficiated from the war trade between the US and China; therefore,

the Chinese products which charged high tariff in US could be factored and

51

consumed in Vietnam (Ha and Phuc, 2019). By the way, Vietnam is able to

export the surplus products to the United States, obtaining the remaining market

share of China in the United State. Moreover, the demand for production leads to

FDI attraction, job requirements, and gain GDP for the host countries.

6.1.4 Main majors impacted by the CovidRegarding figure 12, the Vietnam economy based on the agricultural and

industrial major with a large portion of the total GDP. By the way, Vietnam

applied technological innovation from developed nations such as Taiwan,

Singapore, Korean to increasing the ration of industry and reducing agricultural

major (ILO, 2018). By the way, Vietnam could set the strategic plan on export-

oriented sectors. The content below delivered the performances of three main

sectors influencing them in term of the FDI.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200

20

40

60

80

100

120

43.44 36.94 36.73 37.27 38.74 39.04 39.73 40.92 41.26 41.12 41.64

37.3932.13 32.24 33.56 33.19 33.21 33.25 33.72 33.4 34.23 34.49

19.17

18.38 19.57 19.22 17.96 17.7 16.99 16.32 15.34 14.68 13.96

Agriculture, forestry and fishing Industry (including construction) Services

Figure 12: Contribution to GDP by industry in Vietnam. Source: Statista,

2020.

● Services

Regarding figure 11, The service industry used to take a big part of the economic

growth in Vietnam with over 14% - 19% in total GDP in the period of 2010 to

2019. During the period, Vietnam tourism is one of the most attractive investment

52

sectors for foreign investors. For example, the Swiss-Belhotel International chain

has planned to establish at least 10 high-end hotels; Centrara Hotels and

Resorts planned to open 20 new hotels in Vietnam (Cong Thuong News, 2019).

However, the accumulated projects only 880 projects with over $12 billion USD

in the total registered investment to May 2020 (FIA, 2020). In addition, the

pandemic has frozen the demand for service major including hospitality,

transportation, tourism, causing the drop-off service major at 13% in 2020

(Statista, 2020). In which, tourism is one of the service industries suffered the

most by a comprehensive crisis. During the pandemic, the Vietnam government

practiced quarantine society campaigns including restrictions of festivals and a

crowded group of people, no travel events. It directly damaged the tourism

industry with a negative growth rate of -98.2% for the international tourists in the

first 4 months of 2020 (Vietnam Tourism department, 2020). Since Vietnam

handles the second wave of the pandemic, the gate for international travelers still

closed. The total number of international tourists to Vietnam in 2020 will

decrease by about -90% year over year with a total of only 3.7 million arrivals

(ACB, 2020).

From the future predication, 50 million to 1.1 billion fewer international tourist

arrivals US$ 910 billion to US$ 1.2 trillion loss in export revenues from tourism

100 to 120 million direct tourism jobs at risk as shown in figure 13 One of the

typical cases got affected the Covid-19 pandemic was Thailand. The nation lost

nearly 40 million tourists annually. Through encourage tourism and exports, the

Thai currency improved its strength against US dollars, however, tourists to

Thailand decreases due to the expensive cost and effected of the Covid-19

pandemic.

53

Figure 13: International tourist trend and scenarios for 2020. Source: UNWTO,

2020.

● Industry

Among the investment sectors, the industry attracted the most number of

projects and total registered investment with over 14,700 accumulated projected

and $220 billion USD in 2020, which is much higher the hospitality and

agriculture, forestry, and fishing industries (Figure 13). In the study of Minh et al.

(2020), FDI investment concentrated in the fast return majors, quick capital

recovery, simple production process, therefore, the industrial business attracted

for manufacturing basic materials for the initial steps of technological production.

Moreover, the government concentrated on attracting FDI for the industrial and

constructing majors. Therefore, the industrial investment has more promotions,

free tariffs, and another discount to boost foreign investment.

● Agriculture, forestry and fishing

The agricultural sectors got less FDI investment than the others. In which, the

accumulated registered projects were at 503 with the accumulated investment at

3.5 billion in 2020 (figure 14). Due to the government policy, the sector predicted

to lose its portion in the GDP and replaced by the industrial majors. It was a part

54

of industrialization, which is the process of increasing the share of industry in all

economic sectors of an economic region or economy (Tuan, 2006).

Industry hospitality Agriculture, forestry and fishing

0

2000

4000

6000

8000

10000

12000

14000

16000

-

50,000

100,000

150,000

200,000

250,000

No. of projects Total registered investment (mil USD)

Figure 14: Accumulated registered projects and total registered investment by

sectors to May 2020. Source FIA, 2020.

6.2. Application of Dunning International Theory in Vietnam

6.2.1 Resource-seeking strategiesThe research of UNTAD (2020) emphasized that the energy level of the world will

drop -55% in 2020 (Figure 15). It results from the drop in the export level relating

to the down in energy demand and commodity prices in various developing

nations export. In the first hypothesis, the locational element contributed to the

resource-seeking strategy with a strong impact on the flow of FDI to Vietnam,

resulting in a correlation level at 0.7, which was highly involved. This locational

factor involved with the available resource of a nation, which could support it to

attract investment. The abundance of natural resources has a strong impact on

the level of foreign investment in terms of developing countries like Vietnam in

the International theory. It supported the nation to stand out the market since the

other more developed nations in terms of resource price. For example, some

type of resources in developed nations such as China and America offered a

55

higher price than Vietnam due to the currency value, which results in less

attractive in terms of investment. It against the results of Deng (2003) about the

influence of national resources in the FDI inflow. The conflict between the two

results came from the indicates to measure the resource impact. Particularly, the

research of Deng (2003) concentrated on the natural agricultural resources while

the exploration took into account the factor of water, electricity, and mineral

resources to represent the natural supply of a specified nation. By the way, Deng

(2003) extracted the water, electricity, and mineral resources into the contribution

of ordinary supplements. Besides, the author applied the dataset for the variable

in the context of the sum of FDI inflows connecting with the basic salary. It also

contributed to the gap between the two results. To sum up, the outcomes of the

hypothesis satisfied the need for the International Development theory in the

Vietnam market. resource exploitation played a vital role in attracting FDI

investment in developing nations like Vietnam. Through promoting the domestic

resource and followed the resource-based view model, Vietnam will be able to

maximize its competitive advantages.

2017 2018 2029 2020

-60-50-40-30-20-10

0102030

%

Figure 15: Annual growth rate of energy sector of the world, 2017–2020. Source:

UNTAD, 2020.

56

6.2.2 Market seeking elementsThe flow of FDI into the Vietnam business market was in the same line with the

growth of GDP per capita, government debt to GDP, and fiscal expenditure with

a correlation of 0.59 and 0.65 and 0.56. in which, the connection between FDI

inflows and the fiscal expenditure showed the part of FDI used for social benefits

such as unemployment, retirement plan, etc. of the government to a citizen due

to the pandemic.

The other hypothesis about the key element could attract FDI injections to

Vietnam including the market-seeking strategy. The specified local conditions

involved with the market seeking process consisted of the scale of this study

such as the growth of GDP per capita, government debt to GDP, and fiscal

expenditure of a country. GDP per capita is found to have an average strength

connecting with the FDI inflows, Government debt to GDP presented to have a

more positive effect on foreign investment level, and the fiscal expenditure has a

similar correlation with the growth of FDI inputs. There is a positive effect of 0.66

and 0.57 for Government debt to GDP and fiscal expenditure, respectively. It

matched with the previous study’s outcomes of Root (1994), who agreed in a

combination of the market seeking effect including the GDP per capita relating to

the labour cost, government debts, and fiscal expenditure relating to the stability

of a market to invest. However, the outcomes of the study presented the effect

contributing to the domestic factors which could affect the FDI attraction. The

domestic market size of Vietnam presented through the performance of GDP per

capita has a small effect on attracting FDI stocks. The reason came from the

developing nation as Vietnam tending to reply to the resources of the developed

nations nearby such as China, Thailand, etc. due to the limited capacity in self-

production and lack of technology. The report of Vu and Nguyen (2019)

reinforced that Vietnam replied on other nations to perform trade business and

compulsory to remain a vulnerable gateway for exchanging business. It has

proved by the trade deficit of Vietnam with Chinese import products. However,

Vietnam potentially attracted the multinational entities with a target regional

market segment to sustain growth in the business for a long-term vision.

57

Moreover, the research of Tien and Anh (2019) added that the small economies

have better presentation than the fully developed nations in the interchange

acceleration. It against the study of the concept of the IDP theory with the idea

that the weak economy lacked the capacity to encourage FDI without considering

the seeking resource strategies by Dunning in 1998. Especially, the less

developed nations such as Vietnam could be able to impress the well-developed

nations through the strong growth of the export level. In addition, the FDI aligned

with increasing levels of government debt and fiscal expenditure when the local

government needs to spend more to invest in the public infrastructure,

transportation, and education to attract qualified foreign companies. In

conclusion, hypothesis two accepted the results. There was a positive

relationship with the market-seeking strategies on the improvement of FDI entries

in Vietnam. The outcomes reflected the locational indicators bridging with the

seeking market strategies of the added FDI to Vietnam. The small economies

attracted the investors from the high level of export, which was a lack in the

developed nations (Davies and Green, 2013).

6.2.3 Efficiency-seeking strategy.The outcome of the impact of the locational element on the efficiency-seeking

strategy did not really strong even there was a positive correlation between these

factors. It presented in the correlation with the average income of skilled labor.

The faster rise of average salary than the flow of FDI could be the main reason

for the medium strength of the relationship between the two variables.

Hypothesis three specified that locational elements complicated with the seeking

strategies could get a huge amount of FDI capital. In terms of efficiency-seeking

tactics, the main components consisted of skilled employees, average income

(USD/ year), working capacity (VND/ labours) in the Vietnam region. The paper

emphasized the role of experienced employees in the line with the average

income and working capacity to review the effectiveness of human resources in

the production line. It resulted a positive relationship between the efficiency-

seeking component of the FDI performance. Groh and Wich, (2012) sustained

58

that the quality of human resources and stability of the financial market take an

irreplaceable role in terms of attracting inward FDI. To sum up, the third

hypothesis reviewed the optimistic connection between variables, plus, the

specified localization elements created a strong link with the efficiency of FDI

seeking strategies, potentially encourage the FDI level. Especially, the working

performance of the labour and the salary were one of the attractiveness for

foreign investors.

Besides, Letto-Gillies (2007) found that seeking efficiency strategy and the

expanded revenue could process through the achievement of international

business implementation. In which, the practical framework of both licensing and

direct production brings a competitive advantage for the firm. In the case of

investment license, the Vietnam government offered different cases to custom

the market entry requirement for investors depending on business criteria. By

achieving the investment license, the investors could qualify for the corporate

income tax (CIT) and encouraged location in the hi-tech parks, industrial parks,

or specific economic zones. In case of huge factoring projects, the incentive

portfolio can be extended up to 15 years if the business achieves the global

competitive advantage with the sum of profit over 20 trillion VND annually within

five years from the year of recorded revenue.

6.2.4 Strategic asset-seeking.The last hypothesis related to the asset-seeking strategies by the performance of

innovation factors to attract FDI as much as possible. The correlation between

variables achieved a weak relationship with an average of 0.36. The locational

element represented for the innovational stage of Vietnam. The outcome clearly

disagreed about the role of strategic asset-seeking with the creational activities,

which could not interest FDI inflows. It showed the lack of evidence about the link

between the innovation such as the scientific articles in Vietnam and the FDI

inputs. Therefore, the implementation of innovational researches was not able to

take into account due to the lack of impact on the level of FDI inflows. The results

agreed by the study of Tri and Anh (2016) about the absence of a core

59

relationship between the impact of innovation on the FDI performance in the case

of Vietnam.

However, the study of Galan et al., (2007) contracted with the result about the

absent evidence of the innovational impact on the foreign funds. The author

clarified that setting an effective market entry model requiring the combination of

the other factors with the operation of asset-seeking strategy to make investment

judgment. However, the sampling size of the research conducted from a

developed country, which may cause a conflict between results since there is a

lack of database about the innovational performance in terms of developing

nations. In fact, the FDI into developing countries mostly paid attention to the

local resources such as various tax discounts and cheap labour to reduce the

production cost, then applying home country’s innovation for the automatic

production line in host countries.

In conclusion, the report described the key elements, which the nation could use

to sustain the locational advantages. Besides, a small nation as Vietnam easily

improved the level of foreign capital by applying policies to promote a wealthy

business environment, educational level of labours, investment in innovational

works.

60

Chapter 7 : ConclusionsIn general, firms in developed nations have less development market and high

competition, tends to look for an emerging market with fast growth development

and fewer rivals. It explained by the study of Kim (2005) about the “blue ocean”

theory. In addition, by the capital fund from FDI activities, the local government

could improve technological application and human resource quality. At the same

time, foreign countries could use the locational advantage for business

operations such as cheap labour costs, natural resources, tax promotion, etc.

Therefore, the practice of FDI attraction is the key growth for both foreign and

domestic markets to achieve impressive growth in sustainable development.

Besides, the China-US trade war motivated the multinational firms to switch their

production line to other Asian nations to avoid the tax penalty from Trump’s

government. Plus, the COVID 19 disease highly potential started from China

created unpredictable chaos for the global financial market and hypothetically led

to a new crisis for the global financial business. The lock-down measures spread

out the world and direct harm economic implementation, forcing businesses to

find a new strategy to cut costs and seek new supply sources (Brinca et al.,

2020). It is no doubt that China lost its locational advantages to other nations.

Therefore, Vietnam benefited from the trade war and pandemic with similar

economic conditions as China such as cheap labour cost, stable political

conditions, rich resources, etc., creating a suitable environment to move the

capital from China. Since then, the research has highlighted the main features of

global trade under the difficult period from the pandemic and trade dispute. After

that, the Dunning’s international theory concept has practiced clarifying the main

locational advantages of Vietnam to attract the new shifting FDI from China.

7.1 Impact of the trade war and the pandemic on FDI inflowsIn terms of historical FDI flows, Vietnam presented impressive growth from the

fiscal policies and an open economy for investment to promote foreign capital.

Especially, the nation benefited from the shift of production line from China with

similar economic and political conditions. However, the lobby fee and unclear

61

legal system created concerns for foreign investors. On the other hand, China is

the leader in FDI attraction with a vast systematic business network across the

world and completely developed infrastructure and supported services.

Correspondingly, China also needed to deal with government corruption and

other related issues.

The world has faced the two big financial crises in the past including the Great

depression in 1993 and the financial crisis in 2008, which took the global

economy a long time to recover. Currently, there was a potential economy

dispute from the expansion of Covid19 disease and the trade war between the

two biggest economies including the United States and China. In which, China

has been locked down due to the Covid19 pandemic for a certain period and the

tariff penalty from the US, causing the waves of moving FDI to other nearby

nations with similar business environments. On the other hand, Vietnam with a

well-prepared scheme to hence the spread of the disease in the beginning stage

and attracted FDI strategies, delightful advantage from the shift of FDI flows from

China. However, it presented the extraordinary possibility of Vietnam turn to a

transit station for Chinese goods shipping the United States. However, Vietnam

replied on the supply resource from China, creating difficulties for the

government to slap on transferring Chinese products to Vietnam. In addition, the

four main nations injected capital into Vietnam including Korea, Japan, China,

and the United States. It is a must for the political leaders to remain the peaceful

relationship with the big nations without offensive both sides.

7.2 Dunning’s theories The research overview undertook from various available articles from

Vietnamese and foreign scholars in order to show the principle concept of

Dunning’s theory of foreign investment. It provided the different approaches of

the FDI with the purpose of the foreign and host nations in the role of FDI as well

as the advantages and disadvantages of each method. Among different FDI

theories and models, the Dunning OLI framework and Dunning International

Production theory can be considered as the most suitable and modern for the

62

Vietnam case. In which, the International Production theory has provided a clear

view of the application of FDI in a macro perception. Particularly, through the

literature review, the research listed the previous studies about the main features

of the two concepts. In the OLI model, the three sub-paradise including

ownership, location, and internationalism (Eden and Dai, 2010). Depending on

the stage of development, the nation required push factors such as ownership

and internationalism, or pull factors such as locational elements. After conduction

of previous researches, the paper has chosen locational elements in the OLI

model to Vietnam. The reason for the international firms chose FDI rather than

other alternative development paths relating to the internalization of production.

The research found out that the production location could support the firms to

localise their products and dominated the foreign market with a realistic market-

entry strategy. Regarding the International Production theory, the paper pointed

out the decision making process of the foreign firms to select the suitable

investment market through resources, market, efficiency, and asset seeking

strategies (Dunning, 1998). The combination of these factors is the key

motivation for firms to set up foreign subsidiaries.

In addition, the target of the research is to test the International Production

framework during the COVID 19 pandemic and trade war. It presented that there

was a lack of literature about the International Production theory and locational

strategies in Vietnam during economic disputes. It has processed the forecast of

the correlation between locational elements and the International Production

framework to select significant factors affecting FDI performance. The research

has conducted data from the local and international published databases

including GSO, UNTAD, the World Bank, etc. to scale the connection between

location-specific factors and the development process. It concluded that

resource-seeking, market-seeking, and efficiency-seeking play are in the light of

the FDI attraction and benefited for Vietnam economy. The predication for the

International Production element involving with strategic asset-seeking is not

included with the purpose of the research.

63

7.3 RecommendationThe research has investigated both internal and external factors, which

contented the possibility to impact on the level of FDI inputs. However, there are

some of the perspectives to discuss further in future studies. Particularly, the next

paper should review the sampling size before starting a conduction to ensure a

similar set of databases in line with the topic areas for the most accurate results.

Moreover, the other researches should examine the national growth by the

increase in sample size or innovating new approaches such as comparing

different timing stages of a nation to review the change before and after the

Covid19 pandemic. In addition, the International Production theory may deeply

investigate by breaking into various stages with specific FDI inflow and outflows

from certain nations. It might also be interesting to focus on identifying how

different forms of resource richness influence the growth of inward FDI stocks.

With the stress-out of the relationship between the US and China, foreign

investors tent to find a new promised market with stable financial and political

status as Vietnam. However, the high corruption level with the completed legal

systems threatens the investment to enter the market. Therefore, Vietnam needs

to clear out the legal frameworks for Investment Law and related Law and

clarified the corporate governance systems. In specific, the nation needed to

restructure the investment structure to defend bureaucracy and boosted

investment process. Moreover, the competition also came from the other nearby

emerging markets with similar economic conditions such as Indonesia, Laos,

Cambodia, etc. Therefore, improving investment in high tech zone and industrial

zone gains the technological application level, which will help Vietnam to stand

out with other developing nations.

Word count: 14,526.

64

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