Investment mobility has been taking place
and Vietnam is being evaluated as one of the
most attractive countries to attract the shift.
Currently, many large companies have closed
factories in China and are opening factories in
Vietnam such as Apple, Samsung, Nike,
Adidas, LG, Foxconn and etc. Many of the
world's largest corporations are planning to
move all their outsourcing activities to
Vietnam. Vietnam has embraced some of
China's labor-intensive manufacturing
industries [38]. The US-China trade war
imposes tariffs on Chinese goods, while
Vietnamese goods are still easily imported. Big
tech companies are entering Vietnam and
balancing their production with China. Apple
recently started making Airpods in Vietnam to
cut costs of importing from China. Samsung
has also closed a factory in China and opened a
new factory in Vietnam. So, Vietnam is
attracting companies from textiles to large-tech
electronics manufacturing.
However, to create advantages and compete
with other countries in the region in attracting
FDI, Vietnam needs to make a difference.
In terms of endowment effects, Dunning and
Lundan (2008) distinguish between natural and
created resources [38]. In addition to available
tangible and intangible resources such as
natural resources, the geopolitical position in
the dynamic and rapidly growing ASEAN
region, closeness to major countries such as
China, South Korea and India, Vietnam needs
to foster and consolidate created resources to
attract investors. These resources include:
transportation infrastructure, energy, industrial
zones, skilled labours and so on. In order to
attract MNCs to invest in the high-value stages
of the production chain, improving the quality
of labor is a very necessary condition – there
must be workers with full cultural education
and professional capacity.
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VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 21-30
21
Original Article
Production Relocation of Multinational Companies
from China and Chances for Vietnam
Nguyen Thi Thanh Mai*, Pham Thi Phuong
VNU University of Economics and Business, 144 Xuan Thuy, Cau Giay, Hanoi, Vietnam
Received 08 December 2020
Revised 14 December 2020; Accepted 28 December 2020
Abstract: Since the intense US-China trade war and the global outbreak of the Covid-19
pandemic, multinational companies’ tendency to diversify production activities and disperse their
foreign direct investment (FDI) out of China became more visible. In this context, Vietnam has the
opportunity to become a new global manufacturing hub. It remains to be seen whether Vietnam
can attract that FDI inflow from multinational companies (MNCs) or not, especially in the context
of unpredictable competition between many potential countries such as India, ASEAN countries
and China who actively finds ways to retain foreign investors. The objectives of this article are to
analyze the trend of relocating production sites of MNCs from China, and its causes, and factors
attracting a production relocation wave in Vietnam, thereby giving some implications to increase
the difference of Vietnam in this race to attract investment from foreign manufacturers.
Keywords: Production relocation, production strategy, MNCs, China, Vietnam.
1. Introduction *
During the past three decades, China has
always occupied a unique position as the
“world factory” due to its ability to produce
low-cost goods with cheap labor, high output
and efficiency. However, there has long been a
tendency of MNCs to diversify production
facilities and move FDI out of China, which
reflects the increase in labor costs in China.
This trend has been more pronounced since
_______
* Corresponding author.
E-mail address: maintt@vnu.edu.vn
https://doi.org/10.25073/2588-1108/vnueab.4458
2018, when the US - China trade war became
more intense. Simultaneously the Covid-19
outbreaks also accelerated this process when
MNCs considered the security and resilience of
the economy more important than production
efficiency. MNCs have been applying a
“China + 1” strategy to reduce risks - in which,
instead of just investing in China, MNCs will
diversify production and business activities to
other countries - this is an economical and safer
option in the long run. Many companies have
relocated part of their production lines to
Southeast Asian countries or other locations,
while continuing to produce in China. As a
N.T.T. Mai, P.T. Phuong / VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 21-30
22
result, a new global manufacturing landscape is
beginning to take shape.
In this context, Vietnam has many
opportunities to become one of the new global
production bases. Vietnam is experiencing a
period of rapid growth with relatively low costs
of production factors [1]. In addition to the
geographical proximity to China, the country
has other important advantages in attracting
FDI flows from MNCs that plan to move out of
China, such as the participation in new
generation FTAs and government plans in
building the country into a manufacturing hub
of Southeast Asia.
However, Vietnam still faces many
challenges in attracting scattered FDI flows
from China. The construction of new industrial
clusters cannot happen quickly. Vietnam has a
cheap labour force, but the population size of
100 million is small compared with the 1.3
billion of China. At the same time, the
infrastructure system is of poor quality and roads
and ports are easily congested. Moreover, at
present, there are many countries, such as India,
the Philippines and Indonesia, who are competing
fiercely with Vietnam in attracting FDI inflows to
move out of China. Even the Chinese government
is very active in investor engagement.
In this context, this article analyses the
trend of production relocation out of China,
considering the factors affecting production
relocation which will be used to characterize
Vietnam as a potential site to attract the wave of
production shift from China; and then give
some implications for Vietnam.
2. Theoretical Foundation of MNCs’
Production Relocation
2.1. Definitions and Drivers of Production
Relocation
Production location choice is a critical
operational decision of MNCs because it has a
significant impact on a firm's performance and
long-term profitability [2]. Porter (1986) argued
that the competitiveness of a manufacturing
firm is affected by the combination of both the
firm's intangible assets and the plant's locational
characteristics [3]. The factory location also
determines the stability and flexibility of the
supply chain as it influences the ability to
access input materials and distribute products to
the consumers [4]. According to research by
Porter and Rivkin (2012), many site decisions
may be less effective than expected because
managers underestimate the current and future
hidden costs associated with foreign operation [5].
However, the production location can
change over time depending on the company's
strategy as well as the dynamics of the
competitive landscape and demand structure.
According to Bruch et al., (2014), manufacturing
location decisions are often associated with
relocating production overseas [6].
There are a number of studies providing
views on the definition and driving forces
behind production site relocation. Borensztein
et al. (1988) argue that plant relocation is the
process of relocating a large proportion of a
firm’s assets, which relates to the geographic
displacement of investment capital, workforce
and technology [7]. The main reason to relocate
is to save production costs. Firms aim to take
advantage of favourable cost conditions in other
locations such as wages, energy prices,
government incentives/taxes and other factors.
Next is the access to important factors such as
raw materials, highly skilled labour, etc.
Moreover, a business is motivated to be moved
by government policies through various forms
of support [8].
2.2. Factors Affecting Production Relocation
Based on a detailed literature review,
MacCarthy and Atthirawong (2003) identified
13 main factors in relation to location decisions,
including costs, employee characteristics,
infrastructure, proximity to suppliers, proximity
to market/customers, proximity to parent
company facilities, level of competition, quality
of life, legal and regulatory frameworks,
economic factors, government and political
N.T.T. Mai, P.T. Phuong / VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 21-30
23
factors, social and cultural factors and
characteristics of a particular place [9].
Based on this list, Bruch et al. (2014)
conducted in-depth interviews with enterprises
and came to conclusions about the 3 most
important factors affecting the relocation
decision [6]. First is the cost. This is a key
consideration in many international location
decisions and there can be trade-offs between
different cost types [9], including fixed costs,
transportation costs, wages, energy costs, land
costs, construction costs and others. Second is
the proximity to the market and customers.
Relocating to a new location aims to bring
production closer to customers and markets,
increase responsiveness and shorten delivery
times and capture population trends and
changes in the consumers’ needs. Third is
infrastructure for production and
transportation of goods.
However, the importance of the above
factors is changing in the context of global
upheaval, especially the Covid-19 pandemic.
Currently, it is difficult for managers to start
over and simply focus only on efficiency and
growth, without regard to risk-related activities
[10]. Especially when the pandemic came as a
shock in an inherently chaotic context of trade
battles, the uplifting of protectionist policies
[11] and the increasing demand for more
sustainable business models, the relocation of
existing production sites is important to
minimize risks [12].
According to a study by Mercer, the three
most important factors before the Covid-19
outbreak included: i) labour costs; ii) land costs
and the burden of regulation; and iii) proximity
to the current supply chain [13]. Obviously,
cost was the main issue of concern. However,
with the outbreak of Covid-19, many
companies suffered serious losses due to supply
chain disruptions during the pandemic and
subsequent social isolation shutdowns
[14].Therefore, the main factors that businesses
considered when deciding on a production site
were the labour market, the costs, and the
ecosystem. The factor that will have importance
in post-Covid-19 global production is the
ecosystem that provides structure and resilience
for each potential plant. Ecosystems include the
infrastructure, the business environment, and
the potential risks associated with the options
available. How this ecosystem provides
resilience in the face of shocks like Covid-19
will be paramount [15].
From the above analysis, the paper outlines
the main factors that determine current
production site selection including cost, labour
market, proximity to the market and material
resources, and the ecosystem. These factors
will be used to characterize Vietnam to become
a potential site to attract the wave of production
shift from China.
3. Overview of MNCs’ Production
Relocation from China and Causes
The trend of relocating production sites of
MNCs out of China has been present for a long
time, but has become most pronounced since
the US imposed a 25% tariff on 818 goods
imported from China [16]. According to the
Nomura Group, from the beginning of 2018 to
August 2019, 56 international enterprises left
China to produce in other countries; of these, 26
businesses chose Vietnam, 11 businesses
moved to Taiwan, 11 businesses went to
Thailand, and 3 businesses chose India [17]. In
the first half of 2019, the number of investment
and business projects in China decreased by
about 30% from the previous year. According
to Manabe (2019), Delta Electronics, a
manufacturer of power supply equipment from
Taiwan, is increasing domestic production and
reducing production rates in China [18].
Besides, Samsung Electronics also closed a
smartphone factory in Tianjin, China.
According to the Nikkei Asian Review, large
multinational corporations such as Apple,
Nintendo, HP, Dell, etc., have urgently
implemented strategies to avoid high tariffs by
the US on goods imported from China.
The rapid spread of Covid-19 has
strengthened this tendency as it has disrupted
the business of many foreign companies in
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China which are unable to guarantee on-time
production and delivery to their customers.
Many businesses have realized that locating the
production stage in only one country will make
them entirely dependent on that country.
Therefore, they seek to reduce their dependence
on China [19].
There are many reasons that MNCs relocate
or disperse part of their production activities to
other countries, instead of depending entirely
on China. In this study, we summarize the four
main reasons, including passive ones (the
decreasing attractiveness of the Chinese market
and risk avoidance of MNCs) and proactive
reasons (taking advantage of opportunities from
new markets and government support). In
detail, the motives for leaving China are:
First, to move out of the China market with
its decreasing overall attractiveness due to
increased production costs. China, a country
considered as the world factory, is losing its
competitive advantages due to the elimination
of investment incentive policies, rising labour
costs, lack of human and natural resources, and
the stronger Renminbi. Wages in China are
increasing at a rate of 25% per year, and many
other costs are rising [20]. According to a
Kearney (2020) report, China has been
relegated from 3rd in 2017 to 7th in 2019 and 8th
in 2020 among the world's best FDI locations,
which is China's lowest ranking ever [21]. In
addition, when the US-China trade tension
escalated, high tariffs were imposed by these
two countries on each other's imported goods.
This caused many difficulties for global import
and export activities and led to an increase in
production costs and commodity prices.
Therefore, many businesses have planned to
move their production to other Asian countries
such as Vietnam, the Philippines, Bangladesh,
and India [22].
Second, to disperse risks from the Chinese
market and diversify the production chain
through the application of the “China + 1”
strategy. Many companies have been relying
entirely on factories in China to supply critical
goods. So, when adverse events happened like
the US-China trade tensions or the Covid-19
pandemic outbreak, the supply chains and their
production was disrupted. To avoid risks
occurring in the future, companies are forced to
change their supply chain and production.
MNCs have been looking for opportunities to
move part of their investments to other
countries while retaining and utilizing the
facilities already invested in China. This trend
has taken place for a long time, but the outbreak
of Covid-19 has made the process faster and
more drastic [23].
Third, to actively take advantage of new
opportunities from potential markets such as
India, Indonesia, Vietnam, the Philippines, etc.,
While China is losing its cost advantages,
other Asian countries, especially Southeast
Asia, are becoming more attractive with
advantages such as cheap labor costs, a large
consumer market and government policies to
encourage and attract FDI. The trade war
between the two major economies has made
MNCs want to consider moving part of their
investment to these potential countries. Reports by
organizations and consulting firms both emphasize
that Southeast Asia nations are benefiting the most
from this trade war [11]. In particular, Covid-19
makes the companies consider the security and
resilience of the economy more important than
production efficiency.
Fourth, to take advantage of government
policies of some countries such as the US,
Japan... These countries have many policies to
encourage investment withdrawal and a supply
chain shift out of China. In April 2020, Japan
spent US$ 2.2 billion from an economic bailout
package of nearly US$ 1,000 billion to finance
local businesses to bring production from China
back to Japan or to other Southeast Asia
countries. In addition, the government has
launched a JPY 23.5 billion (US$ 220 million)
subsidy program to help businesses diversify
their supply chains to ASEAN countries. The
US government also seeks to encourage
companies in the United States and other
countries to relocate their production bases to
the United States to diversify their supply
chains and minimize dependence on the supply
chain. On May 14, 2020, the US officially
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passed a decree to move production out of
China [24].
4. Factors Attracting the Production
Relocation Wave in Vietnam
Facing the above trends, Vietnam has the
opportunity to “shine” - to become a new global
manufacturing base. In the first five months of
2020, a number of corporations have planned to
move their investments to Vietnam.
Specifically, according to Nikkei, Google plans
to produce low-cost smartphones (Pixel 4a) in
Vietnam, while Microsoft plans to produce
notebooks and desktop computers in the second
quarter of 2020. Apple will produce
headphones (AirPods) in Vietnam instead of
China. Nintendo has also transferred a part of
the Switch Lite game console production to
Vietnam, etc. However, the transition will not
be immediate because MNCs cannot instantly
move an established supply chain, even if given
incentives by the home country government.
However, if only a small part (about 3-5%) of
the businesses in China leave, this number
worths about US$100 billion [25].
The question is whether Vietnam can attract
investment from global manufacturers moving
out of China. In the next section, the authors
will analyze the factors influencing
the attractiveness of Vietnam as an
investment location.
4.1. Operating Costs
In a new normal state after the Covid crisis
along with the global economic downturn and a
decline in consumer income, production costs
are considered to be one of the key factors
influencing the decision of investors. Vietnam
has the advantage of low labor costs compared
to other countries in the region.
Table 1. Vietnam minimum wage 2020
Region 2019 monthly minimum wage (VND) 2020 monthly minimum wage (VND) Increase (%)
Region 1 4.180.000 (180 USD) 4.420.000 (190 USD) 5.74
Region 2 3.710.000 (159 USD) 3.920.000 (169 USD) 5.66
Region 3 3.250.000 (140 USD) 3.430.000 (148 USD) 5.54
Region 4 2.920.000 (125 USD) 3.070.000 (132 USD) 5.14
Source: Ministry of Labor, Vietnam (2020) [26].
Table 2. Region specific minimum wage
Country Monthly minimum wage
Hongkong 1969 USD
Malaysia 270 – 295 USD
Thailand 248 – 265 USD
Cambodia 190 USD
China 163 -361 USD
Philippines 132 – 190 USD
Vietnam 132 – 190 USD
Laos 124 USD
Indonesia 120 – 298 USD
India 94 - 236 USD
Myanmar 80 USD
Source: Vietnam Briefing (2020) [27].
Although the minimum wage in Vietnam
increases annually (up 5.7% in 2020 according
to Table 1), it is still at a low level, ranging
from 132-190 US$ per month. According to the
data in Table 2, the salary level of Vietnam is
only higher than that of India and Indonesia.
Indonesia's lower minimum wage is influenced
by low labor productivity, with less than half of
its workforce classified as highly skilled. On
the other hand, India has a lower salary than
Vietnam, but the business environment is
complicated and political security is unstable
with the bureaucracy. Furthermore, India is
further away from China and does not have a
close cooperative relationship with it.
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Therefore, when investors look for a place to
move production facilities out of China,
Vietnam is still a more potential and
appropriate place.
4.2. The Quality of the Labor Market
Many researchers believe that the quality of
human resources in Vietnam is currently very
limited. This is a huge weakness of Vietnam in
attracting MNCs with a high technology level.
However, the quality of labor in Vietnam is
being significantly improved.
Vietnam is now in a period known as the
“golden population structure” with more than
52% of the population of working age and
about 97% of which is literate. Of this 97%,
about 88% have completed secondary school,
5% are fluent in English, and 10% are
considered highly skilled (according to statistics
from the Ministry of Education and Training).
The government has also taken steps such as
increasing vocational and technical training to
meet the demands of high-skill industries. In
2018, the country had more than 1900
vocational training centers [28]. The rate of
trained people of working age in 2017 was
estimated at 21.5%, higher than the rate of
20.6% in 2016.
According to the General Statistics Office
of Vietnam, labor productivity of Vietnam over
the past years has been enhanced considerably
with a high growth rate in the ASEAN region.
However, it is still very low compared to many
countries in the region. According to PPP 2011,
the labor productivity of Vietnam in 2018
reached 11.142 USD, only equal to 7.3% of the
productivity of Singapore, 19% of Malaysia,
37% of Thailand, 44.8% of Indonesia and
55.9% of the labor productivity of the
Philippines. Notably, this absolute gap
continues to increase. Therefore, this is also a
factor that companies are carefully considering
when deciding to choose Vietnam.
4.3. The Strategic Location for a Supply Chain
Vietnam has a strategic geographic location
favorable to all global supply chain activities of
businesses, from the supply of raw materials for
production to the distribution of goods to major
markets in different regions.
The first advantage is the location in close
proximity with easy access to many markets and
customers.
With a 3200km Pacific coastline and many
international seaports, goods in Vietnam are
easily exported to international destinations
such as the US, Europe and Oceania through
maritime routes. Most products from Vietnam
take less shipping time than products from
China. The shorter shipping times are a huge
advantage over other low-cost countries like
India and Bangladesh, where it takes twice as
long to reach these markets [29].
In addition, Vietnam is also a potential fast-
growing market for businesses. With more than
97 million people (ranked 15th in the world)
and stable economic growth over the past
decades, Vietnam is one of the most dynamic
economies in the region. In 2019, the
Vietnamese economy continued to demonstrate
core strength and resilience, supported by
strong domestic demand and export-oriented
production. Real GDP grew by about 7% in
2019, similar to 2018. This is one of the fastest-
growing rates in the region [30]. According to
PwC in “The long view: How will the global
economic order change by 2050”, Vietnam is
expected to be among the top 20 economies in
the world by 2050 [31]. Furthermore, the
middle class is growing rapidly at a current rate
of 13% of the total population and is expected
to reach 25% of the total population by 2026
[32]. Therefore, consumption in the Vietnamese
market will increase rapidly.
The second advantage is the proximity of
raw material sources for production.
Vietnam is located near China, which
provides favorable conditions for businesses
with easy access to abundant raw materials in
China. In the case of manufacturers facing a
shortage of raw materials, it is possible to
replenish quickly from suppliers in China
because Vietnam has a transnational road and
railway system and economic corridors [33]
connecting with China. Cities in northern
Vietnam are only 800km from China's most
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27
important manufacturing city, Shenzhen, while
operating costs are nearly a third lower [29].
4.4. Eco-system
The ecosystem in Vietnam is improving and
has the potential to meet the needs of
businesses considering production relocation
such as infrastructure, business environment
and resilience in the face of big shocks such as
the Covid-19 pandemic.
Infrastructure
When compared to China, Vietnam's
infrastructure is considered to be inferior. This
is a major limitation when investors consider
moving their factories from China to Vietnam.
However, Vietnam is investing heavily in
infrastructure, such as highways and seaports,
to create an efficient business environment for
investors. From 2012 to 2016, Vietnam's
growth in infrastructure spending was one of
the fastest in ASEAN countries, at 11.5% a
year, nearly double its GDP growth [28]. This
has helped Vietnam increase 25 places on the
World Bank's Logistics Performance Index in
2018 to 39th out of 160 countries, bringing
Vietnam ahead of Malaysia, India and
Indonesia, and the Philippines [32].
Business environment
Although Vietnam's transparency index is
considered poor, over the years, the Vietnamese
government has improved its legal and
institutional system to create a more transparent
and equitable investment environment.
According to the statistics of the transparent
world organization based on the transparency
index (CPI), in 2019 Vietnam increased 21
places in its ranking from 117th in 2018 to 96th
in 2019. Furthermore, this is also reflected in
the improvement in Vietnam's “Ease of doing
business” ranking, which increased from 99 in
2014 to 69 in 2019 [28], an increase of 30
places within 5 years.
International organizations such as the
World Bank and ADB have praised Vietnam
for its steady macroeconomic growth [29].
Vietnam is forming a stable and open economy
with the willingness for strong global economic
integration through many free trade agreements
(FTAs). Currently, there are 13 agreements
signed and ratified, 3 other agreements are
under negotiation. The Comprehensive and
Progressive Agreement for the Trans-Pacific
Partnership (CTPPP) and the EU-Vietnam FTA
(EVFTA) are two major advances. The CPTPP
came into effect in January 2019, and includes
11 member countries and accounts for about
14% of global GDP [28]. CPTPP members
must comply with a number of commitments,
from eliminating taxes to improving the legal
framework to encourage sustainable investment
and protect labor, the environment and
intellectual property.
The EU-Vietnam Free Trade Agreement
(EVFTA), signed in June 2019, was ratified by
the National Assembly of Vietnam on June 8,
2020 and officially entered into force on August
1, 2020 [34]. It will eliminate 99% of all tariffs
on goods exchanged between the two sides. The
agreement includes important provisions related
to environmental protection, labor rights,
intellectual property rights and climate change.
These FTAs are expected to reduce
protectionism and encourage openness,
cooperation and coordination, and create a
favorable and stable environment for doing
business in Vietnam.
Economic resilience
With the successful control of the Covid-19
epidemic through strict governmental measures,
Vietnam has demonstrated its ability to cope
with major shocks that very few countries in the
world can do. In the context of deep integration
with the global economy, the Vietnamese
economy has been heavily affected by the
ongoing Covid-19 pandemic. However,
government policies and approaches have
shown the ability to recover significantly with
an estimated GDP growth rate of 2.8% in 2020
[30]. The prestigious international rating agency
S&P Global Ratings publishes a report, in
which Vietnam is forecast to rank 2nd on the
economic growth rate in the Asia-Pacific region
during the crisis caused by the Covid epidemic
[35]. The report confirms that Vietnam's exports
remained stable; growing 1.42% per month and
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28
the amount of foreign investment received was
19.5 billion USD in the first 8 months of the year.
5. Conclusion and Implications for Vietnam
This paper analyzes factors affecting
production relocation decisions in the global
economy with many major crises and shocks,
especially the Covid-19 pandemic. In the past,
firms focused on the cost, strategic location of
the supply chain (proximity to the market and
the raw material sources) and infrastructure.
With the changes of the economy and the
impact of Covid-19, the factors that concern
firms are costs, the labor market and the
ecosystem. The ecosystem is a new factor in the
decision-making process. It is not only about
the infrastructure, but also the business
environment and the resilience of the economy
in the face of crisises or shocks.
The basic principles behind the decision to
choose a production location of foreign
enterprises are all related to economic
efficiency [36]. Businesses will choose to invest
in locations with economic goals followed by
strategic (or indirect and long-term) objectives.
Economic goals (or profits) include low labor
costs and good quality of labor, abundant and
accessible inputs, high tax incentives and a
good market for output. The strategic goals are
to access scarce resources and acquire new
capabilities as well as enter a dense industrial
network. In theoretical research on MNCs and
location selection, Dunning and Lundan (2008)
generalized into three groups the factors
creating the attractiveness of a location and
influencing the choice of investment sites of
MNCs including: endowment effects,
agglomeration effects and government policy
and institutional quality [37].
Investment mobility has been taking place
and Vietnam is being evaluated as one of the
most attractive countries to attract the shift.
Currently, many large companies have closed
factories in China and are opening factories in
Vietnam such as Apple, Samsung, Nike,
Adidas, LG, Foxconn and etc. Many of the
world's largest corporations are planning to
move all their outsourcing activities to
Vietnam. Vietnam has embraced some of
China's labor-intensive manufacturing
industries [38]. The US-China trade war
imposes tariffs on Chinese goods, while
Vietnamese goods are still easily imported. Big
tech companies are entering Vietnam and
balancing their production with China. Apple
recently started making Airpods in Vietnam to
cut costs of importing from China. Samsung
has also closed a factory in China and opened a
new factory in Vietnam. So, Vietnam is
attracting companies from textiles to large-tech
electronics manufacturing.
However, to create advantages and compete
with other countries in the region in attracting
FDI, Vietnam needs to make a difference.
In terms of endowment effects, Dunning and
Lundan (2008) distinguish between natural and
created resources [38]. In addition to available
tangible and intangible resources such as
natural resources, the geopolitical position in
the dynamic and rapidly growing ASEAN
region, closeness to major countries such as
China, South Korea and India, Vietnam needs
to foster and consolidate created resources to
attract investors. These resources include:
transportation infrastructure, energy, industrial
zones, skilled labours and so on. In order to
attract MNCs to invest in the high-value stages
of the production chain, improving the quality
of labor is a very necessary condition – there
must be workers with full cultural education
and professional capacity.
Businesses choose a location to benefit
from agglomeration effects - This is the positive
effect arising from the co-location of firms. To
create this effect, Vietnam needs to have a
geographic planning policy, prepare premises in
industrial zones to welcome foreign businesses,
and have specific policies on priority areas and
localities. In addition, the government also
needs to further promote the development of
domestic enterprises and supporting industries
to create the effect of attracting investors.
In terms of policy and institutional quality,
direct incentives/remuneration in tax will no
N.T.T. Mai, P.T. Phuong / VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 21-30
29
longer be a strength in the future, especially for
MNCs seeking strategic assets and dispersing
FDI in the location for the long term. In fact,
the open-door policy frameworks have become
too popular and are no longer attractive enough
to foreign investors. Therefore, in addition to
maintaining political and macroeconomic
stability, continuing to promote international
economic integration, and improving the
economic resilience to external shocks, the
government should have differentiated policies
such as creating regulations that encourage high
productivity investments, target high quality
business inputs, and create the availability of
suppliers and industries.
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P
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