The Export Performance of Foreign‑Invested Enterprises in Vietnam

Abstract

From the start of economic reforms in Vietnam in 1986 until 1998, 2,588 foreign direct investment (FDI) projects -- with a total investment capital of US$34.56 billion (1) -- were committed for investment in Vietnam (MPDF 1999, p. 98). A large amount of FDI has flowed into several industries to produce products to meet domestic demand, or to exploit Vietnam's comparative advantage in cheap labour and the availability of natural resources to produce export products for the international market. This article examines the export performance of foreign-invested enterprises (FIEs) in Vietnam, as well as the factors that have influenced the export performance of FIEs during the 1988-98 period. Based on this examination, some policy implications can be drawn, in order to make better use of future FDI flows to promote export-oriented industrialization in Vietnam. The first section of this article briefly reviews the existing research literature on FDI activity and the export performance of FIEs, and the second examines the same issue with specific regard to Vietnam. The third section examines the extent to which government policies towards foreign-invested enterprises have affected their export performance during the 1990s, using regression analysis. The fourth and final section of the article provides some concluding remarks. I. Foreign Direct Investment and the Export Performance of Foreign-Invested Enterprises In general, FDI and the export performance of FIEs have played a very important role in promoting the export growth of developing countries. FDI promotes export activities in developing countries by providing access to international markets, and facilitating export production by providing access to capital and modern technology (Cardoso and Dornbusch 1989; Gillis et al. 1992; Ozawa 1992). Developing countries often find difficulty when seeking to penetrate new foreign markets. In contrast, multinational corporations (MNCs), with their international experience, can enter new foreign markets or re-enter their home market (Cardoso and Dombusch 1989; Gillis et al. 1992; Ozawa 1992). By co-operating with foreign investors, developing countries can gain greater access to the foreign investor's home markets, or through intra-MNC trade that has been increasing rapidly, the developing countries' products can enter new foreign markets. Moreover, by collaborating with MNCs, developing countries can harness scale economies in marketing, an advantage that they could not enjoy if they were to operate on their own (Gillis et al. 1992). The success of most Asian newly industrializing countries (NICs) in exporting manufacturing products has been attributed in large part to the role of MNCs, which primarily undertook all manufactured export marketing in the 1960s and 1970s (Helleiner 1989; Bishop 1997). Foreign direct investment also increases the foreign exchange earnings of developing countries by generating new export products. MNCs may have better export potential for locally-produced products because of their global business contacts, marketing skills, and advanced technology. These advantages also enable MNCs to operate successfully in the conversion of import-substitution industries to export-oriented industries (Blomstrom 1990). On the other hand, there are several factors which can make FDI export-orientated. The increasing competition in international markets, and increasing labour costs in developed countries, require foreign investors to look for cheaper labour sources in developing countries to produce for export markets. By investing in developing countries, MNCs can take advantage of cheap labour and other competitively priced inputs, and make their products more competitive on the world market. Furthermore, by investing in developing countries, MNCs may be able to reduce the problem arising from the appreciation of their home currencies against the currencies of major export markets (Riedel 1991; Wells 1993). …