International Investment

Lecturer: Dr. Pham Vu Thang

Prof. Nguyen Thi Kim Anh
 Dr Pham Vu Thang

Director
Center for Economic Development Studies, University of Economics and
Business
Office: 201-203, G4 building, 144 Xuan Thuy

Director
Thriive Hanoi
Telephone: 0976991666/Email: phamvuthang.edu@gmail.com
Academic background
1992-1996: Bachelor degree at National Economics University Hanoi
1998-1999: Master degree at University of Antwerp, Belgium
2002-2007: PhD at University of East Anglia, Norwich, UK
 Class management and policy

- Class representatives;
- Zalo group
- Time Policy: 7 am
- English
- Groups
 Assessment and Grading
• Class attendance: 10%
• Group presentation: 20%
• Individual contribution: 10%
• The final exam: 60%
Chapter 1: Introduction
• Why study international investment?
• What international investment about?
• Structure of the course?
 Why study international
investment?
• Micro approach
Benefits of international investments
• Macro approach:
Statistics of international investments
especially FDI flow
 Intel inaugurates $1 billion chip plant in
Vietnam, says biggest ever
• HO CHI MINH CITY
• Friday ,Oct 29,2010, Posted at: 15:31(GMT+7)
• Intel, the world’s largest chip maker, opened its Vietnam US$1 billion assembly and test facility on Friday
in Ho Chi Minh City, saying the facility is the US corporation’s biggest in the world.
• The plant is located inside Saigon Hi-Tech Park in District 9.
• “First, this is the largest and most sophisticated assembly test facility in Intel’s global manufacturing network –
double the size of anything we have built prior. The clean room alone measures 46,000 square meters, equal to
the size of five-and-a-half football fields,” said Otellini.
• “Then, there are the 400 new, local employees that have already joined the Intel family. Our Vietnam factory
employees have received a hundred thousand hours of on-the-job and classroom training and earned hundreds of
different types of technical certifications. The employees that work for us here are much more valuable to us than
the physical plant itself."
• “When fully utilized, the Vietnam factory will dramatically increase our assembly and test capacity for Intel. It will
help us deliver products for mobile computers, which are currently the fastest growing and largest portion of the
PC market around the world.
• “This factory is truly remarkable, and it will produce products that are platforms for future creativity. Our customers
will use them to build world-changing technology.”
• Speaking at the event, Vietnamese Deputy Prime Minster Hoang Trung Hai said, “The opening of the assembly
and test facility in Vietnam is an important event and supports our goal of accelerating economic transformation
led by technology-intensive industries.”
• “Intel is also a committed partner for Vietnam government in modernizing the national education system. Intel
helps to build a robust information technology ecosystem while fostering local innovation and creating significant
high-tech job opportunities.”
• Intel is the first major foreign investor in high technology in Vietnam. The country’s Ministry of Investment and
Planning issued an investment license in Feb. 2006 for Intel to build a US$300 million assembly and test facility to
produce chips and computer parts. The chip manufacturer later increased its Vietnam investment to US$1 billion.
• Construction started in 2007.
• NEWS Samsung planning to invest
2.2 billion USD in Vietnam
• The mobile phone corporation from Korea has just announced their plan in
the next year as well as in the long term, in which Vietnam will play an
important role, producing 50% of total Samsung’s worldwide mobile phone.
• Accordingly, in 2013, Samsung is targeting to produce 510 million mobile
phones, sharply increase from the number of 420 million mobile phones this
year. Particularly, nearly half of 510 million units – 240 million units will be
manufactured in Vietnam, 170 million units come from the factory in China,
40 million units produced in Korea and 20 million units in India.
• Samsung will also aggressively expand factories in Vietnam in the coming
years. They are planning to invest about 2.2 billion USD from now till 2020
to improve production in Vietnam.
• In 2012, Samsung surpassed Nokia to become the largest mobile phone
manufacturer in the world after 14 years of domination of the Finland
company. It is forecasted that the Korean mobile phone corporation will
have net profit of 19.55 billion USD in 2013, compared with estimated 17.68
billion USD net profit of 2012.
• (Source: ANT Consulting, VnExpress)
Samsung built factories in Vietnam. Apple in China
Google did not make any FDI but still gained the big market
share of online marketing in many countries.
The same with Grab in Vietnam
VIETNAM
 Develop
domestic
supporting
industries in
Vietnam
The country’s image in
the eye of the
international business
community
 Why study international
investment?
• Macro approach:
Statistics of international investments
especially FDI flow
Global FDI inflow and Real GDP growth, 1980-2005 FDI

Source: WIR 2005, tr.13

Global FDI inflow, 1990-2009

Source: UNCTAD, World Investment Report 2010

II to developing countries

Source: WIR 2005, p.7

Share of FDI inflow and outflow in the global FDI flow of
developing and transition economies (%)

Source: WIR 2010, tr.3

 Why study international investment?

• Important role of International Investment

Who gains and who losses?
• How govt attract international investment?
 What International Investment about?

1. What is International Investment? How and by what modes

of entry are international investment inflows and outflows
conducted?
2. Which theories explain the existence and impacts of
International Investment?
3. What are determinants of International Investment?
4. How does International Investment affect the host and
home countries? Who gains? Who losses?
5. Which policies and measures have home and host countries
often use to deal with international investment?
6. How about the evolution of international investment?
 Course Structure

• Chapter 1. Introduction
• Chapter 2. Nature, characteristics and forms of
international investment
• Chapter 3. Theories of international investment
• Chapter 4. International investment environment
• Chapter 5. International investment policies of
the host country
• Chapter 6. Impacts of international investment
on the host country
• Chapter 7. Trends of international investment
 Reading Materials
• Kavaljit Singh, Why Investment Matters: The political Economics of
International Investment, The Corner House 2007.
• UNCTAD, Overview to World Investment Report, 1997. pp. 1-12.
• UNCTAD, World Investment Report (WIR), 1994, Chapter III. pp. 117 -158,
and Chapter VII, pp. 277 - 312.
• UNCTAD, World Investment Report (WIR), 1994, 1997, 2005, 2007, 2008,
2009, 2010, 2011 (download at www.unctad.org/wir )
• Phung Xuan Nha, International Investment, Vietnam National University,
Hanoi 2001.
• Phung Xuan Nha, Adjustment of policies on foreign direct investment in
Vietnam in the process of international economic integration. 2010. VNU
Publishing House.
 Group work
• 1. Foreign company invested in Vietnam
or does not invested in
• 2. Future sector
• https://www.news.com.au/technology/onlin
e/social/stop-defending-child-rapists-elon-
musks-wild-spray-in-private-email-to-
journo/news-
story/af512d68ba4c24ee4c534ea8e18e51
2f#
• End of Chapter 1
 Chapter 2
Nature, Characteristics and Forms of
International Investment
 Contents

• Goal: To clarify nature, characteristics and forms of international

investment.
• Objectives:
– To understand features of International investment and how they are
defined
– To capture the differences between international investment and the
other foreign capital inflows especially ODA
– To understand main forms of FPI and FDI in the world and that of FDI
in Vietnam
• Contents:
– The nature and charateristics of International Investment
– Forms of International Investment
 Contents
1. Nature and characteristics of Int’ investment
1.1. Definition of Investment/Int’ investment
1.2. II vs. others foreign capital inflow
1.3. II vs. other international economic relations
2. Forms of Int’ Investment
2.1. Definition of and distinction between FPI and FDI
2.2. Forms/instruments of FPI: Equity/debt securities
2.3. Forms of FDI: GI vs. cross-border M&A, HI vs. VI….
2.4. Non-equity investment
1.1.Definitions of Investment/ Int’ Investment (II)

§Investment
???

§ International
Investment ???
1. Nature and characteristics of Int’investment
1.1.Definitions of Investment/II
– Investment is the use of an amount of assets such as capital,
technology, land...in a specific economic activity to create one or
several products for society in order to gain profit.
• Investment means the use of capital in the form of tangible
or intangible assets for the purposes of forming assets by
investors to carry out investment activities in accordance with
the provisions of this law and other provisions of relevant
laws. (Art.3, Law on Investment in Vietnam, 2005)
– International investment is a cross-border transfer by investor of
tangible or intangible assets in terms of capital, technology,
management skills ... to run business so as to earn high profit on
global scale.
– Investors may be individuals, organizations or state bodies.
– Two major characteristics of investment: risk and profitability
Foreign vs. Domestic Investment

Common Distinguished characteristics

characteristics
Ø profitability* Ø Nationality of the investors

Ø risk Ø Cross-border movement of production

factors

Ø Investment capital is defined in foreign

exchange (mostly in USD)

Note: * Profitability is the most important characteristic to

distinguish an investment with other economic activities.
 1.2. Other foreign capital inflows

-ODA is refundable and non-refundable aids

- Donors: World Bank, ADB, foreign government;
- Objectives: development, poverty alleviation
- Sectors: Infrastructure, education, heath-care, water etc.
- Conditions: Interest rate, technology, political condition

-Commercial loan: lending at concessionary interest rates by

developed countries or international financial organizations to support
import and export activities of developing countries. This source
of funds often promotes trade which is accompanied with investment,
likewise, encouraging and supporting international investment.

-Foreign debt: Governments borrows money through banking and

financial system to make up for deficit of balance of payment or to
pay matured debt or interest, to expand production scope/scale
 ODA flow into Vietnam in the period of 1993-2012
Education: 4.19% Health Care: 4.42%

Agriculture, poverty reduction: 15.17%

Environment, Urban Development

13.44%

Energy and Industry 19.8 %

Transportation, Telecommunication
28.22%

Source: https://viettimes.vn/vay-von-oda-viet-nam-hoc-duoc-gi-tu-trung-quoc-malaysia-15772.html
 Discussion

• ODA
• Interest rate: Low compared to the rate of commercial
banks/
• Long term repayment: 20-30 years
• Purpose: Development, poverty reduction, living standard,
by investing infastructure, road, schools etc.
• Donors: WB, ADB, Japan, Korea, Sweden, China
• ODA is not a free meal/ free lunch
 Case study
Chinese ODA in Lao and Cambodia

• https://www.iseas.edu.sg/images/pdf/ISEA
S_Perspective_2017_67.pdf
 Why ODA is not a free meal?

1. Increase economical dependence when receiving

countries borrow too much and cannot repay
2. Increase political dependence
3. Take up strategically located land and jobs in receiving
countries
4. Create opportunities for corruptions and poor
management, bad debt, high cost for project execution
5. The use of low technology increases electricity and
maintenance cost
 2. Forms of International Investment

Foreign Portfolio Investment (FPI)

(or financial investment)/

Foreign Direct Investment (FDI)

FPI may be changed to FDI, and vice versa when the investors
increase/decrease their holding ratio of voting shares in the relevant
firms.

How to distinguish FDI from FPI ???

 Vietnam's foreign capital inflow, 2005-2014
14000

12000

10000

8000

6000

4000

2000

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-2000

Net FDI (Dòng đầu tư trực tiếp tịnh) FPI (Đầu tư dán tiếp) Remittance (Kiều hối) Net ODA (ODA tịnh)

Nguồn: ADB and MPI, 2015.

 Foreign Portfolio Investment

• Foreign Portfolio Investment (FPI) (or financial investment):

purchases and sales of securities, such as bonds and stocks, in
amounts that do not imply any direct management control or
influence on the businesses issuing the securities, short term

• - Foreign Portfolio investment is widely used by foreign investors to

diversiry risk as well as to raise overall returns to savings.

• Speculators: try to make a profit from a security's price change,

Foreign Direct Investment

Real investment in factories, capital goods, land and inventories
where both capital and management are involved and the investors
retains control over use of invested capital; medium &long term
 Discussion:
FPI vs FDI

Which form developing countries prefer?

 FORMS OF FDI
Investment goal- Investment
base strategy-base

VI GI

FDI
HI M&A
Ownership-base

100% foreign own enterprises

Joint ventures
 Vertical FDI and Horizontal FDI

• Vertical FDI: When a firm through FDI moves upstream or downstream in

different value chains

• Horizontal FDI When a firm duplicates its home country based activities at
the same value chain stage in a host country through FDI

• Tests:
• Toyota assembling cars in both Japan and Vietnam is ……FDI
• Toyota acquiring a distribution company in USA is …..FDI
• Toyota acquiring a tyre manufacturer in Thailand is ….FDI
 Vertical, Horizontal FDI ?

https://www.fuelsandlubes.com/samsung-looking-into-
energy-investments-in-vietnam/
 Greenfield Investment vs. Merge and Acquisition

• GI: A form of FDI where a parent company starts a new

venture in a foreign country by constructing new operational
facilities from the ground up. In addition to building new
facilities, most parent companies also create new long-term
jobs in the foreign country by hiring new employees.

• M&A: happens when one foreign company mergers or acquire

with an existing local firm. One special thing of cross-border
M&A is a change in control and management after merging
and acquiring.

www.themegallery.com Company Name

 Examples of FDI: Greenfield

• 2010 Intel made • 2015 Samsung made $5

$1billion investment billion investment in
in an assembly and Thai Nguyen and Bac
test plant in HCMC Ninh

RMIT University©yyyy School/Department/Area

49
 Examples of FDI: Acquisitions
• 2005 eBay acquired Luxembourg’s 2017 Thai billionaire Charoen
Skype Technologies for $8.5 billion Sirivadhanabhakd, spends US$5 billion to
acquire Sabeco stake.
The Sabeco stake auction took place on
December 18, 2017. Vietnam Beverage
bought a 53.59% of Sabeco offered by the
state.
Together with Vinamilk, Sabeco is among the
most profitable state-owned enterprises.
Toyota pumps $1 billion in Grab in auto industry's
biggest ride-hailing bet

SINGAPORE (Reuters) - Toyota Motor Corp has agreed to buy a $1 billion

stake in Southeast Asia’s Grab in the biggest investment by a carmaker
into a ride-hailing firm, at a time when traditional automakers are racing
to team up with disruptive tech companies.
The value of six-year-old Grab will be just over $10 billion after the
investment, said a person familiar with the matter.
Toyota said it aimed to offer financing, insurance and maintenance
services to drivers based on data collected through recorder devices
already installed in some Grab vehicles.
“Going forward, together with Grab, we will develop services that are
more attractive, safe and secure for our customers in Southeast
Asia,”. The data could also help Toyota develop its own next-
generation mobility services, including a self-driving electric vehicle
aimed at companies for use in tasks such as ride hailing, package
delivery and mobile shops.
https://www.bloomberg.com/news/articles/2018-03-26/uber-cedes-
southeast-asia-to-chief-rival-grab-in-latest-pullout
 Cross-border Acquisition

Cross-border Acquisition occurs when one company

acquires a controlling stake, usually more than 10% equity, the
least level to gain influence on the acquired company’s
operation, in an existing local or foreign affiliate (WIR 2000).

There are three types of acquisition:

Full acquisition (outright) : 100% equity
Majority acquisition: 50-99% equity
Minority acquisition: 10-49% equity
 Read at home

Why do firms engage in cross-border M&A?

Ref. WIR 2000, pp.140-154
 100% FDI vs. Joint Venture

• 100% FDI : A form of FDI when a parent company controls 100

percent of the stock of the subsidiary.

• Joint Venture: when a firm is established and jointly owned by

two or more foreign and local firms.

www.themegallery.com Company Name

Annual share of projects in 100% foreign invested
and Joint –venture forms in total registered FDI
projects in Vietnam (%)

90
80
70
60
50
40
30
20
10
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Source: MPI, 2009 100% foreign owned Joint-venture
https://vtv.vn/video/nam-2016-co-toi-6-000-doanh-nghiep-fdi-bao-lo-
324455.htm
 2.4. Non-equity forms of investment

Licensing

• A licensing agreement is an arrangement

whereby a licensor grants the rights to intangible
property to another entity (the licensee) for a
specified time period, and in return, the licensor
receives a royalty fee from the licensee

• Intangible property includes patents, inventions,

formulas, processes, designs, copyrights, and
trademarks
Advantages

• The firm does not have to bear the development

costs and risks associated with opening a foreign
market

• The firm avoids barriers to investment

• It allows a firm with intangible property that might

have business applications, but which doesn’t want
to develop those applications itself, to capitalize on
market opportunities
Disadvantages

• The firm doesn’t have the tight control over manufacturing, marketing,
and strategy that is required for realizing experience curve and location
economies
• Licensing limits a firm’s ability to coordinate strategic moves across
countries by using profits earned in one country to support competitive
attacks in another
• There is the potential for loss of proprietary (or intangible) technology
or property
• One way of reducing this risk is through the use of cross-licensing
agreements where a firm might license intangible property to a foreign
partner, but requests that the foreign partner license some of its
valuable know-how to the firm in addition to a royalty payment
Franchising

• Franchising is basically a specialized form

of licensing in which the franchisor not only
sells intangible property to the franchisee,
but also insists that the franchisee agree to
abide by strict rules as to how it does
business
Advantages

• The firm avoids many costs and risks of

opening up a foreign market
Disadvantages

• Franchising may inhibit the firm's ability to take

profits out of one country to support competitive
attacks in another

• The geographic distance of the firm from its foreign

franchisees can make poor quality difficult for the
franchisor to detect
 Summary of chapter 2

ODA
FDI vs FPI
Vertical vs Horizontal FDI
Greenfield and M&A
100% vs. Joint Venture
Licensing vs. Franchising