Chapter 3 Taiwanese Investment in Vietnam
3.1 Overview of Investment Environment
Over the past two decades, Vietnam has progressively opened its economy to foreign investors. The number of projects and the total of foreign investment capital have increased by years (see Figure 5). Foreign Direct Investment (FDI) has played an important role in Vietnam’s economic growth. The investments has lead Vietnam into a broad and deep integration into the global economy. The FDI capital flow has contributed more than 1/3 total social investment capital with 17 percent of GDP.
Among them more than 45percent came from industrial and 54 percent came from exports demonstrating high proportion of crude oil, electronics-computers, leather goods, and textile etc. (General Statistics Office, 2010).
The FDI has promoted the advancement of technology in Vietnam and has had a large impact on other economic sectors. The FDI has provided an effective vehicle for the transference of technology to domestic manufactures. Through the cooperation of business or trade, foreign subsidiaries have effectively transferred technology, market and management knowledge to host country companies. They have helped to increase the growth of local companies’ productivity and contribute remarkably to the growth of the GDP (Varamini & Vu, 2007).
In order to obtain the result mentioned above, Vietnam has continuously improved its investment environment which has brought a lot of opportunities to investors. However, the investors have been still facing with challenges. According to the research result of the business environment of 2010, although there has been lack of skilled labors, weakness of infrastructure, slow improvement of land policy, tax
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regulation and not enough improved administration system, the investors have been optimistic about Vietnam’s investment environment. Most of them will expand their investment in three following years (Ministry of Planning and Investment of Vietnam, 2010). Their expectation for future investment environment is relatively high
(Ministry of Planning and Investment of Vietnam, 2010).
3.1.1. More appropriate to international practice, more attractive to investors and towards sustainable development of legal system.
In order to maintain and attract more FDI capital flow, Vietnamese Government has undertaken the necessary, positive changes in its policies and laws. These changes aim to meet the actual requirements of the economy as well as international trade and investment standards. The enforcement of the Investment Law has been appraised as one of Vietnam’s efforts to meet the condition for accession to the World Trade
Organization (WTO). The Law has also provided a fair, equal investment environment to all economic sectors including domestic and foreign investments. This encourages both domestic and foreign investors to increase their investments in Vietnam. Besides the Law of Investment, the Vietnamese government has been improving law and regulations on trade, enterprise, fiscal, labor etc. All current laws and policies of Vietnam demonstrate preferences to attract more investments (Ha, 2006).
In particular, Vietnam has also applied different preferences to encourage
advanced and high-technology development and transfer in such exemption of income tax, import tax, valued added tax for organizations or individuals who invest in
technological fields. This favorable condition has attracted a new flow of foreign investment capital (Phuong, 2010).
Despite the great progress of improving the legal and regulatory framework for
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investment, in general, Vietnam’s the legal system has been ongoing to be overall completed. In practice, the different treatments in policy implementation to the domestic and foreign companies somehow remained. Some regulations have not been clearly understood and have been difficult to enforce (United Nation, 2008). The consistence in understanding, interpretation and especially in the implementation of law, regulation of centre and local government’s agencies still have not caught up with the world’s standard (Phung, 2010). In some cases, there have been some officers of local government take advantage of the gap between laws and regulations. The bureaucracy, corruptions have occurred in both processes of investment registration and implementation (Son, 2011). These problems lead to reduction of foreign investor’s willingness to invest in Vietnam.
3.1.2. Political and social stability
Social and political stability, clear, specific action plans and plentiful, young and low cost of labor are factors which have strongly affected to the success of attracting of foreign investment in Vietnam (Son, 2011). With the high percentage of
working-aged people and the low cost of labor compared to other countries in the region, Vietnam has brought a good condition for foreign investment especially in light industries such as textile, garment, leather goods etc. Vietnamese always want to maintain social and working environment stability to attract more investment capital in the future (Thao, 2010).
Although the Vietnam’s labor source is large, the quality has not fully met the expectations of its investors. A high percentage of workers have not been trained in appropriate skills. More than 65 percent of the workforce in Vietnam is still lacking in technical skills, around 78 percent of the workforces aged from 20 to 24 have not had
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sufficient expertise (Vietnam Business Forum, 2010). The lack of skilled workers, technicians, managers has reduced the competitiveness of Vietnam.
In addition to this problem, the relationship between employees working in the FDI sectors and the foreign managers has been strained. The conflicts between labors and companies on compensation and working conditions some time have occurred.
Almost of 70 percent of strikes in the labor force in FDI companies have occurred because of low wage (Thao, 2010). Some FDI companies have taken advantage of Vietnam’s wage regulation limitation in order to exploit its labor force. Comparing minimum wage with the CPI, GDP per capita and living standards, the wage paid by FDI companies has been slowly improving. Added to this issue, the Government has not yet caught up with the world standards on how to build a long term legal
framework or the scheme to deal with this problem (Vietnam Business Forum, 2010).
However, some points of view have indicated that the advantages of low cost labor source in Vietnam have been decreased because of the increasing of expenditure on social insurance and other costs for employees. According to the prediction of Vietnam Industrial and Commercial Chamber, the social insurance (including health care and unemployment insurance costs) will increase from 22% to 26 % in 2014. In addition, although the insurance costs will rise, but the significant benefits of
employee would not be increased as a result of inflation (Vietnam Business Forum, 2010).
Environmental pollution in Vietnam is another factor which has negatively impacted the investment trend. Recently, many industries, including FDI companies have been guilty of polluting the environment. If investors seriously pay attention to environment protection, their production will be costly (VnEconomy, 2010). As a result, a lot of companies have avoided implementing necessary environmental
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protection solutions. When a range of environment violations were exposed and strictly treated in 2009 and 2010, FDI investors and Vietnamese environmental
management agencies have started paying attention to the term of clean and green FDI (Hoa, Hanh &Chinh, 2010). Since then both domestic and FDI companies have
started changing their business strategies toward approach of environment protection but the result has not been greatly improved. Penalties for environmental violations and system of monitoring those violations in the Environmental Protection Law at localities somehow have been inconsistent. The regulations on environmental violations in the Law have not been clear and have been difficult to implement (Vietnam Business Forum, 2010).
This problem has strongly impacted on Vietnam’s sustainable investment and development. Therefore attracting FDI by conforming to environment protection is very important. Vietnam is changing the foreign investment capital approach. The government has encouraged projects which have detailed plans and strict commitment to environmental protection. In fact, sustainable investment is a big challenge to Vietnam (Hoa, Hanh &Chinh, 2010).
3.1.3. Poor infrastructure and inadequate energy system
Infrastructure and energy are Vietnam’s big considerations to attract FDI. All economists and investors agree that Vietnam has a geographical advantage both on land and on the sea transportation systems, but have made the point that the
infrastructure has been slow to develop. During the past 5 years, Vietnam has made a huge effort to upgrade the transportation but they have not succeeded in meeting the demand of economic development. The industrial zone development and urbanization have been developed faster than the transportation development. For the nearest future,
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infrastructure development is Vietnam’s main mission if Vietnam wants to maintain FDI capital flow, improve the competitiveness and integrate strongly into the global supply chain (Vietnam Business Forum, 2010).
As for the telecommunication infrastructure, in recent years, telecommunication system of Vietnam has been considered to have outstanding progress. It’s a result of efforts by Vietnam’s government and telecommunication companies. Vietnam’s government has launched a big plan to encourage domestic and foreign investors to push for progress in its telecommunication system. However, there has been a big gap between service quality and communication costs (Vietnam Business Forum, 2010).
The cost of energy sources such as gas and eclectricity have been increasing and negatively impacting production cost. In fact, the existing problem of energy in Vietnam is that the energy supply has not yet met the demand of industries. Because of high, unpredictable of energy prices, many investors have change the investment location which cause the change of investment plans and make project
implementation time longer (Toan, 2010).
It can be seen that Vietnam’s the global integration can create both opportunities and challenges. As the official member of AFTA, APEC and WTO from 2007,
Vietnam would have both opportunites and challenges to more fully and broadenly take part in the global economic environment. Vietnam would also expand markets, increase export opportunities and promote economic reform. World Bank estimates suggest that Vietnam continuous maintainance of economic growth in recent years as well the economic prospective in the future will raise Vietnam’s GDP (Pham, 2011).
Vietnam’s economy has been considered by many investors to be a great incentive for expanding production and to attracting more business. For 10 years, Vietnam’s
economic growth has been ranked at top of ASEAN countries (Vietnam Business
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Forum, 2010).
Another reason for attracting investors is that Vietnam’s government has followed a consistent and steady practise of of economic development objectives.
Vietnam’s government has indicated that all diplomactic activities as well agreement in the future will to support to economic development strategies. Vietnam has been actively involved in economic interests, trade communities, established bilateral, mutillateral relationships in order to take advantage of preferences by member of these organizations. This also has brought a big benefit to foreign investors, expecially in the area of tariffs (Vietnam Business Forum, 2010).
In order to overcome difficulties from the economic crisis in 2008-2009, Vietnam’s government has implemented possitive moves in monetary and financial policy to recover the economic growth. However the government’ efforts only aim to control the instability of financial and monetary market. Banking system still lacks capital to meet demand of investors and business. The inflation rate is high. These issues impact the expansion of production and new investments (Tam & Vu, 2011).
3.1.4. Potential consumer market
With a large population of about 84 million peoples and GDP per capital gradually increase, Vietnam is a country with a big potential consumer market.
Vietnamese consumers are considered as being the youngest consumers within Asia and their spending is getting higher (Bien, 2009). However, there have been several concerns relating to the weakness of Vienam’s production and retail market. They are the relationship between domestic and FDI companies, the supporting product
manufacturing, the protection of consumer’s interest etc. Around 70 percent to 80 percent of ther FDI’s raw material is imported which seems to be the one causes
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pushing up production cost (Nguyen, 2010).
3.1.5. Open technological environment
Beside the issues surrounding capital and the labor force issues, management and technology are considered to be the most important factor for economic development.
According to the opinions of foreign investors, Vietnam’s economy is changing from labor-intensive industries to advanced technique based industries. Vietnam has implemented preferential policies to attract more investment capital along with advanced technology. At present, the project investing in advanced technique and technology can get more incentives than those in other sectors (Vietnam Economic Review, 2009).
Vietnam’s technological application is still at beginning stages. The
competitiveness of technological market and technological production capacity is still rather low. Generally, Vietnam’s technology level of industries is still low developed being behind by more than 20-30 years compared to technology level in other countries in ASIA (Xuan, 2010). Social investment in technological fields is limited, especially in business. There is no close and efficient cooperation between industries, research organizations and universities (Ministry of Science and Technology, 2010).
3.2. Taiwanese investment situation in Vietnam.
It can be said that Taiwanese investors were one of the earlier foreign investors in Vietnam. And as of the end of May 2011, Taiwan remains at the top of the list of foreign investors in Viet Nam, according to latest figures from the Ministry of Planning and Investment (MPI), from 1990 to 2010, there were 2,146 investment projects from Taiwan with registered capital of US$7.6 billion (Taipei Economic and
Cultural Office, Hanoi, Vietnam
Figure 5. Top 20 foreign investors in Vietnam by 2010
Note. From Taipei Economic and Cultural Office, Hanoi, Vietnam,
http://www.roc-taiwan.org/lp.asp?CtNode=1691&CtUnit=14&BaseDSD=7&mp=226
&xq_xCat=C
According to the data of MPI ( Hanoi, Vietnam), from 1988 to 2005
increased, and especially after the amendment of Investment Law which g open and favorable condition to foreign investors
licensed only one Taiwanese
(By total investment capital from 1990
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Cultural Office, Hanoi, Vietnam, 2011).
nvestors in Vietnam by 2010
Taipei Economic and Cultural Office, Hanoi, Vietnam,
taiwan.org/lp.asp?CtNode=1691&CtUnit=14&BaseDSD=7&mp=226
According to the data of MPI ( as cited by Taipei Economic and Cultural Office, om 1988 to 2005, the number of investment projects had gradually , and especially after the amendment of Investment Law which g
open and favorable condition to foreign investors. In 1988, Vietnamese authorities Taiwanese-invested project. In 2007, the number of invested
Taiwan, 11.83%
Top 20 Foreign Investors in Vietnam (By total investment capital from 1990-2010)
Total reg. capital 192.92 billion US$
taiwan.org/lp.asp?CtNode=1691&CtUnit=14&BaseDSD=7&mp=226
Taipei Economic and Cultural Office, the number of investment projects had gradually , and especially after the amendment of Investment Law which gave more
Vietnamese authorities . In 2007, the number of invested
Korea, 11.47%
Singapore, 11.26%
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projects reached 227 projects, the highest number since 1988 to now. Since the influence of economic crisis in 2008-2009, the number of projects licensing in 2008 was 138, decreased 39% compared to the 2007. The falling down of the number of invested project continued in 2008, 2009 and 2010 (see Figure 6). By 2010, Taiwan has invested in Vietnam 2.164 projects with the total registered capital of US$
22,814.4 million, in which 82.32 percent of invested projects were in industrial manufacturing companies, 6.17 percent were in the real estate sector, 5.33 percent were in construction sector (see Figure 7).
Figure 6. Growth of number of registration project up to 2010 Note. From Taipei Economic and Cultural Office, Hanoi, Vietnam,
http://www.roc-taiwan.org/lp.asp?CtNode=1691&CtUnit=14&BaseDSD=7&mp=226
&xq_xCat=C
0 50 100 150 200 250
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Nuber of project
Year
Number of registration project by each year
Figure 7.Investment capital Note. From Taipei Economic
www.taiwanembassy.org/lp.asp?ctNode=9275&CtUnit=880&BaseDSD=7&mp=226
It can be said that investment in the fields of industry and processing greatly increased and that
technology, retailed sale have been steady growing, while investment in some other sectors such as in agriculture and construction has slowly
Before 2008, there were no investment projects sectors. Taiwanese investors ha
2010, there were 33 registration projects total capital of US$ 25.1 million
totally opened according to the WTO integration’s schedule, the Taiwanese investor have rapidly increased their
apital by sector in 2010
Taipei Economic and Cultural Office, Hanoi, Vietnam,
www.taiwanembassy.org/lp.asp?ctNode=9275&CtUnit=880&BaseDSD=7&mp=226
It can be said that investment in the fields of industry and processing
that the investment projects in banking and insurance, high technology, retailed sale have been steady growing, while investment in some other
s in agriculture and construction has slowly decreased (see ere no investment projects in high technology and retailed . Taiwanese investors have changed their investment trend since
istration projects investing in high technology sector,
25.1 million. Since January 1st, 2009 the retailed sale sector has totally opened according to the WTO integration’s schedule, the Taiwanese investor
sed their investment in this field. By the end of 2010, only
Industrial and
It can be said that investment in the fields of industry and processing have the investment projects in banking and insurance, high technology, retailed sale have been steady growing, while investment in some other
(see Table 1 ).
in high technology and retailed 2009. Up to investing in high technology sector, with the
retailed sale sector has totally opened according to the WTO integration’s schedule, the Taiwanese investors
investment in this field. By the end of 2010, only within 2 Investment Capital by Sectors
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year, the number of project has increase to 29 projects (see Table 1) (Taipei Economic and Cultural Office, Hanoi, Vietnam, 2011).
In the industry and processing sectors, Taiwanese investors have focused on Textiles and garment, footwear, timber products and bicycles and most companies have been operating at a small to medium scale. However, Taiwan’s investment trend has changed. Large companies such as TECO Group and Foxconn Group operating in the electronic and steel industries have just started investing in Vietnam in a large scale (Vietnam News, 2009).
Until now, more than 73 percent of project has been located in the southeast provinces of Vietnam such as Dongnai, Binhduong and Ho Chi Minh City. While some other large scale investments have concentrated on electronic components, steel sector have been located in the northeast and central provinces such as Bacgiang, Hanoi, Hatay and Hatinh (Vietnam News Agency, 2009; Vietnam Economic Review, 2009).
Concerning the investment in electronic components, Taiwanese investors have come in Vietnam later than other investors those are from Japan and South Korea who have begun their operation for more than 10 years. Otherwise, Taiwanese investors rarely cooperate with Vietnamese domestic companies compared to investors of other countries. These might cause the difficulties when Taiwanese investors wish to set up the distribution channel in Vietnam’s market. If Taiwanese investors continue these business practices, they may have difficulty to compete with others from America, Japan, Korea and EU (Phuong, 2006).
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Table 1
Number of registration projects from 2005 to 2010
No Industry
Accumulative number of registration project
2005 2006 2007 2008 2009 2010 1 Industry and processing 129 1083 1261 1356 1654 1726
2 Real estate 5 7 8 19 22
3 Construction 5 74 98 109 66 77
4 Agriculture 27 317 333 347 176 180
5 High technology 31 33
6 Retail sale 29
8 Banking and insurance 6 6 7 8 8
7 Information 9 12
9 Leisure and hotel 7 10 15 16 12 13
10 Transportation 1 6 9 11 11 13
11 Education 3 4
12 Others 12 61 73 93 21 29
Total 181 1562 1802 1947 2010 2146
Note. From Taipei Economic and Cultural Office, Hanoi, Vietnam,
www.taiwanembassy.org/lp.asp?ctNode=9275&CtUnit=880&BaseDSD=7&mp=226
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3.3. SWOT analysis of investment for Taiwanese investors
Table 2
SWOT analysis of FDI environment for Taiwanese investor
Strengths Weakness
+ Young, inexpensive labor force + High GDP growth in the region + Large consumer market + Social and political stability + Dynamic domestic private sector + Favorable conditions for attracting FDI
+ Poor infrastructure
+ Gaps between service, quality and price
+ Inefficient administration and corruption
+ Lack of adequate credit and insurance service
+ Incomplete market institutions + Lack of solution for labor dispute and strike
+ Poor intellectual property rights protection and enforcement training
Opportunities Threats
+ Economic reform promotion
+ Favorable condition for investment in agriculture, high technology, clean industry, infrastructure and construction materials
+ Access to and better allocation of
+ Access to and better allocation of