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The Attractiveness of Vietnam As a Target for Incoming FDI, with A The Attractiveness of Vietnam as a Target For Incoming FDI, With a Case Study in the Retail Sector Thesis By Huyen Kateřina Nguyen Submitted in Partial Fulfillment Of the Requirements for the Degree of Bachelor of Science In Business Administration State University of New York Empire State College 2016 Reader: Tanweer Ali Acknowledgements: I would like to express my special thanks of gratitude to my mentor Tanweer Ali for guiding me through the whole thesis and giving me valuable feedbacks. I would also like to thank my family and friends for the continuous support during my studies. Table of Contents: I. Introduction .................................................................................................................. 5 II. Theoretical part ......................................................................................................... 7 II A. Division of FDI ......................................................................................................................... 7 II B. Factors Influencing FDI Decisions ................................................................................... 7 Country indicators ...................................................................................................................... 7 Institution indicators................................................................................................................. 9 Economic indicators ............................................................................................................... 11 II C. The impacts of FDI on the economy ............................................................................ 13 II D. Impacts of FDI on society ................................................................................................ 14 III. Competitor Analysis In Theory ............................................................................................. 15 IV. Foreign Direct Investment in Vietnam ........................................................ 17 IV A. Development of the FDI in Vietnam ........................................................................... 17 IV B. Vietnamese FDI determinants ...................................................................................... 20 V. Vietnamese - Korean investment relationship .......................................... 30 V A. Influence of Korean media Industry ............................................................................ 32 VI. Competitor Analysis Of Lotte ........................................................................... 33 VI A. History of Lotte group ..................................................................................................... 33 VI B. Financial Results Of Lotte Shopping .......................................................................... 34 VI C. Lotte Group SWOT Analysis .......................................................................................... 35 Strengths ..................................................................................................................................... 35 Weaknesses ................................................................................................................................ 36 Opportunities ............................................................................................................................ 37 Threats ......................................................................................................................................... 38 VI D. Porter's Five Forces Lotte Mart in Vietnam ............................................................ 38 Rivalry Among Competitors ................................................................................................ 38 Supplier Bargaining Power .................................................................................................. 40 Consumer Bargaining Power .............................................................................................. 41 Barriers to Entry ...................................................................................................................... 41 Threat of Substitutes Products ........................................................................................... 42 VI E. Business Strategy Recommendation .......................................................................... 43 VII. Conclusion .............................................................................................................. 48 Work Cited ...................................................................................................................... 50 Bibliography .................................................................................................................. 55 ABSTRACT: This thesis is focused on the development of Foreign Direct Investment (FDI) in Vietnam. It also researches the reasons for FDI in Vietnam and the factors, which influence the investment decisions. It further examines the FDI impacts on growth of the economy, as well as the advantages from the international cooperation. The purpose of the case study in the retail sector is to assess the overall profitability of the companies investing in Vietnam. However, from an observation, these investments seem to be unprofitable, and therefore the case study analyzes the biggest FDI investor in Vietnam, which is South Korea. The thesis describes the relationship between the two countries, and provides the reader with reasons why Vietnam is an attractive investment destination for South Korea. The case study in the retail sector analyzes the competitiveness of one of the biggest Korean Conglomerates active in Vietnam called Lotte. It also provides the reader with further recommendations regarding the strategy and improvements that should be done in order to sustain the business in the Vietnamese market. The result of the analyzes shows that despite the losses Lotte has been having in its subsidiaries, there is a big potential in the growing consumer market in Vietnam. I. INTRODUCTION Foreign direct investment (FDI) is an important driver of technology transfer, economic growth and development. By definition FDI is an investments made by foreign governments or companies to a certain country, while acquiring assets or establishing operating processes in host companies. What is also different between the FDI and portfolio investments is that FDI is characterized by having voting rights in a company in which they acquired the stakes (Jenkins, 2006). According to IMF, the international minimum of voting rights should be at least 10% to be characterized as FDI. However, this is very hard to determine because the foreign investors may have an influence by owning assets, such as machineries, equipment, or factories. As FDI is a very important part of today's international cooperation and globalization, it is very important to assess the impacts of FDI on the economic growth of countries. The supporters of FDI say that it is an important instrument for the developing countries to reduce poverty and inequality by having more efficient global economy. On the other hand, the opponents of this argument claim that FDI has a negative impact on the economy, as it creates dependence on the investor countries. It is claimed that it also destroys small domestic competitors and may lead to higher unemployment (Answar & Nguyen, 2010). However, the FDI inflow to the CEE region is one of the successful historical examples, where FDI raised the overall quality of living of the citizens in this region. The FDI inflow to these post-communist countries brought capital and know how, which helped the country to transition from planned economy to market oriented economy. 5 As Vietnam is becoming a very attractive destination for FDI, this paper will assess the FDI development and its impact to the economy in Vietnam. Vietnam has experienced a rapid increase in the growth in the FDI, but not all of them seem to be financially feasible. The biggest portion of the FDI take up the greenfield vertical investments, where foreign countries operates some of their processes in Vietnam, as the costs are much lower than they have at their domestic country. Some of the biggest companies, which outsourced their manufacturing to Vietnam are: Samsung, Dewan, or Tex Hong ("2014 FDI Report"). However, this paper will be focused on the horizontal FDI, mainly on Korean investors, who are the biggest FDI contributors in Vietnam. Even though the biggest sector for Korean investment is the vertical FDI, this paper is going to assess the profitability of one of the biggest Korean retailers, Lotte Shopping, and its competitive positioning on the Vietnamese market. It will further proceed with strategy recommendation on what the retail companies should focus on in the upcoming future. 6 II. THEORETICAL PART II A. DIVISION OF FDI The FDI are classified into two main forms - vertical and horizontal. Vertical FDI are investments, in which the companies act as distributers or suppliers, while taking advantage of lower costs of labor. On the other hand, horizontal FDI is a way to gain better access to the local economy, by opening branches that are similar to the business as in their domestic country. FDI can also be achieved by two strategies. The first strategy is through so called greenfield investment, in which the company builds and sets up the factories or operational units in the foreign country. The second strategy is called brownfield
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