TOPIC: MOBILIZE AND USE FOREIGN DIRECT INVESTMENT CAPITAL OF HANOI CITY. Name: Ly Huyen Ngan Class: Investment Economics EEP 61 Instructor: Nguyen Thi Ai Lien 1 TABLE OF CONTENTS Chapter I: Theoretical foundations of foreign direct investment. Basic theoretical issues on foreign direct investment. The concept of FDI.
Causes of FDI formation. Purpose of FDI. Forms of FDI. Features of FDI.
Factors affecting FDI. The impact of foreign direct investment on the development of the host country. Positive impact of foreign direct investment on the host country. Negative effects of foreign direct investment on the host country.18 Chapter II: Actual situation of mobilizing and using foreign direct investment capital in Hanoi.
Overview of Hanoi's investment environment. Advantages and disadvantages in attracting foreign direct investment in Hanoi. Actual situation of foreign direct investment in Hanoi. Forms of attracting FDI.
Areas attracting FDI. Assessing the situation of attracting FDI in Hanoi.41 Chapter III: Directions and solutions to attract and effectively use FDI in Hanoi. Objectives and orientations to attract FDI into Hanoi in the coming time. Forecast of demand and ability to attract FDI in Hanoi.
Objectives and directions to attract FDI in Hanoi. Solutions to enhance attraction and effective use of foreign direct investment capital and Hanoi. Solutions from the city government. Solutions from businesses.66 MOBILIZE AND USE FOREIGN DIRECT INVESTMENT CAPITAL OF HANOI CITY.
Chapter I: Theoretical foundations of foreign direct investment 1. Basic theoretical issues on foreign direct investment 1. The concept of FDI Foreign direct investment (FDI) is the acquisition of a stake in a firm by a corporation or investor based outside of its boundaries. In general, the word refers to a corporate decision to purchase a significant share in a foreign company or to buy it altogether in order to expand its activities to a new territory.
It is not commonly used to refer to a stock investment in a foreign firm. Causes of FDI formation Because of variations in demands and nations' ability to accrue expenses, export. Strong countries such as the United States, Japan, and Russia cannot think they have enough manufacturing components to fulfill their wants and must trade with others. International investment has the potential to reduce production costs while improving capital efficiency: -Globalization is advancing, creating an environment favourable to the flow of resources and investment across borders.
Globalization has had a significant impact on international investment activities. For example, in terms of technical aspects of telecommunications networks, communications have advanced significantly, shrinking the world, and investors now have more and faster access to capital information than ever before, allowing them to make more effective investment decisions. A change in interest rates by the United States Federal Reserve, for example, can have an impact on stock markets in Japan, Europe, and others. - In terms of economics, the trend of investment liberalization and the globalization process in the investment sector are quite clear; in the past, international investors were primarily concerned with foreign policy while investing abroad.
Naturalization and asset seizure are nonetheless frequent, despite nations' commitments to neither nationalize or expropriate assets and to provide incentives to encourage investment (lower taxes, signing agreements to expand investment activities). Regional investment treaties, such as the ASEAN Investment Area (ASEAN Investment Area - Framework Agreement on ASEAN Investment Area (AIA)) in Southeast Asian countries, exist. International laws, such as the World Trade Organization's Trade Related Investment Measures, are increasingly easing the investment process on a global basis (TRIMs). - As a result of the scientific and technological revolution's quick progress.
The scientific and technological revolution's impact may be viewed in two ways: (i) Science and technology investment requirements are increasing, such as in telecommunications and aviation, where international collaboration is continual; (ii) Technology life cycles are growing shorter and shorter. Old technologies can still be used in affluent countries, but because they are constantly creating new ones, they transfer old technology to impoverished countries in order to invest and donate money. Both sides benefit from these technologies: old technology is extended, while rising economies can rearrange their economies owing to a lack of technology. Purpose of FDI - Purpose of the investor International investment to circumvent trade barriers in order to enter and dominate the market, hence boosting the power of multinational companies (TNCs).
Exporting products to foreign markets is a difficult issue; in order to succeed, businesses must overcome a number of obstacles, including protectionist restrictions (tariff and non-tariff barriers). Despite these obstacles, businesses can establish centers, bases, and operations in the heart of the local market. International investment is a critical tool for enhancing international status and achieving socio-political goals. Each country can have different investment strategies depending on its priorities, such as in Asia, where Japan is a major direct investor in the region and also the largest supplier of ODA to Asian countries - Japan wants to take advantage of stable input materials in the region and expand Japan's political influence (in order to overcome the problem of foreign policy).
rehabilitate its tarnished image during World War II), and aims to increase its influence in international politics. The United States has a lot of clout in Latin America, while France has a lot of clout in Africa (due to its many colonial countries). Investment abroad to limit risks. Follow the basic rule in business is "don't put all your eggs in one basket" - diversify investment locations, the risk will be reduced, when there is a fluctuation in one area, only the branches in that area are affected only, and in other areas are not affected.
For example, when the price of oil rises, it will hurt industrialized countries because these are the countries that use a lot of oil and fuel - but benefit the oil exporting countries. Make the most of tax policy. Investors will pick a location with favorable tax rates for them while also minimizing the total amount of tax paid by the firm. For example, if a multinational corporation has a large number of subsidiaries, it may use the "transfer pricing" strategy to reduce the tax rate of all of these companies throughout the world.
Transnational - A firm in a country with a high corporate income tax that imports goods from a company in the same group with a low corporation tax rate.As a result, when importing that cargo, they will likely raise the price of imported products, resulting in a fall in profits for the firm in the high-tax nation, while the company exporting goods in the low-tax country would see a rise in earnings. The company's profit will rise if the selling price of the items is exaggerated. The exporting company's higher profit compared to the importing company's reduced profit will still be lucrative, and the total tax payment by the firm on a global scale will be the lowest. - Purpose of the host country Domestic capital complements foreign capital: The capital element is usually included in theories of economic growth.
When a country's economy wishes to expand more quickly, it need more capital. If native capital is insufficient, this economy will seek foreign capital, especially FDI. Obtaining technological and management expertise: Capital for growth can be mobilized to some extent by "austerity policies" in some circumstances, notwithstanding a shortage of it. However, such approach will not provide access to technology or management expertise.
Attracting FDI from multinational corporations allows a country to absorb the technology and managerial know-how that these corporations have amassed and developed over time and at tremendous expenditure. However, the country's ability to absorb such technology and managerial know-how to attract investment is still heavily reliant on the country's absorptive capacity. Joining the global production network: When recruiting FDI from multinational corporations, not only multinational corporations' investment capital, but also other domestic corporations, have commercial relationships. With that company, you'll be a member of the regional labor division process.
As a result, the country that attracts investment will be able to join the global industrial network, which will help enhance exports. Increase the number of jobs and train people: One of the goals of FDI is to take advantage of the conditions that allow for cheap production costs. As a result, foreign-invested businesses will recruit more local workers. A higher percentage of the local population's income will help to the growth of the local economy.
The firm will give vocational skills training throughout the employment process, which is often novel and progressive in FDI-attracting emerging nations. This helps the country attract FDI by creating a pool of competent people. Local professionals, as well as regular laborers, have the option to work in foreign- invested businesses and acquire professional training. Large source of budget income: Taxes paid by foreign- invested firms are a significant source of budget revenue for many developing nations and cities.
In Hai Duong, for example, tax money from the Ford automotive assembly business accounted for half of the province's domestic revenue in 2006. Forms of FDI - Horizontal FDI Horizontal FDI is the most prevalent sort of FDI, and it involves investing cash in a foreign firm that is in the same industry as the FDI investor's own or run business. In this case, a corporation invests in a company that is located in a foreign nation and produces identical items. For example, Zara, a Spanish firm, may invest in or buy Fab India, an Indian company that manufactures identical items to Zara.
The FDI is categorised as horizontal because both businesses operate in the goods and clothing industry. - Vertical FDI Another sort of foreign investment is vertical FDI. A vertical FDI happens when a business makes an investment within a conventional supply chain, which may or may not be in the same sector. As a result, when vertical FDI occurs, a company invests in a foreign company that may provide or sell items.
Backward vertical integrations and forward vertical integrations are two types of vertical FDIs. For example, Nescafe, a Swiss coffee company, may invest in coffee farms in Brazil, Columbia, Vietnam, and other nations. This kind of FDI is known as backward vertical integration since the investing business purchases a supplier in the supply chain. When a firm invests in another international company, this is known as forward vertical integration.
Forward vertical integration is defined as when a corporation invests in a higher-ranking foreign company in the supply chain, such as a coffee company in India investing in a French supermarket brand. - Conglomerate FDI Conglomerate FDI occurs when investments are made in two wholly separate enterprises in two completely different industries. As a result, FDI is not directly related to the investor's business. For example, Walmart, a major American retailer, may invest in TATA Motors, an Indian automaker.
- Platform FDI Platform FDI is the last category of foreign direct investment. Platform FDI occurs when a company extends into a foreign country, but the manufactured goods are exported to a third country. Chanel, for example, has a manufacturing factory in the United States and exports its products to various nations in America, Asia, and Europe. Features of FDI To begin, an FDI capital investor is a capital owner, which is a sort of international capital movement in which a foreign investor makes an investment in another country.
As a result, international investors must follow the host country's regulations. In addition to having obligations and reaping benefits from production and commercial activities in accordance to the quantity of money given, the owner of investment capital is actively involved in the management and administration of the capital use process. If foreign investors invest 100 percent of their money, they have total power over whether or not they contribute capital; nevertheless, this control is conditional on the amount of capital contributed.The money created by this investing activity is entirely contingent on the results of production and business.