3. IMPACT OF INVESTEMENT ENVIRONMENT ON FDI ATTRATION
3.3. Factors from international investment environment
3.3.1. General trend of cooperation between regions and countries
The trend of increasing cooperation between the countries and territories will limit military confrontation; promote the expansion of economic relations between the countries and territories. These are important conditions for investment liberalization.
On the other hand, the trend of dialogue and cooperation will remove economic blockage and embargo against the developing countries. Since then, it will remove barriers to capital flows between countries and territories around the world.
3.3.2. General trend of regional lingkage and globalization
The formation of the Common Market or the Free Trade Organization does not create direct policies for FDI, but through the policy of free trade between members will remove market penetration barriers of the member countries. So, that creates favorable conditions for MNCs to expand labor division between countries in the bloc.
Regional linkages make a stable development of the countries in the region;
thereby create a solid basis for the member countries to make commitments of FDI policy liberalization. Before 1985, the EEC member countries attracted FDI mainly from the outside, most of FDI from the U.S. After the formation of Common Market, especially since 1992, FDI inflow in this bloc increase not only from outside but also in internal bloc.
If the regional linkages talk about regional economic agreements between countries, the globalization emphasizes the interwoven processes between companies on a global scale to form an international production network. The speed of the globalization process promotes liberalization of FDI, thereby enabling multinational companies to expand operations worldwide.
The trend of globalization also promotes international financial markets, which impacts strongly on FDI movements. This effect is expressed by: reducing the financial institutions for international capital flows, extending the application of technology to create favorable conditions for trading business of financial markets.
Most countries recognize that the role of liberalization of investment and trade policy for economic development, they has been increasingly openning market through the efforts of the signing of bilateral or multilateral investment agreements, 2- times tax avoidance agreement; and through joining international and reginal trading organizations. The signing of agreements with foreign investors is the primary importance legal to ensure trust for the investors to invest overseas. The agreement signed with the terms related to investment content will affect the regulations and investment policies for foreign investors or affect the change of the elements of the investment environment in accordance with agreements regulations. It is legally guaranteed to reduce risk of investment, thus foreign investors invest boldly. Also, conditions for joining international and regional trade Organization as well as routes to open market after accession have forced the country to improve its investment environment, starting from the legal system. So the trend of globalization has affected the improving process of global investment environment including: institutional system and legal environment for foreign investment activities in the national, regional and global levels.
3.3.3. Establishment and development of transnational companies
FDI activities are mostly implemented by the TNCs so the establishment and development of TNCs will impact significantly on FDI flows movement. TNCs include the parent and subsidiary company in countries around the world. Growth of
TNCs is expressed by rapid increase in number of parent companies and their affiliates across the globe.
The parent company is a company which has full control of their assets in government-owned country. There are 3 types of subsidiaries: The first type is dependent companies - more than 50% of assets invested by the parent company which holds ownership right, they have right to appoint or dismiss members of the organizational and operating structure of subsidiaries. The second type is the associated company; the investor of parent company holds only a small percentage of assets and has fewer powers than the first type. The third type is a subsidiary that operates with a 100% property owned by the parent company, the parent company of this case has full rights to the company.
Merger wave of the TNCs since the 1980s that formed huge companies in all continents, taking significant market share on the world market, operating more fields with more effectively organized and more highly computerized. The western economic experts believe that the merger of the company have a positive effect on the business development under market rules, quickly introducing scientific and technological advances into practice, limiting business risks. The wave of mergers contributes to increase foreign investment at such a record. The increase in merger wave and trends to invest in science, technology and service of the TNCs show that developing countries have opportunity to approach FDI flows into the region and the transfer of technology, but also face challenges of lacking human resources to absorb the inflow of FDI. Therefore, the investment receiving country needed to develop the education and training system to raise level of the employee.
In this Dissertation , the author shall focus on studying investment environment of Vietnam at three major cities (Hanoi, Danang, Hochiminh city). The
investment environment includes investment environment in the host countries, investment environment in domestic country and international investment environment. Among three components of investment environment, the receiving country can actively control only the domestic environment if the country wants to attract FDI. Dissertation research focused investment environment of Vietnam.
Among the factors of investment environment of Vietnam, there are stable or barely changed factors such as the natural environment, the political environment. Therefore, the Dissertation focuses on the factors of investment environments to which the Government has heavily influenced, including: environmental policy, law, administrative procedures; economic environment; Infrastructure and human resources.