Đầu tư trực tiếp nước ngoài quan trọng như thế nào đối với Kinh doanh
SUBJECT: Foreign Direct Investment (FDI) is an important topic for international business.
It is also a very interesting and challenging business undertaking.
Your task is to be a prudent Vietnamese investor in another country.
Select a country and a product or service you feel as an investor will be a wise financial
investment and has long term potential and benefits.
Please include the answers to the following questions in your paper:
Why did you select this country?
What criteria did you use to make this country your selection?
Support your choice with good documentation and current reliable data.
Why did you select this product or service?
What criteria did you use to make this your selection of product or service?
What is your projection/estimation of the competition you will have in this country?
Please document and explain your rationale with pertinent details.
What specific research or background information would you need to consider before
entering into this sometimes risky but often very profitable international business venture?
Where would you find pertinent data/quality sources to help you start the business?
Please include specific web sites/sources and a short description of what is contained in the
What are the strengths and weaknesses of your country product/service choices? You can list
these in your paper. Please be specific.
What type of entry mode would you use for this investment?
How does this country rank in the 2012 World Bank index data on countries of “ease to do
What about corruption in the country?
How does this country rank on Transparency International Corruption Perception Index?
I. OPEN FIRST:
In the trend of globalization with the world economy today, when a companie participates
into the international business, the ordeal extent will be more complex than merely local
activities. This is an obvious thing because thre are many risks arising due to the differences
in politic, law, economy, and culture ... in the destination countries. Because of many factors
such as business expansion, profit increase, minimizing competitive risks ... companies
participating into international business is an inevitable thing.
This article will raise the issue that foreign direct investment is an important topic for
international business. Being as an Vietnamese investor I will specifically refer to the fact
that investing in rubber plantation in Laos is a wise financial investment, and potential longterm benefits.
II. THEORY OF FOREIGN DIRECT INVESTMENT:
- Foreign direct investment is a direct investment of a company into the bases to
produce or manufacture a product in a foreign country.
- World Trade Organization offers the following definition of FDI: Foreign Direct
Investment (FDI) occurs when an investor in a country (domestic investors) has an
asset in another country (attracting investment country) along with the management
of such property. The management is the thing used to distinguish FDI with other
financial instruments. In most cases, both investors and asset is the overseas
business establishments. In that case, investors are often called the "parent
company" and the properties are called "subsidiary" or "subsidiary company".
2. Promoting foreign direct investment factors: in international business, companies
involve in foreign direct investment because of the following factors:
- To expand the business market.
- To get the resources.
- To diversify revenue sources and supplies.
- To minimize the risk of competition.
- To be more successful, to increase profits.
- To strengthen the brand.
- Political / issues motivation: the encouragement from the government of the
receiving country and the investming country.
3. Forms of foreign direct investment:
- Completely new investment: is the investment to establish a completely new
- Acquisition or merger with a foreign company: the most common form.
4. Forms of penetrating foreign markets: to penetrate foreign markets, the
companies may choose one of the following forms: export, turnkey projects,
licensing, franchising business, joint ventures, wholly owned subsidiaries, alliance.
III. DIRECT INVESTMENT IN RUBBER PLANT IN LAOS:
1. The selection of countries:
1.1. Background information for the selection of country:
According to the Investment Department, Ministry of Planning and Investment
of Vietnam, as of May 2013, Vietnamese enterprises have invested abroad to 59
countries and territories with 742 projects, with a total investment of $ 15.5
billion, of which Laos is the leader on the project and the total investment,
including 227 projects with a total capital is $ 4.2 billion, accounting for 30.6%
of total projects and 27.1% of the capital investment total
The above information shows that Laos is one of the countries which
Vietnamese enterprises prioritize investment options. The number of projects
that Vietnam is now licensed to invest in Laos shows that in the past many
years, the Lao government has created many advantages to encourage foreign
enterprises in general and Vietnamese enterprises in particular in Laos. So the
investment in rubber plantation in Laos will certainly have potential benefits.
1.2. Criteria of choosing country:
Laos is a country in Southeast Asia, with an area of 236,800 km2 and a
population of 6.8 million people, and the capital city is Vientiane. Laos is a
landlocked country only in Southeast Asia. Laos borders Myanmar and China to
the northwest, Vietnam to the east, Cambodia to the south and Thailand to the
west. Its official name is the Democratic People's Republic of Laos.
Vietnam selected Laos to invest in general and planting rubber in particular
because of the following reasons:
1.2.1. Laos is a country with geographical location adjacent to Vietnam, the two
countries have common borders 2,067 km long, extending from north to
south there are 10 provinces in Vietnam sharing the border with the
provinces of Laos. With the border across multiple provinces, the traffic
transportation between Vietnam and Laos is very convenient through
many border gates; thereby it is easy for logictics activities and reduces
freight, machinery and equipment cost.
1.2.2. Vietnam and Laos, Southeast Asia's 02 countries have the same physical
location on the Indochinese peninsula, and similarities in culture (East),
religion (Buddhism). This will also facilitate the Vietnam company
personnel to be familiar with Lao workers in the process of investment
and exploitation of rubber.
1.2.3. Vietnam and Laos have similar market conditions, and are developing
countries. Recently, Vietnam and Laos held a "solidarity In Vietnam Laos 2012", to celebrate the 50th anniversary of the establishment of
diplomatic ties between the 02 countries (05 September, 1962) and 35year Treaty of friendship and cooperation between the two countries (18
From the above political motives and with the encouragement of the 02
countries’ governments, the Vietnamese companies investing in Laos
will help to create more jobs, raise Lao people’s incomes and contribute
to invest infrastructure in disadvantaged areas of Laos ... These factors
make the investment of Vietnamese enterprises in Laos highly supported
by political leaders of Laos.
1.2.4. The investment in rubber plantation in Laos not only takes advantage of
the human resources and fertile farmland in Laos, but also save the cost
of production and freight for investors.
1.3. The strengths and weaknesses of Laos:
1.3.1. In the legal system, the Lao government is building and improving
legislation to promote foreign investment, so the foreign enterprises to
invest in Laos will definitely receive supportive pole from the political
leaders of Laos.
Of course in the current period, the Lao legal system still has the
shortcomings, and does not meet the requirements of the investors. So
the government of Laos will endeavor to improve the legal system to
enhance the attraction of foreign investment, thereby contributing to
economic growth and national development.
1.3.2. Lao economy is growing fast when this country began to descend the
centralized control of the state on the economy and to encourage the
1.3.3. Laos has rich resources in forestry, agriculture, mining and
hydroelectricity (800,000 ha of agricultural land), but this country is
landlocked, and its infrastructure is not complete (although the road
system has been renovated but is still difficult to access), domestic and
international telecommunication systems is limited, the majority of the
workforce lacks skills.
1.3.4. Agricultural products account for about half of the gross domestic product
(GDP) and use 80% of the labor force. The economy is heavily dependent
on foreign aid, Laos still
receives assistance from the International
Monetary Fund (IMF) and other international sources as well as from
foreign investment in processing agriculture produces and mining
In general, the economy of Laos is developed but because of its low
productivity outside investment funds is big. Domestic equity accounts
for 20% and foreign capital accounts for 80% the total investment
1.4. National ranking:
According to Transparency International (TI) on the corruption perception
index of countries in the world through the year 2012, Laos ranked 160/176
countries. It is not difficult to understand because being a poor country in
Southeast Asia, and is gradually going up in economic development, and the
legal system has gradually been improved in order to attract foreign investment,
but Laos can not avoid corruption like most other countries.
On the other hand, ranked by the World Bank on the level of business done
easily (easy to do business) for 02 years, 2011 and 2012, Laos gained three
ranks from 166 (2011) to 163 (2012). This suggests that although the legal
system is inadequate and levels of corruption is high, easily business hierarchy
change of Laos, show that Laos is also making effort to develop and attract
foreign investment (Source: http://search.worldbank.org/data?qterm=easy to
2. The product selection:
2.1. Basic information for product selection:
Rubber is the main industrial plants with great economic value, and is one of
ten major export items of Vietnam today. In 2012, the export volume of 1
million tons of natural rubber, Vietnam has become the world's No. 3 exporter,
after Thailand and Indonesia. The major countries importing rubber of Vietnam
in 2012 are China (493,000 tons), Malaysia (200,000 tons), India (72,000
tons) ... rubber export turnover of Vietnam in 2012 reached 2.86 billion USD,
2.2. Criteria for product selection:
Rubber industry is divided into 2 groups including natural rubber and
synthetic rubber. Latex extracted from rubber, is the main component of
natural rubber and synthetic rubber is derived from oil. Currently the
demand for rubber is great, of which natural rubber accounts for 40-45%
of demand of world rubber. Natural rubber is mostly used to produce
tires, so the world's most developed auto markets are major rubber
importing such as Japan, USA, China, India, Brazil
Rubber consumption in the world over the years (thousands tons)
(Source: Natural rubber statistics 2012, Malaysia Rubber Board)
2.2.2. Natural rubber source depends mainly on the following factors:
- Rubber growing area of the country: Laos has so large agricultural
area and has not been fully exploited, so the Lao government will
provide land for rubber plantation business to facilitate business
activities and economic development of the country.
- Weather: Southeast Asia (including Laos) with the humid tropic
climatic conditions is very suitable for the development of rubber
trees. This is the reason why Southeast Asia has largest natural
rubber countries in the world.
The proportion of natural rubber production, 2011 (thousands tons)
(Source: NMCE- Natianal Multi Commodity Exchange, Nateral rubber 2012-2013)
2.2.3. Labor costs account for a large proportion (approximately 50-70%) of
the total cost of natural rubber production, so investing rubber
plantation in Laos will use low-cost labor to increase ability to
compete on price and increase profits for investors.
2.3. The strengths and weaknesses of natural rubber:
2.3.1. Economic value:
Rubber trees have high economic value, latex is used for a variety of
industries and rubber wood is used for furniture production. At the
end of the cycle of latex extraction (after 25 years of exploitation)
people will cut down rubber trees for wood for the wood processing
2.3.2. Capital investment and profitability:
Planting rubber does not require large capital investments, but it is
capable of carrying cash flow with high and stable profits. Capital
investment in rubber plantation in about 130 million VND/ha, 5-6
years for planting and 25 years for harvesting then the rubber trees
are sold for wood. If the 350,000 VND for a tree, fennel 1 hectare of
rubber can bring about 180 million VND, regaining back the full
2.3.3. Planting and harvesting of rubber trees also have certain risks, such as
risk of weather (rubber trees grow fast in the rainy season, and dry
season from January to April every year, trees grow slowly or people
cannot harvest the latex due to lack of water), market risks (investors
need to invest in building the processing plant for industrial
processing and refining rubber latex because crude price can be
bought at low price).
3. Penetration method to invest in rubber plantation in Laos:
In rubber plantation business investment project in Laos, depending on the actual
conditions and financial capacity I will choose one of two following methods to
3.1. 100% foreign investment in subsidiaries will be established in Laos, namely
inviting Vietnamese investors to contribute capital to establish a 100% owned
company of Vietnam for planting rubber and exploting nature rubber in Laos.
The entire equity ownership in the company makes the decision to run the
company quick and smooth.
3.2. Cooperating with Lao or Vietnamese enterprises who used to invest in Laos in
the past to take advantage of their knowledge and experiences on Lao market,
while minimize the competition with these investors.
4. Plans to face the competition in rubber plantation investment in Laos:
In the plantation and exploitation of rubber plantation in Laos, the current
competitiveness is not from the domestic enterprises but from China and now
Vietnam, among which are some large enterprises as follows:
4.1. Chinese firms are the biggest investors in Laos in the field of rubber plantation;
almost the entire area of rubber in northern Laos belongs to Chinese investors.
Northern Laos is the area which has the largest land of rubber plantation,
accounting for 54% of the country. Only a Chinese business, Ruipu - a limited
biotechnology company, has 10,000 hectares of rubber plantation (Source:
4.2. Vietnam Rubber Industry Group (VRG) has 27,096 ha of planted area. (Source:
4.3. Hoang Anh Gia Lai Group: cultivated area is 25,000 ha (Source:
To ensure the successful investment and reduce competitiveness, my investment
project of rubber plantation in Laos highlights the following issues:
- Selecting the southern provinces of Laos to invest to secure enough land for the
- Make contacts and cooperate with the above Vietnam and Lao businesses to
expand rubber cultivation area in the future.
In summary, through the above-mentioned theory of foreign direct investment, and the
consideration of the implementation of investment project in rubber plantation in Laos, it is
evident that mastery and application of theory into practice is very important. Because only
when investors consider comprehensive review of the criteria for selection of countries and
products, forms of investment options and plan to deal with the competition, they can
determine the right investment plans to ensure the viability and effectiveness for investors in