Introduction

Development, risk, reform, instability and expectation, those are probably the m
ost common words in economic stories of the United States, European and Asian co
untries nowadays. Therefore, during this day and age, the question is whether or
not there is a golden address for investors, who prefer the high risk- high rew
ard approach in their investment decisions. Different economists might have diff
erent answers to this question. Coming from Vietnam- a developing country in Sou
theast Asia, I believe that my country is still a doubting and challenging desti
nation among those answers. For many foreign investors, Vietnam is not widely re
cognized. People often perceive Vietnam as a little China that fought against th
e United States in the war years ago. That personal thinking fascinates me to ca
rry out a study of the foreign direct investment (FDI) in Vietnam, in order to f
igure out at which level of attractiveness Vietnam is in the global FDI framewor
k and the FDI context of countries with an equivalent economic development level
. More importantly, another reason why I am interested in the FDI in Vietnam is
the current attention of the world on emerging countries. In fact, Vietnam is of
ten classified by many international organizations as an emerging country. Recen
t studies underline
scholars efforts to approach the business environment and find out how investors
access emerging markets. However, a common formula cannot fit all countries. It
is important to have a separate process to analyze the investment environment in
each country. Focusing only on the FDI in Vietnam, my research paper is expecte
d to analyze the characteristics of home countries of FDI in Vietnam, the sector
s and regional locations in which Vietnam has the potential to attract FDI, and
the
interpretations behind that potential. Finally, after my university studies, esp
ecially the International Entrepreneurship course, I am ambitious to answer at l
east part of the question of how investors should invest in the Vietnamese marke
t. That purpose will be pursued through the analysis of a particular FDI strateg
y of an outstanding multinational enterprise (MNE) among many FDI models that ha
ve been successfully applied in Vietnam right now.
2. Specific tasks and structure of the thesis
With the aim to achieve the stated purposes, the paper will come across certain
tasks as mentioned in the following bullet points. This approach is expected to
provide a close view on the FDI in Vietnam step by step, from a broad literature
by international economists to a narrow literature by Vietnamese experts.
A theoretical background of FDI
An overview of global FDI trend and FDI movement into emerging countries
Characteristics of FDI in Vietnam
The case study of Unilever Vietnam as a particular example for FDI strategies in
Vietnam
As a result, the thesis contains eight chapters, three of which are the main cha
pters in the body of the paper. In particular:
Introduction
Methodological background
These two chapters are the summary of the author s motivations and ambitions in wr
iting about FDI in Vietnam, a clarification of how the paper is structured, and
the credibility of the paper s findings with an explanation of the paper s methodolo
gies.
Theoretical review of foreign direct investment
Foreign direct investment in Vietnam
The case study of Unilever Vietnam
By combining the theoretical framework and the analysis of practical trends, the
above three chapters are the body of the thesis and are dedicated to correspond
ing with the stated tasks, providing a clear picture of the FDI and MNEs operatio
n in Vietnam.

Conclusion
The conclusion summarizes main findings about FDI in Vietnam in an international
context, followed by recommendations for MNEs which intend to access Vietnam. F
inally, some limitations of the paper will be covered at the end of the paper.
Appendices and References
I. Methodological background
Arguments in the paper are built up based on both primary and secondary data, wh
ich are collected through the survey and other reliable quantitative and qualita
tive analyses of acknowledged economic scholars. As the goals set in sections ar
e different, the corresponding methodologies are used differently to provide a c
omplete overview of the issue in the discussion. Therefore, in order to ensure t
he logic and the continuity of the train of thought, the methodological backgrou
nd will be accessed in detail at the beginning of each section instead of being
mentioned synthetically in the introduction part of the paper.
In general, most of the collected information is drawn from secondary resources
due to the macroscopic feature of the paper s topic. Secondary data is available i
n different forms such as books, journals, companies annual reports, and official
websites of governmental organizations. These resources have been carefully sel
ected based on the reputation of the data providers in order to ensure the credi
bility of the findings. However, the gap among the data released by different or
ganizations or even the data released at different time by the same organization
is inevitable. Countries FDI data is synthesized and updated annually by the Uni
ted Nations Conference on Trade and Development (UNCTAD), but the updated FDI fi
gures are usually higher than the one published before. The value of Vietnam s FDI
inflows which are provided by UNCTAD and Vietnamese General Statistics Office (
GSO) are also not the same. This deviation, which is negligible in some cases, r
esults from inconsistent measurement methods, or due to the fact that data is ga
thered at different points of time (Neelankavil, 2007, p. 85). Therefore, to ens
ure the reasonability and comparability of the paper, in the section of accessin
g global FDI trends and analyzing Unilever s operation in the case study, the data
of UNCTAD and other international scholars are selected with priority being giv
en to the latest data in case of heterogeneous information. In contrast, the eva
luation of FDI in Vietnam and the affiliate company is based on papers written b
y Vietnamese scholars. The data points out general comments, and emphasizes char
acteristics and current trends of the mentioned economic topic. The data will th
ereby highlight arguments about the same issue from different scholars and bring
out the most neutral conclusion for the discussed topic.
The primary data is collected through a survey questionnaire, as the secondary r
esources are unable to provide sufficient information about specific aspects of
the Vietnamese market. The main ideas on how the survey sample is set up and how
the primary data is collected will be discussed in detail in the relevant secti
on later. The results are analyzed in the third part of the case study, which an
alyzes the response of Vietnamese customers to the foreign investor s business str
ategy (in particular, the product portfolio). Through the chosen method, the mos
t likely practical scenario for the stated issue will be selected. It is easy to
do the survey questionnaire in form of multiple choice questions. However, due
to the time constraint and geographical distance, which did not allow the survey
to access customers information from all parts of Vietnam, the result might not
be entirely the same in further studies. The valuation of practical problem and
the case study has been done with care. Nevertheless, there are still some notic
eable limitations in the paper due to the author s limited academic knowledge and
inexperience in forming data gathering method. The paper aims to provide an over
all look at the FDI situation in Vietnam, in order to access better understandin
g of specific segments of this market, further analysis needs to take place. Bes
ides, due to the confidentiality of internal information, there is some unavaila
bility of data concerning the annual turnovers and profits of the affiliate comp
any in the case study which would have been taken into consideration.

II. Theoretical background of foreign direct investment

As a starting point for the analysis of FDI phenomenon, a careful consideration
of academic concepts and a practical framework of the phenomenon are fundamental
requirements. Therefore, the second chapter of the paper will focus on terms re
lated to FDI and recent global FDI situation before going into detail about regi
onal approaches of FDI in the next chapters. In this section, the main reference
s are from the World Investment Reports (WIRs) of the United Nations Conference
on Trade and Development (UNCTAD). UNCTAD was found in 1964 in Geneva, Switzerla
nd, and is one of the biggest economic organizations in the United Nations syste
m nowadays. As the name of the organization suggests, UNCTAD aims to promote the
global economic development in general and
international trades of 194 current member states, focusing on developing countr
ies in particular. (UNCTAD, n.d. a) World investment report is an annual report
of the UNCTAD. The report provides an overview of the global FDI, which let rea
ders find professional evaluations of causes or
trends of the current FDI flows movement. All calculations and analysis expressed
in the reports are based on the database of member countries. The collected inf
ormation is continuously revised to the latest and most accurate data every year
. Hence, the WIRs can be used as a data resource with high level of credibility
and confidence extent. (UNCTAD, n.d. b).
1. FDI definition
UNCTAD (2000, pp. 267) specifies that:
FDI is defined as an investment involving a long-term relationship and reflectin
g a
lasting interest and control of a resident entity in one economy (foreign direct
investor
or parent enterprise) in an enterprise resident in an economy other than that of
the
foreign direct investor (FDI enterprise or affiliate enterprise or foreign affil
iate).
That means investors may use a FDI to acquire or finance a foreign company that
they
wish to control. The control purpose is the key characteristic of this economic
phenomenon. For that purpose of control, the investor should maintain at least a
wellaccepted
international threshold of 10% ownership of the foreign company. This feature
distinguishes FDI from the international portfolio investment, which is the tran
sfer of
financial capital flows to outside the national border without involving in the
management process. (Pugel, 2007, p. 321)
2. Types of FDI
When it comes to macro analyses of FDI-related topics, it is usually considered
either
flows of FDI or stocks of FDI. According to Peng (2011, p. 182), FDI flow is the
amount of FDI moving in a given period (usually a year) in a certain direction wh
ile
FDI stock is the total accumulation of inbound FDI in a country or outbound FDI f
rom
a country . What, then, is the essence of the analysis of these two concepts? That
is the
scholar s intention of analyzing FDI amount of a country at a certain moment (as a
snapshot) or the state of that country's whole process of FDI accumulation.
From the investor s view point, there are many different ways to categorize the FD
I,
based on the aspect at which the multinational enterprise (MNE) is taken into
consideration. MNE is the firm doing business in at least two countries (Pugel,
2007, p. 322) and is the investor of FDI activity. Some of those criteria are th
e MNE s form of

FDI activity, the MNE s ownership degree in a FDI fund, or the level of integratio
n.
Related to the form of FDI activity, a MNE can choose either a Greenfield invest
ment
or a merger and acquisition (M&A). With a Greenfield investment, entirely new
business facilities are built up. In this case, both market risk and cost of mar
ket
researching, construction, contacting with authorized agencies are high. Local
governments may prefer this type of FDI as it generates new jobs, accelerates th
e local
economy and supports the transformation of technical know-how. On the contrary,
it is
an acquisition or a merger if a MNE invests abroad through purchasing an existin
g
foreign company, or collaborating with another MNE to establish a new company,
respectively. In this case, M&As do not carry out larger spillover effect on the
local
business environment. Nor do they deal with less difference in competition polic
ies,
management methods, and business culture than the case of Greenfield projects.
However, M&As provides MNEs immediate turnovers, along with larger economies of
scale. As a result, M&As may be preferred to Greenfield investments from MNEs
perspective. (Cavusgil-Knight-Riesenberger, 2012, p. 408)
Caves (2007, p. 91) addressed several studies using economic models to explain t
he
volume of Greenfield projects and M&As. Accordingly, the host country s comparativ
e
advantages can raise the amount of acquisitions while affecting negatively on
Greenfield investments. Mergers are simulated by the economic growth and the pri
ce of
the host country s currency.
Another way to classify FDI types is based on the entry modes of the MNE, or
alternatively the degree of financial amount the MNE commits to the foreign coun
try. If
the MNE ensures 100% financial capital of the foreign business, it is a wholly o
wned
direct investment. Otherwise, the MNE may have an equity joint venture with othe
r
firms to set up a new legal entity, or gain a partial ownership of an existing f
irm with
equity participation. MNEs may have a variety of motives to choose the FDI entry
mode
they wish to pursue, such as the friendliness level with the foreign environment
, the
capital need, or local government s competition policies. (Cavusgil-KnightRiesenberger, 2012, p. 409)
Concerning the level of integration, MNEs can choose between a horizontal FDI an
d a
vertical FDI. The horizontal FDI is selected if the MNE only focuses on one stag
e of the
value chain (Cavusgil-Knight-Riesenberger, 2012, p. 409). J. Jones (2006, p. 31)
argues
that the MNE chooses this FDI type either because of its unique asset in compari
son
with local companies (for example advanced knowledge) or the host country s barrie
rs.
The MNE takes place a vertical FDI when the company pursues multiple stages of t

he
value chain. There are 2 forms of vertical FDI, including the forward integratio
n and the
backward integration. The suitable choice for the MNE depends on whether the
company directs its operation at the downstream or upstream of the value-chain,
though.
(Cavusgil-Knight-Riesenberger, 2012, p. 409)
3. OLI framework
In the micro-level approach, Hymer s pioneering study focused on firm-specific
advantages of MNEs in the process of competing with rivals in the foreign market
.
Theoretically, those ownership advantages are assets which are possessed by the
MNE
but not by local competitors, such as technology, brand, management techniques,
and
human skills. The MNE will invest abroad if these advantages can offset adverse
conditions of the foreign environment, including high transportation cost (resul
ted from
long geographical distance between the home country and host country), informati
on
cost (as the MNE lacks knowledge concerning local market), and extra cost to set
up
distribution network and create customer relations. (Dicken, 2007, pp. 108-109)
Internalization theory explains why ownership advantages (especially technical
knowledge) benefit the MNE better if they are kept within the enterprise s boundar
ies
instead of being sold or rented to other companies. The market imperfection (for
example the governmental barriers for imported products) makes internal transact
ion
more accessible than market transactions for MNEs. The internal transaction redu
ces
the material unavailability, ensures a stable price and quality of inputs, and p
rotects the
result of Research and Development process inside the company (Dreyhaupt, 2006,
pp.
33-34). However, the internalization theory cannot answer the next critical issu
e of
whether the MNE should internalize the market abroad or within its home country.
Dunning s eclectic paradigm is the theory which synthesizes key elements of previo
us
FDI theories, and proposes three factors motivating MNEs to pursue the FDI. This
approach adds location factor (L), and analyzes that factor with ownership advan
tage
(O), and internalization (I) together in a same framework in order to explain th
e
engagement of MNEs in businesses abroad. (Dicken, 2007, p. 109)
In the OLI model, the L factor considers the advantages of doing business in spe
cific
foreign environment in comparison with domestic market. Accordingly, in order to
attract FDI, the host country must have comparative advantages such as the avail
ability
of resources, low production cost, economics of scale, tariff or non-tariff barr
iers to
restrict imported products, and free trade agreements in certain areas of which
the home

country may not be a member (Pugel, 2007, p. 327). As a result, changes in the l
ocation
of FDI inflows can perhaps be explained by the changes in the relative location
advantages among countries.
4. Gravity Model
The Gravity Model is a quantitative analytical method, used in a range of studie
s to
estimate bilateral flows of FDI between two economies. Depending on particular s
tudy
purposes, experts may evaluate different range of variables, and come up with sp
ecific
conclusions. However, in principle, this model evaluates location-specific varia
bles
such as the GDP and the population (reflecting the countries sizes); geographical
distance, cultural proximity or other policy factors (reflecting transaction cos
ts between
two countries). Accordingly, size-related factors are directly proportional to F
DI flows
while FDI responds negatively to distance factors. (Mody- Razin- Sadka, 2002, p.
9;
Palacios, 2008, pp. 233-234).
5. The global FDI trend
To support the evaluation of FDI situation in Vietnam in Chapter III, this part
will
provide a literature background on the context and the recent trend of global FD
I.
The global FDI flows have an unstable development trend. Figure 1 visualizes the
change in volume of the global FDI flows in the first decade of the 21st century
.
Accordingly, it can be seen that following five years of steady increase from 20
03 to
2007, the FDI flows declined in 2008 and touched the bottom in 2009. A slight re
covery
in 2010 and then in 2011 might spark some optimism about the global FDI situatio
n
after the global financial crisis, though. Currently, FDI flows are envisioned t
o reach a
new record of US$ 1,800 billion in 2013 and US$ 1,900 billion in 2014. However,
because the global economy does not totally recover after the crisis, a downward
trend
of global FDI volume may also be predicted with a decrease to US$ 1,300 billion
at the
end of 2014.
Figure 1 Global FDI flows 2002-2011, and projection for 2012-2014 (US$ millions)
Source: UNCTAD (2012, p. 17)
The change in types of FDI is also part of a long term trend. Interestingly, the
value of
cross-border M&As from 2000 to 2010, which is shown in Figure 2 has a similar sh
ape
to the fluctuation of global FDI inflows. There seems to be a primary correlatio
n
between them, as the higher the value of FDI inflows, the more the value of M&As
tends to be. In fact, changes in FDI inflows and the fluctuation of M&As are arg
ued to
be mostly affected by the same variables (Byun-Lee-Park, 2012, p. 2).

Figure 2 Global FDI inflows and international M&As 2000-2010 (till end of
October 2010) Source: OECD (2010, p. 1)
Meanwhile, Greenfield FDI projects show a heterogeneous movement in value with
M&As and FDI inflows. Since the beginning of this century, after three years of
decreasing, M&As has started to increase in 2004. In contrast, it was a decline
time for
Greenfield projects after two years of growth, (UNCTAD, 2006, p. 3). In the next
period, while the value of M&As and FDI inflows reached a peak in 2007, Greenfie
ld
projects value was still raising and could only reach a peak in 2008. The period
from
2009 to 2011 marked a decline trend for Greenfield projects, when the value of M
&As
has started to increase in response to positive recovery signs of the global bus
iness
environment (Figure 3).
Figure 3 M&A and Greenfield FDI projects 2007-2011 (US$ millions) UNCTAD (2012,
p. 6)
These stated facts imply the diversity in the value trend of M&As and Greenfield
projects, or at least they show that the response of M&As to market changes is q
uicker
than Greenfield FDI projects. However, it is understandable as M&As and Greenfie
ld
projects are often considered as being alternative entry modes (UNCTAD, 2006, p.
3).
In near future, thus it can be expected that although Greenfield investments sti
ll
dominate in contribution proportion for the global FDI value (UNCTAD, 2012, p. 6
), its
growth rate will be smaller than the growth rate of M&As value.
6. Foreign direct investment in emerging countries
In a narrower range of analysis, geographically, the appearance of more and more
developing and transition countries in the map of FDI-attracted destinations is
one of
the popular economic trends over the last ten years. In 2002, only one developin
g
country (Qatar) stood in the top ten global economies by the inward FDI potentia
l index
(UNCTAD, 2005, p. 24). Today eight in the top eleven countries in the global FDI
attraction index are developing and transition countries (UNCTAD, 2012, p. 29),
several of which are the so-called emerging countries. The first ten years of th
e 21st
century was a decade of explosive growth of FDI value for those countries while
this
was a fluctuated decade for the world economy. The issues are now what really ha
ppen
for the FDI in emerging countries and the motives for MNEs to move to these mark
ets.
That will be the new questions to be addressed in the following part of the pape
r.
6.1 Emerging countries
Since 1990s, three categories of countries have been used in the WIRs of UNCTAD.
They are transition markets, developing markets, and emerging markets. However,
in
some cases, there seems to be no clear cut among those terms.
Transition economies are defined as countries that were once socialist states but
have
been largely transformed into capitalism-based systems (Cavusgil-KnightRiesenberger, 2012, p. 259). In simple words, the term of transition market refe

rs to
countries that used to have a centrally planned economy but now have a market
economy. UNCTAD has used that definition to categorize six South Eastern Europea
n
countries and the Common Wealth of Independent States as transition economies.
(UNCTAD, n.d. c)
In term of developing countries, UNCTAD usually lists them in WIRs as the ones t
hat
do not belong to the group of developed countries and transition countries witho
ut any
other definition (UNCTAD, 2012, p. ii). Dunning (2008, p. 768) and World Bank (n
.d.
a) defines them as the countries with low level of GDP per capital and economic
diversification, though. In common practice, they refer least developed or poor
countries, for example Ethiopia, Ghana, and Nigeria.
In some cases, the term of emerging country is utilized. However, economists did n
ot
find a consensus regarding the set of criteria based on which countries are sele
cted as
emerging. Some of them are developed countries but the majority is developing an
d
transition economies. That is the reason why the terms of developing and transit
ion
countries are used more often than the term of emerging country in the WIRs of
UNCTAD, as a result of a vague definition concerning emerging countries.
A well known group of emerging countries is the list of Morgan Stanley Capital
International Inc (MSCI). This corporation locates in 22 countries with 2700 emp
loyees,
building investment support instruments for more than 6000 clients in national a
nd international markets (MSCI, n.d.). The corporation categorizes markets based
on their
economic development level, size, liquidity and the accessibility of those marke
ts
(MSCI, 2012, p. 1). Based on that widely accepted framework, emerging markets ma
y
be known as those having an ongoing economic development process, a political an
d
economic instability, and a significant openness to foreign funds. Other organiz
ations
such as the International Monetary Fund may use different criteria, but the high
level of
volatility and the transition process to market economy are still essential fact
ors in
defining emerging countries (Mody, 2004, p. 4).
Currently, twenty one countries in the world are classified as emerging markets
by
MSCI, such as Brazil, China, Hungary, India, Russia, and Turkey. However, a numb
er
of other countries are also considered as emerging countries from other economis
ts
point of view, such as Nigeria, Pakistan, Bangladesh, and Vietnam (BBVA, 2013; J
oy,
2013). These countries are not classified as emerging markets by MSCI, though, a
s they
are gathered in another group named frontier markets. However, MSCI admits that
the
distinction between two categories is faint (MSCI, 2012, p. 1).
In short, common features of emerging countries are an economic transition with
instability, a high level of risk and a high development potential. Accordingly,
for the

period of
r of
Asian and
e
top three
es and a
promising
4).

2012-2017, the top emerging markets are the BRICs, followed by a numbe
Latin American countries. Among those non-BRICs, Vietnam appears in th
after Indonesia and South Africa, with strengths in energy and resourc
consumer market. (Global Intelligence Alliance, 2012; Rajan, 2011, p.

6.2 FDI inflows shifts to developing and transaction countries

Figure 4 shows the share of developing and transition countries in the global FD
I
inflows. These countries share varied but on average it accounted for around one
third
of the global FDI value for years up to 2007 (with an exception in 2004). Howeve
r, this
rate increased after the global financial crisis, with a threshold of over 50% i
n 2010 and
2011. In fact, six out of ten leading prospective host countries in the period 2
012- 2014
are now developing countries, in which China has already passed the US to be the
biggest host country and Indonesia has appeared in the top four (UNCTAD, 2012, p
.
22). Considering the FDI inward stock, a similar trend of FDI movement towards
developing and transition countries can be noticed with a highest portion of 36%
in 2011. Figure 4 which visualizes the share of developing and transition count
ries in global FDI inward stocks, can be found in Appendix 1.
Figure 4 share of developing and transition countries in global FDI inward stock
s Source: Author s own calculation based on UNCTAD (2005, p. 303, 2011, p. 187, 20
12, p. 169)