Another cluster of activities involving many developing-economy TNCs are financial services, infrastructure services electricity, telecommunications and transportation and goods that are relatively difficult to export cement, food and beverages. Because of their non-tradable nature, these economic activities typically require FDI if a company wishes to serve a foreign market. With a few exceptions such as Cemex and the former South African companies, Old Mutual and SABMiller , however, most of the developing-country TNCs in these areas are mainly regional players, with limited if any activities in other parts of the world.
A third cluster of activities consists of those that are the most exposed to global competition, such as automotives, electronics including semiconductors and telecommunications equipment , garments and IT services. Almost all the major TNCs from developing or transition economies in these industries are based in Asia.
Of the top developing-country TNCs in , as many as 77 were based in this subregion. The increase in the number and diversity of developing-country TNCs over the past decade is largely due to the continuing impact of globalization on developing countries and their economies.
The dynamics are complex, but within them the combination of competition and opportunity — interwoven with liberalization policies across developing and developed regions — is particularly important. As developing economies become more open to international competition, their firms are increasingly forced to compete with TNCs from other countries, both domestically and in foreign markets, and FDI can be an important component of their strategies. This competition, in turn can impel them to improve their operations and it encourages the development of firm-specific competitive advantages, resulting in enhanced capabilities to compete in foreign markets.
Firms may respond directly to international competition or opportunities by utilizing their existing competitive advantages to establish affiliates abroad. They may even combine both strategies. While developed-country TNCs are most likely to utilize firm-specific advantages based on ownership of assets, such as technologies, brands and other intellectual property, evidence shows that developing-country TNCs rely more on other firm-specific advantages, derived from production process capabilities, networks and relationships, and organizational structure.
There are, however, significant variations by country, sector and industry. For example, TNCs in the secondary sector as a whole are most likely to possess and utilize advantages in both production process capabilities and ownership of assets in that order , with less reliance on advantages grounded in networks and relationships, and organizations.
In contrast, for TNCs in the primary sector, production process advantages are preponderant, while in the tertiary sector, networks and relationships represent the main advantage. There is some tendency to convergence with developed-country TNCs, mostly as economies become more developed e.
Many of these TNCs also enjoy non-firm-specific competitive advantages: for example, those deriving from access to natural resources or reservoirs of knowledge and expertise in their home countries. These locational advantages might be available to all firms based in an economy, but a number of developing-country TNCs are adept at combining various sources of advantage including firm-specific ones into a strong competitive edge.
Many of the developing and transition economies that are home to large TNCs and are investing significant amounts of FDI overseas — such as Brazil, China, India, the Russian Federation, South Africa and Turkey — are doing so much earlier and to a greater degree than would be expected on the basis of theory or past experience.
This intensification of FDI by these countries can be traced to around the early s. The likely reason for this shift lies in the impact of globalization on countries and companies, especially through increased international competition and opportunities. Four key types of push and pull factors, and two associated developments help explain the drive for internationalization by developingcountry TNCs. First, market-related factors appear to be strong forces that push developing-country TNCs out of their home countries or pull them into host countries.
In the case of Indian TNCs, the need to pursue customers for niche products — for example, in IT services — and the lack of international linkages are key drivers of internationalization. Chinese TNCs, like their Latin American counterparts, are particularly concerned about bypassing trade barriers.
Overdependence on the home market is also an issue for TNCs, and there are many examples of developing-country firms expanding into other countries in order to reduce this type of risk. Secondly, rising costs of production in the home economy — especially labour costs — are a particular concern for TNCs from East and South-East Asian countries such as Malaysia, the Republic of Korea and Singapore, as well as Mauritius which has labour-intensive, exportorientated industries, such as garments.
Crises or constraints in the home economy, for example where they lead to inflationary pressures, were important drivers in countries such as Chile and Turkey during the s.
However, interestingly, costs are less of an issue for China and India — two growing sources of FDI from the developing world. Clearly, this is because both are very large countries with considerable reserves of labour, both skilled and unskilled. Thirdly, competitive pressures on developing-country firms are pushing them to expand overseas. These pressures include competition from low-cost producers, particularly from efficient East and South-East Asian manufacturers.
Indian TNCs, for the present, are relatively immune to this pressure, perhaps because of their higher specialization in services and the availability of abundant low-cost labour. For them, competition from foreign and domestic companies based in the home economy is a more important impetus to internationalize. Such competition can also sometimes result in pre-emptive internationalization, as when Embraer Brazil and Techint Argentina invested abroad in the s, ahead of liberalization in their respective home industries.
Domestic and global competition is an important issue for developing-country TNCs, especially when these TNCs are increasingly parts of global production networks in industries such as automobiles, electronics and garments. Fourthly, home and host government policies influence outward FDI decisions.
Indian firms, on the other hand, have been enticed by supportive host-government regulations and incentives, as well as favourable competition and inward FDI policies. South African TNCs, among others, mention transparent governance, investment in infrastructure, strong currencies, established property rights and minimal exchange-rate regulations as important pull factors.
Most importantly, liberalization policies in host economies are creating many investment opportunities, for example through privatizations of State-owned assets and enterprises.
Apart from the above mentioned factors, there are two other major developments driving developing-country TNCs abroad. First, the rapid growth of many large developing countries — foremost among these being China and India — is causing them concern about running short of key resources and inputs for their economic expansion.
This is reflected in strategic and political motives underlying FDI by some of their TNCs, especially in natural resources. Second, there has been an attitudinal or behavioural change among the TNCs discussed in this chapter.
They increasingly realize that they are operating in a global economy, not a domestic one, which has forced them to adopt an international vision. These two developments, along with push and pull factors — especially the threat of global competition in the home economy and increased overseas opportunities arising from liberalization — adds empirical weight to the idea that there is a structural shift towards earlier and greater FDI by developingcountry TNCs. In principle, four main motives influence investment decisions by TNCs: market-seeking, efficiency-seeking, resource-seeking all of which are asset exploiting strategies and created-asset-seeking an assetaugmenting strategy.
Surveys undertaken by UNCTAD and partner organizations on outward investing firms from developing countries confirm that, of these motives, the most important one for developing-country TNCs is market-seeking FDI, which primarily results in intraregional and intra-developingcountry FDI. Within this, there are differences in patterns of FDI, depending on the activity of the TNC: for example, FDI in consumer goods and services tends to be regional and South-South orientated; that in electronic components is usually regionally focused because of the location of companies to which they supply their output ; in IT services it is often regional and orientated towards developed countries where key customers are located ; and FDI by oil and gas TNCs targets regional markets as well as some developed countries which remain the largest markets for energy.
Efficiency-seeking FDI is the second most important motive, and is conducted primarily by TNCs from the relatively more advanced developing countries hence higher labour costs ; it tends to be concentrated in a few industries such as electrical and electronics and garments and textiles. Generally, resource-seeking and created-asset-seeking motives for FDI are relatively less important for developing-country TNCs.
Not unexpectedly, most resource-seeking FDI is in developing countries and much created-assetseeking FDI is in developed countries. Apart from the above motives, a common one for TNCs from some countries is that of strategic objectives assigned to State-owned TNCs by their home governments.
Some governments have encouraged TNCs to secure vital inputs, such as raw materials for the home economy. For example, both Chinese and Indian TNCs are investing in resource-rich countries, especially in oil and gas to expand supplies, in contrast to targeting customers as does market-seeking FDI in this industry. For assistance with investments into Vietnam please contact us at vietnam dezshira. An Introduction to Doing Business in Vietnam An Introduction to Doing Business in Vietnam will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam.
Managing Contracts and Severance in Vietnam In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country.
We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.
With its team of lawyers, tax experts, auditors and An Introduction to Doing Business in Vietnam will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam Your email address will not be published.
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Our subscription service offers regular regulatory updates, including the most recent legal, tax and accounting changes that affect your business. Because of its status as a developing country, Vietnam has concentrated on attracting FDI to develop supporting industries.
However, the attraction of FDI to develop supporting industries in Vietnam is still a weakness due to a deficient quantity of total governmental capital expenditure and qualitative infrastructure projects. This study examines the reality of developing supporting industries and attracting FDI for the development of supporting industries in Vietnam.
The factorial impact may be expressed in two possible ways: First, it is the view of the state regarding the development of supporting industries to orient the national industrial development strategy to be consistent with the trend of globalization and international economic integration. The relationships needed to associate with the international economy must be expanded upon. It must be understood that the mutual assurance of relationships between supporting areas and industrial manufacturing sectors is not to be confined within a single country but within a regional or a global scale.
Therefore, a unified view of any development regarding supporting industries is particularly important for national and industrial development of supporting industries to occur. Second, the policy on the development of industry and supporting industries in a country, which may or may not be developed, is largely dependent on the development strategies and policies decided by the state.
Therefore, those policies related to promoting supporting industries, such as support for information technology, capital, provisions of association in business, etc. On the other hand, the localization policy; tax policy on importing and manufacturing semifinished products, both parts and components; the level of state-sponsored investment in scientific research and technology in supporting industry areas; the laws, standards, and technical regulations promulgated on behalf of industries; and diversification of products within the supporting industry networks can be seen to either facilitate or hinder the continued development of supporting industries.
This is due in most part to the presence or the lack of a development-oriented perspective of the state as it is related to this issue [ 40 , 41 ]. Human resources: Due to the manpower requirements of supporting industries, human resources are a principal factor maintaining a strong impact on future levels of industrial development and national supporting industries. The criteria of interest for determining human resources include the number, educational background, personal qualifications, absorptive capacity, self-discipline, communication skills including language competency , drive for innovation, and professionalism of the human resources managers who are involved [ 2 , 39 , 42 ].
Infrastructure facilities: This remains an important influence needed to attract FDI for the development of strategic investment SI. Any nation possessing appropriate infrastructure i. Domestic supply capability: In order to ensure the domestic supply of materials, parts, and accessories for production-stage products derived from MNEs, the domestic supply chain i. It will greatly help MNEs to minimize the costs incurred for transportation and storage while guaranteeing the timely delivery through accurate production planning and the timely assembly of MNEs [ 43 ].
Market size of supporting industries: Market size i. If a market is large enough to attract business participation in the supply of products and services, it will enable MNEs to easily facilitate partnership, make technology transfers possible, and establish business linkages [ 43 ]. Technological development and innovation: As a solid foundation for the development of principal industry, supporting industries require considerable regular investment in terms of modern machinery, capital equipment, and innovative technology.
Assemblage enterprises consistently set out many stringent requirements for the technical standards involved in the production of component types and spare parts. At such a time, the assemblers will have to invest in the manufacturing of, or importation of, overseas components and parts by themselves to meet client needs [ 2 , 18 ]. International cooperation and competition: The liberalization of trade and investment, through international forums and region, significantly reduces transaction costs, increases trade, and strengthens national competitiveness and international engagement.
Moreover, the level of competition in attracting investment capital between countries is becoming ever more acute as global revenue pools shrink. To enhance competitiveness in attracting FDI, a growing number of countries have tried to adjust their national policies and to improve the local investment climate to become more attractive for foreign investment to occur [ 6 ].
Other criteria : The influence of attracting FDI toward the overall development of supporting industries is important. This factor i. Respective of this study, the proposed procedure utilizes the consistent fuzzy preference relations CFPR process to select a beneficial strategy for attracting foreign direct investment FDI. The following section will give a brief description of the suggested CFPR method. Herrera-Viedma et al. A is assumed to be a multiplicative reciprocal, that is,.
Definition 3. Meanwhile, P is assumed to be an additive reciprocal, that is,. Proposition 3. With such a transformation function g , this paper can relate the research issues obtained for both kinds of preference relations.
Taking logarithms on both sides, it has. In such a way, this paper considers the following definition of the consistent fuzzy preference relation:. In what follows, this paper will use the term additive consistency to refer to consistency for fuzzy preference relations based on the additive transitivity property.
Therefore, by Proposition 3. Compute the set of preference values B as. As part of this study, 22 government staff members and policy-makers, foreign investors, managers of 6 supporting industries, and economists were interviewed in order to examine the current status of developing supporting industries and attracting FDI for developing supporting industries in Vietnam.
Following the analytical framework, there are candidate solutions for identifying the strategy useful toward attracting FDI and that will eventually develop supporting industries. An analytical hierarchy framework based on eight main criteria and three alternatives is established in Figure 1.
AHP separates a complex decision issue into elemental problems to produce a hierarchical model. To reduce the judgment times, this study employs the reciprocal additive consistent fuzzy preference relation designed by Herrera-Viedma et al. The procedures of the reciprocal additive consistent fuzzy preference relations for prioritizing the assessment criteria are given below: 1.
Transform the preference value a ij k into p ij k using an interval scale 0 1 , and then derive the remaining p ij k based on the reciprocal transitivity property, as follows:. The remaining p ij k can be calculated using Eqs. The transformation function is. The study pulled the opinions of evaluators to obtain the aggregated weights of the criteria.
Moreover, let p ij k denote the transformed fuzzy preference value of evaluator k for assessing the criteria i and j. This study uses the notation of the average value to integrate the judgment values of m evaluators, namely,.
Third, do not try to have a vertically integrated industry , from raw materials to final assembly. In the age of globalization, no country can do that, not even developed ones. Target where your dynamic i. Fourth, do not try to use domestically available natural resources unless they are highest quality and lowest cost or nearly so in the world. From the viewpoint of competitiveness, it is better to import best raw materials from the most efficient producers in the world.
Fifth, building supporting industries and technical transfer will take time. They must be done in proper speed and sequence. Hasty requirement of local contents not only violates WTO but also drives away foreign investors. Six, accumulate assembly-type FDI first, without selectivity , even though domestic value-added is low. Next, as assemblers naturally desire to procure inputs domestically, promote or invite domestic and foreign parts suppliers.
If successful, a virtuous circle between assembly and parts will emerge. Technology transfer will come after this, not before. Seven, work cooperatively with foreign investors. Listen to their needs carefully you don't have to accept all of their complaints; sometimes they are selfish. Set agreed goals for technical transfer, domestic procurement, etc. Work with foreign investors toward these goals, and also solve any problems with them. Eight, simple external opening free trade and investment is not enough.
You must use targeted policies to create superior locational advantages and lower the costs of doing business in your country. This requires, among other things, improving domestic skills production management, marketing, engineering--not just primary education , infrastructure, supporting institutions, efficient government services, good management of industrial and export processing zones if any , and so on.
Nine, export-oriented FDI should be welcomed most, while domestically oriented FDI is a different story and must be treated differently. Do not attract them with high import protection. If they are already here with high protection, show them a tariff reduction schedule and give them incentive to lower costs.
The final outcome survive or exit should be determined by global competition and efforts of individual enterprises. This is the same for protected local enterprises as well. In , the number of surveyed enterprises was The survey period was July-Sep. The sample includes a wide range of industries from food processing to automobiles, from small to large firms, etc. The main difference in , as compared with previous years, is that Japanese firms have become more aggressive in expanding business both at home and abroad.
This clearly reflects a better business condition and higher profits in recent years in Japan. Moreover, Japanese firms are now seriously concerned with building an optimal global production network instead of unilaterally transferring factories abroad. Some firms worry about too much concentration in China this worry is surely accelerated by the recent power shortages and anti-Japanese demonstrations in China.
Thailand, India and Vietnam are the most popular destinations to diversify the China risk. However, while many firms have actual expansion plans for Thailand, they do not have concrete ideas for India and Vietnam; they are only potentially popular. Indonesia has gone down in popularity in recent years while Russia has become a little more popular than before. Where do you produce "popular" low-price products?
Many firms prefer to have more than one production location. Where do you produce high value-added products? Where do you plan to expand business in the next three years? Multiple answers; red means China 1 China Central Coast Do you plan to withdraw from any countries? These cases can be classified into three types: i closing operation entirely 38 cases ; ii moving to another country 37 cases, mainly to China ; and iii moving back to Japan 10 cases.
What is will be the risk of doing business in China? In addition, policy instability, RMB revaluation and recession loom large in the future. What are the greatest merits and demerits of the following countries? Do you have any concrete business expansion plans for them? On the demerit side, legal uncertainty is a big problem in China and Vietnam; and lack of infrastructure is a problem in India, Vietnam and Russia. Social instability and personal safety is a problem in India, Russia and Indonesia.
Presented to the Vietnamese Ministry of Industry in February Ohno, K. Marukami, T. Mimura, H. Saito and M.
Geese flying over the East Asian sky photos by Saizou Uchida. The standard pattern is the reversed V shape, but there are variations. Some birds drop out while others join.
The previous top bird Japan may be challenged by new comers like China.
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