FOREIGN TRADE UNIVERSITY FINAL EXAM ANSWER SHEET

HCMC CAMPUS INTERNATIONAL INVESTMENT (DTUE310)

Int’l Business & Trade Dept. __________________________________
_________________________
Semester: I Academic year: 2021 – 2022
Full-time/Part-time: Full-time Cohort: K59CLC
Class code: 12-13-14-15
Exam Date and Time: 9h00, Sep 27 – 8h59 Sep 29, 2021
Form of Exam: Written
Duration: 48 hours

Student’s Full Name:

Nguyễn Khoa Nam
Student’s D.O.B: 29/05/2002
Student ID: 2011155341

Grade (in number) Examiner 1’s signature

Grade (in words) Examiner 2’s signature

Important Notes:
- This paper contains 4 questions, pages.
- Students are allowed to use materials during the examination.
- Answer response to each question must be within the provided word limit and put
in the relevant text box.
- Required formatting: Times New Roman, font size 13, line spacing 1.5
- Plagiarism in the answers both directly or indirectly is strictly prohibited.
- All sources used, including the textbook, must be referenced. Paraphrased and
quoted material must have accompanying citations. The references would be placed
by the end of the exam and are excluded from the word count.

1/ 13
Question 1 (2 points): Since 2018, OECD Development Assistance Committee has adopted
a new ODA definition. Could you please analyse the fundamental changes in the new
definition and their objectives.

Word limit: 600

Up to 2017, the definition of ODA was: ODA are the flows to countries and territories on
the DAC List of ODA Recipients and to multilateral institutions, which are:

i. Provided by official agencies (state and local governments), or by their

executive agencies.
ii. Each transaction of which:
+ Is administered with the promotion of the economic development and
welfare of developing countries as its main objectives.

+ Is concessional and includes a grant element of at least 25% (with a rate

of discount of 10 per cent).”

In 2018, DAC redefined the “grant element” of ODA, based on the income level
of the recipient country. To be reportable as ODA, the loan has to include a grant
element of at least:

• 45% in the case of bilateral loans to the official sector of LDCs and other LICs
(with a rate of discount of 9%).

(LDCs: Least Developed Countries)

(LICs: Low income countries)

• 15% in the case of bilateral loans to the official sector of LMICs (with a rate
of discount of 7%).

(LMICs: Low-to-middle-income country)

• 10% in the case of bilateral loans to the official sector of UMICs (with a rate
of discount of 6%).

2/ 13
 (UMICs: Upper middle-income country)

• 10% for loans to multilateral institutions (with a rate of discount of 5% for

global institutions and multilateral development banks, and 6% for other
organisations, including sub-regional organisations).

The reasons for this change include to better reflect the efforts and the benefits, to
broaden the measurement of ODA to include other kinds of aids, and to tighten the
criteria for loans (based on the present commercial rates).

3/ 13
Question 2 (3 points): What would be the reasons why foreign investors engaging in cross-
border M&A deals rather than undertaking greenfield investment projects in textile and
garment industry in Vietnam? What would be the concerns of the host country over the
deals?

Word limit: 600

For foreign investors, the choice of M&A over greenfield investment is driven by the
following reasons:

- The speed of entry: as the investing firm only need to find an existing local firm in the
host country, compared to greenfield investment which requires setting up a new
production venture in the host country, which is time-consuming.

- Possibility of obtaining synergy:

The foreign investing firm has the financial capability and high technology, while
Vietnam has a large supply of cheap, and high-skilled workforce. Combining these
advantages gives the foreign investing firms large potential for expanding and
developing.

Moreover, M&A can help the foreign investing firms achieve specific synergies,
such as tax benefits for supporting industries (including textile and garment
industry), and diversified risk.

- Possibility of getting rid of competition: M&A enables foreign investors to basically

buy the targeted local firms, which means fewer competitors in the local market.

- Opportunities to acquire strategic assets to enhance their global competitiveness:

According to Micheal E. Porter, acquisition of an asset that substantially advances

a firm towards achieving its aspired market position is considered ‘strategic’.

In Vietnam’s textile and garment industry case, with the foreign investors’
financial capabilities and technology, they can acquire Vietnamese firms to
expand production and gain market power in Vietnam.

Moreover, M&A creates economy of scale through expanding production,

increasing the investing firm’s global competitiveness.

4/ 13
Concerns of host country over cross-border M&A:

- Simply transfer of ownership and control; do not add to productive capacity at the time
of entry:

M&A simply enables the investing firm to basically buy the local firm, and does
not guarantee the foreign investing firm to transfer technology or train the
workforce skills that are in scarce supply.

- Transfer of ownership and control of the targeted firm in M&A is usually accompanied
by layoffs of employees, or closing of some production or functional activities:

M&A in the past was associated with job losses and closing of some production
activities. This is due to the redundant operations of employees in home and host
countries, and the reduced performance of the employees (because of uncertainty
and culture clash.)

Laying off employees and closing some production activities are essential to
improve efficiency of the firm.

- The possibility of market dominance: if the foreign investing firms are global
oligopolists, they might come to dominate the local market. M&A can, moreover, be
employed to remove competition in the local market.

The foreign investing firms might take control of strategic firms or even the entire
industries (including key ones such as banking), which is a severe threat to local
entrepreneurial and technological capacity development.

- The potential damages to national culture or identity: If M&A was allowed in certain
fields (e.g. advertising, film production), host country citizens would be exposed to
outside influences, which would rapidly change their tastes and demands.

- The risk of losing national sovereignty: this is a possibility due to the increasing
investment protectionism by governments worldwide to attract FDI. Subsequently, there
is a high likelihood that foreign investors will acquire exorbitant economic and political
influence in the host country.

5/ 13
Question 3 (2 points): Why IIAs are considered to be a part of the policy framework of a
host country? Please analyse cases where IIA obligations might lead to a threat to the right
to regulate of the host country.

Word limit: 600

IIAs are considered to be a part of the policy framework of the host country, for the
following reasons:

- Legal commitment to honour treaty obligations : when an IIA enters into force in a
country, the instrument of IIA generally becomes part of the country’s domestic law.

In order to comply with the obligations for the international community, the host
country has to develop domestic legislation that is compatible with the obligations,
and address the inconsistencies.

- Binding, enforceable rules and access to international arbitration

The ISDS mechanism - a key component of IIAs - ensures effective enforcement of the
substantive provisions provided in the agreements:
 Provides access to a neutral forum resolution of a dispute involving a state and a
foreign investor. This process takes an investment dispute out of the political arena
and into a transparent, rules-based forum of independent and impartial arbitrators. 
 Provides an effective protection for foreign investors against treatment such as
nationalization, expropriation and related measures by stipulating duties of states
to prevent its government from exercising state's power arbitrarily over foreign
investors operating outside the legal protection of their home country.
- Contribution to the transparent, predictable and stable legal environment for investment:

Making all national provisions affecting investor rights and obligations publicly
available. Examples include rights of entry, establishment and post establishment
operations, such as sectors or industries reserved for domestic investors,
conditions applying to joint ventures, and taxation.

6/ 13
7/ 13
 Moreover, IIAs also:
 Ban discriminatory treatment against foreign investors.
 Guarantee both national treatment and most-favoured nation treatment.
- Policies that liberalize FDI, if included in IIAs, can stimulate FDI inflows:
Policies reducing restrictions on FDI will send out a positive signal to investors,
encouraging foreign investors to make investments and bid for public projects in
the host country.

To sum up, all the above reasons reduce risk of investing in host countries, enhances
investor confidence and should increase the attractiveness of the host country to FDI.

Ways that IIA obligations might restrict sovereignty of the host country:

- The possibility of being filed against by the investors + The possibility of violating IIA
obligation when imposing new regulations.

As arbitral tribunals do not have to make use of precedent, which is more likely to
lead to conflicting results, investors can exploit the differences among various
IIAs or domestic legal provisions and IIAs to launch parallel proceedings.

Moreover, some aspects of investment arbitration, such as the reliance on broad

legal concepts designed for broad situations (e.g. fair and equitable treatment, full
protection and security, arbitrary and discriminatory treatment) are catalysts for
inconsistency. This is another loophole that investors might abuse.

The obligations of IIAs often differs from those contained in the host country’s
national investment-related laws and regulations, opening the possibility of
violating IIAs’ obligations when imposing new regulations.

8/ 13
- The prohibition or restriction of a certain policy measures due to obligation in certain
IIAs.

First, terms that prevent biased treatments and seizing assets directly or indirectly
can incur liabilities in developing and executing important policies in the country
when those policies have different impacts on foreign investors. For that reason,
IIA forces the government to face a range of new drawbacks that impairs the
effectiveness of enacted policies.

Second, IIAs apply limitations with the PR (Performance Requirements) terms

that can prevent government to use policy instruments designed to ensure the FDI
receiving country can utilize the FDI inflows for long term economic growth.

9/ 13
Question 4 (3 marks): Based on OLI paradigm, please explain the main reasons why Intel
has chosen Vietnam to locate its subsidiary.

Word limit: 800

According to the OLI paradigm, for FDI to be beneficial, the following advantages must
be present:

- Ownership advantages:

+ Strong brand: Intel is a brand that is recognized internationally with strong

customer loyalty.

In 2020, Forbes ranked Intel 12th on its list of the “World’s Most Valuable
Brands”, among 100 global companies of all industries.

Intel success is mainly because of its purpose: to create world-changing

technology that enriches the lives of people. The company now is at the
brink of many technology achievements – artificial intelligence, 5G
transformation and intelligent edge. For this, Intel has more opportunities
than ever to fulfill its purpose.

+ Advanced and constantly evolving technology: Intel is the pioneer in producing

CPU for computers.

In present days, Intel constantly develops their AI technology for

application in health care, social media, automotive and weather.

Intel are also focusing on several other areas for R&D, typically packaging
technology to make new chip designs possible, improving memory capacity
of their products, transforming their network for 5G, improving security
technology, and unifying its software abstractions to improve the efficiency
of program developers.

- Locational advantages:

+ Cheap, but high-skilled labour: Intel is attracted by a large supply of high-skilled

and cheap labour, contributing to international operations of Intel.

10/ 13
 + Political stability: Vietnam is one of the more politically stable countries in
South East Asia. Vietnam has benefited from its stable government and social
structure, making it an ideal place for investment.

+ Tax incentives for IT enterprises:

According to Article 4, Clause 21 of Circular 219/2013/TT-BTC, computer

software production and software services are exempted from VAT.

According to Circular 78/2014/TT-BTC and Circular 96/2015/TT-BTC, the

preferential tax rate of 10% for 15 years is applicable to software production.

+ Infrastructure: Vietnam’s government has focused on developing the

infrastructure to attract foreign investment in recent years.

+ Commitment and support from government to develop local technological

capability. Typical examples are:

The Resolution No.36 – NQ/TW about developing technology for

globalization

The Decision No.392/QD-TTg about developing industrial technology

The Resolution No.41/NQ-CP about policies on tax incentives for

developing technology in Vietnam

- Internalization advantages: Intel owns much of its value chain, to ensure that Intel
knowledge, patents, and other assets are not misused or illicitly obtained by potential
rivals.

+ Intel are directly involved in the process of producing and selling the products to
customers. This includes: marketing and sales activities, customer services,
retrieving raw materials and inputing materials for manufacturing, treating the end
product and delivering to customers.

+ Moreover, Intel are also involved in supporting activities that contribute to the
primary value chain. These include the management of firm infrastructure, human
resource management, technology development, and procurement.

11/ 13
References :

OECD. (2021). Official Development Assistance (ODA)

United Nations New York and Geneva. (2000). World Investment Report: Cross-border
Mergers and Acquisitions and Development.
https://unctad.org/system/files/official-document/wir2000overview_en.pdf

Porter, M.E. (1998). Competitive Strategy, New York: Free Press.

Klaus E. Meyer. (2015). What is “strategic asset seeking FDI”?

Rebecca McClay. (2021, September 15). How Do Mergers and Acquisitions Impact the
Employees?

https://www.investopedia.com/ask/answers/041515/what-does-merger-or-acquisition-mean-
target-companys-employees.asp

Le Ha Trang (2020, January 9). Costs and benefits from international investment
agreements – General research and the reality in Vietnam.

https://tapchi.ftu.edu.vn/các-số-tạp-chí-ktđn/181-tạp-chí-ktđn-số-110-đến-số-119/tạp-chí-
ktđn-số-119/

United Nations ESCAP. (2019). Studies in Trade, Investment and Innovation No.90:
Foreign Direct Investment and Sustainable Development in International Investment
Governance.

https://www.unescap.org/sites/default/files/publications/STII%20No.90%20version%204-
final.pdf

12/ 13
Trường Đại Học Kinh Tế TPHCM, Ngoại thương 02-03 K36. (2018). Phân tích chiến lược
kinh doanh quốc tế của Tập đoàn Intel.

Emerhub. (2021, August 24). Tax Incentives for IT Companies in Vietnam: Which Sectors
are Eligible?

https://emerhub.com/vietnam/tax-incentives-for-it-companies-in-vietnam/

Brian Krzanich. (2021, September 28). Intel Pioneers New Technologies to Advance
Artificial Intelligence.

https://newsroom.intel.com/editorials/intel-pioneers-new-technologies-advance-artificial-
intelligence/#gs.bwdrlt

Dinh Phuong. (2018). Many policies stimulating the development of technology in Vietnam.

https://thuongtruong.com.vn/news/nhieu-chinh-sach-tao-dong-luc-cho-nganh-cong-nghe-
thong-tin-phat-trien-tai-viet-nam-8599.html

Taylor Byrne. (2018). Value Chain Analysis Of Intel Corporation.

https://www.essay48.com/value-chain-analysis/5842-Intel-Corporation-Value-Chain-
Analysis

Abhijeet Pratap. (2019). Research and development at Intel: Key Focus areas.

https://notesmatic.com/research-and-development-at-intel-key-focus-areas/

13/ 13