With some US$ 450 billion in foreign direct investment ( FDI ) being converted into significant gross domestic product ( GDP ) and other gains, Vietnam has become one of the greatest economic success stories in the last 35 years. The nation continues to be a top target for internal FDI, drawing in multinational corporations like Samsung, Intel, LG, Toyota, and Lego.
Because of its beneficial side effects, such as technological advancements, ability transfers, management expertise, and value chain integration, FDI is a desirable mechanism for developing nations. These spillovers take place as a result of interactions with multinational corporations( MNEs ), supplier relationships, and learning and competition in the domestic market. & nbsp,
Local businesses become more competitive over time, which allows them to advance in the value chain and contend with MNEs. However, the evidence at hand suggests that Vietnam hasn’t experienced much of this overflow sensation. & nbsp,
While Vietnam has seen some good externalities over the past five years, such as record-breaking career development and economic growth, these gains have fallen short of expectations and have failed to realize the full potential of the nation.
The market is extremely dependent on FDI for exports because local manufacturing firms have few connections with DFI companies. Over 70 % of Vietnam’s total export value is generated by FDI, indicating that local businesses have not experienced similar growth and development.
When FDI firms are present on the market, home businesses typically struggle to increase andnbsp, their absorption capacity, but it seems the Vietnam case is mainly serious. Limited technology transfers exist between FDI companies and local businesses, and Vietnam’s manufacturing industry has unusually low productivity.
Only & nbsp, a small group of Vietnamese businesses, have been able to advance in the value chain. As a result, their functions are primarily limited to supplying input materials or low-value tasks, which result in to & nbsp, fragmented and ineffective n & m, linkages, and externalities.
Although such an arrangement can provide significant benefits, just a small portion of Vietnam’s nearly 900,000 businesses can access them, according to ONE senior Vietnamese employee at he was working for Samsung. For instance, Apple purchased AirPods & nbsp in 2020 from 21 local suppliers, but none of them were Vietnamese.
The few spill results from Vietnam’s significant FDI flows are due to a number of factors.
Long ago, it seemed that state policies prioritized quantity over quality. Technology transfer requirements were not completely followed. This has resulted in low-tech FDIs proliferating throughout the business, along with open mismanagement in a number of instances. & nbsp,
Many FDI companies place a high priority on straightforward systems in order to capitalize on Vietnam’s market size, ability, and low labor costs.
The fact that Vietnamese businesses have a relatively brief history of advancement compared to their peers is another factor contributing to the low spill. The growth of the private market was hampered by the implementation of a national control business shortly after the nation’s unification in 1975. & nbsp,
Although the Doi Moi policy was implemented in 1986 to correct this strategic error, Vietnamese businesses also have less market experience than their counterparts in the area, and as a result, their corporate governance is significantly poorer.
Private businesses in Vietnam also face a number of obstacles, most notably & nbsp, when trying to access investment and conventional loans. Some people use more expensive unofficial channels to manage. The competitiveness of local businesses on the international stage is hampered by higher logistics costs and minor corruption with government agencies. & nbsp,
Last but not least, there are still gaps between the common sector’s implementation management reality and government ambitions.
Many of these problems are human-made, and disciplined implementation and powerful policies can help. Vietnam has special advantages, such as its strategic area in Southeast Asia, young, agile people, socially stable environment, remarkable innovation performance, thriving digital economy, and an open economy with numerous free trade agreements.
Hanoi should promote investment in human capital by putting into place a thorough countrywide training programme on digital ability in order to fully capitalize on these benefits and encourage positive externalities, especially in building strong local firms. This will make it easier to implement the national 4.0 strategy andnbsp, and it will support the transformations of the & nBSP, Digital & NbSp and Green & NBSP.
Targeted and extensive investment in energy, online, transportation, and other essential infrastructure will also strengthen home businesses’ competitiveness and inspire the workforce. By encouraging a more effective government through improved give and accountability, this can be improved. & nbsp,
Hanoi may appear to other Asian nations like Malaysia, Singapore, and South Korea to see how digitizing government service can increase productivity and how it will disrupt emerging value chains.
In order to draw MNE offices and research and innovation centers, Vietnam had also enhance the business environment, create laws governing state-owned enterprises, and position itself as a local hub.
Vietnam has been a desirable location for FDI companies, but local businesses have not yet fully benefited from it. With the right plan in place, overcoming these obstacles may enhance local businesses and result in greater success.
At RMIT University Vietnam, Trung Quang Nguyen is the ministry of management’s mind. Interim Manager of the RMIT Vietnam International Business Program is Quyen Dang. Senior Lecturer in International Business at RMIT Vietnam is Erhan Atay.
This andnbsp, post, and was initially published by East Asia Forum and are being reprinted with permission from Creative Commons.