Failed projects in Vietnam

Question 1

provide a quick historical context

Answer 1

• Vietnam War between north and south 1955-1975
• Economic embargo by US 1975
• Vietnam reunited under communist regime 1976
• Doi Moi Programme 1986
• Introduction Law, being open for FDI 1988
• US trade embargo was lifted 1994

Question 2

briefly explain the Doi Moi Programme and why they invented it

Answer 2

after the reunion shift was needed from a centrally planned economoy to a socialist-oriented market economy.
“development of a multi-sector commodity economy operating along market mechnism, with State management and with a socialist orientation”

Question 3

through which 3 ways could FDI enter Vietnam?

Answer 3

1) Contractual Business Cooperation
2) Joint Venture Enterprises
3) Enterprises with 100 % foreign ownership (greenfield)

Question 4

Restriction on FDI, its benefits and its results

Answer 4

only legal way of making JV was by partnering with SOE (state owned enterprise)
benefits: SOE have privileged market positions and information on the country, which wasn’t availably too much
-> lead to 2/3 of FDI being a JV with SOE

Question 5

repeat the factors affecting FDI

7 stück

Answer 5

taxrates,
wage rates,
transport and infrastructure,
access to FTA,
size of local market,
political stability,
commodities

Question 6

name the 7 hypothesises the article proposes about the reasons for the failure in Vietnam

Answer 6

1) Failure rates should be lower for the most recent projects
2) Transaction costs and failure rates should be lower for larger projects
3) failure rates are higher for projects with a small foreign share
4) failure rates are higher for projects located in rural and poorer areas
5) FDI in northern regions (ex-communist) are more likely to fail
6) FDI arising from ASEAN + Japan have lower failure rates
7) High ERP (Effective rate of protection) may be less efficient

Question 7

explain the first hypothesis a bit further - why should failure rates be lower for the recent projects

Answer 7

normally early mover advantage
but in case of vietnam being closed before, the costs of obtaining information were higher

Question 8

Hypothesis 2- why should transaction costs and failure rates should be lower for larger projects?

Answer 8

-Economies of scale of fixed costs.
-large projects done by large firms with large resources
-larger projects get preferential treatment inthelicensing process

Question 9

Regarding Hypothesis 4 - why should failure rates be higher in poorer areas?

Answer 9

in Urban area: better infrastructure, so less transportation & transaction costs
+ larger supply of trained labor

Question 10

HT 5 - why FDI in northern regions more likely to fail?

Answer 10

North more conservative und bureaucratic -> higher transaction costs regarding contracts

Question 11

HT 6 - why would East Asian Investors have lower failure rates ?

Answer 11

common cultural practices + similar organized culture

Question 12

Explain the Probit Model

Answer 12

Probablity of failure influenced by various factors
FAIL = f[Age(+), Size(-), JV(+),Poor(+), Asia(-), ERP(?)]

Question 13

what are general recommendations

2

Answer 13

• a good investment climate need a stable and transparent legal framework , also including simplified FDI licensing policies to allow faster entry

Question 14

General findings by the article

Answer 14

• there is no single variable fully explaining why FDI projects fail -> combination of different variables
• JV failed more due to difficulties in cooperation with Vietnamese partners
• vietnames SOE are powerful - if private companies could compete on euqal terms with them, the country may become more attractive for FDI