FDI AND DEVELOPMENT OF MANUFACTURING INDUSTRIES IN VIETNAM

(Abstract )

Understanding and assessing the performance of FDI enterprises helps shed light on the role of FDI for the economy and the problem of improving attractiveness of investment environment for development. Based on two survey samples in textile and garment, electronics, automobile, and food processing industries in 2001, and using method of comparative analysis this study examines the performance of the FDI enterprises in manufacturing industries in Vietnam and draws some policy implications.

The main findings of the study are that the FDI enterprises had a very important contribution to overall turnover and employment. In comparison with the state and the private sectors, the FDI sector had the highest average labour productivities. Products of the FDI enterprises in textile and garment industries were found to be the most export oriented among enterprises of the three ownership sectors and the percentage of exports based on quota in the FDI enterprises were less than the percentage based on non-quota exports. However, FDI enterprises in other manufacturing industries such as automobile, and electronics were mainly domestic market targeted. The average wage rate of the FDI enterprises in textile and garments was at the highest level among the three ownership sectors. Unskilled workers were one of the most important targets of the FDI in Vietnam and “on job training” was the more preferable way of training applied in FDI sector. While cheap labour source was one of the most important targets, high quality of input and material seems to be more important than cheap domestic materials. FDI enterprises were found to invest little on R&D, preferring using research achievements of their mother companies. Thus imported technologies were found to use more frequently than import-substituted technologies. The production network generated by FDI seems to be weak. There was an unfair competition across ownership sectors in accessing credit market. Although the business environment was found to improve significantly, there were still some problems for the government to address. Poor output market access and labour recruitment were among the most important problems existed. Other problems such as lack of capital, non-transparent legal environment, poor access to input market and less developed infrastructure were of concern of the foreign investors.

Some policy implications were drawn based on the findings. They are associated with the assessment of the role of FDI, technology capacity building, innovation and investment on R&D, improving investment and business environment, and creation of fair competition in credit market.