KHOA HỌCCÔNG NGHỆ
Só 03/2022
Comparative analysis on competive advantages :>f ASEAN countries for foreign direct investment:
rhe case of LG group
I MSc. KO TAE YEON; Associate Professor. Dr. DAN DUC HIEP General Director ofHeesung Electronics Vietnam Co., Ltd
■ Dr. NGUYEN MINH DUC Vietnam Maritime University
ABSTRACT: LG Group is a leading technology - innovated company which has spreaded out its productionbases over the world. Currently, the Group are maintainingthree production bases inSouth Eas Asian countries, including Vietnam, Thailand and Indonesia. Human resources, scale of economy, the economic development, logisticssystem and political and social stability are critical factors for strategic decisions of investment. The paper performs a compartive analysis on competitive advantagesof 10 ASEAN countries.The analysis resultscan be used by LG group for further decision in strategic investment
KEYWORDS: Foreign direct investment (FDI), ASEAN,competitive advantages.
thá’
COI ste
1. INTRODUCTION
LG Group, which is a multinational corporation in Koka, has the headquater located in Seoul. The group works in heavy industry, including electronics, chemicals, telecommunicationsand semiconductors. It isconsiderable t LG Group is also a leading technology-innovated rVipany around the world. LG Group had historic first ị) in 1947 when LuckyChemical Co.Ltd was established, rhe year 1951 was a new era for LG group in the chemical and electronic industries. After over 70 years, the group still globally develops and expands its field to semiconductors, energy and machines. To be recognized as the market leader in business performance as well as management practices is its ultimate goal. Besides, customer-value creation and people-oriented management are LG Group's principles. LG's philosophy revolves around people, sincerity and sticking to thefundamentals.lt always focuses on
solutions, new experiences thorugh ceaseless innovation.
The
uncer the main brand, in which there are important units such as LG Electronics, LG Display, LG Innotek in the field of electronics; LG Chem, LG Energy Solution, LG Household &
understanding customers and offering optimum group owns several affiliated companies operating
Health Care in the field of chemicals; LG u+, GIIR, LG CNS, LG HelloVision Corp, in the field of communication and services and so forth.
Today, LG Group has over 84,000 staff and different systems in 112 small and large fields over the world. The group is often rated by 5 stars for the quality of its goods and services offered to customers.
Table 1.1. LG's production bases in South East Asia
Indonesia Thailand Vietnam
Founded
year 1987 1987 1993
Main prod
ucts
Color TV, Audio equipment,
Freezer
Color TV, Washing machine, Aircondi
tioner
Color TV, Washing machine, Aircondi
tioner
Strategy Domestic, Export
Domestic, Export
Domestic
LG group officially entered the Vietnamese market in 1995, opened LG Sei Electronics (a joint venture between LG Electronics of Korea and Star Electronics of Vietnam) and opened a factory in Hung Yen with an investment of 13 million USD in CRT TV production line with 550,000 products per year. Additional products are computer monitors, air conditioners, refrigerators, washing machines belonging to LG Meca in Hai Phong, until it became a 100%
Korean owned corporation in 2002. In 2003, LG group added 02 production lines with a total capacity of 450,000 products/year, and developed more products such as DVD players and LCD TVs. Mobile phones were then introduced to the market in 2004. Until 2011, the factory primarily produced consumer goods for the Vietnamese market. LG's production base consisted of five factories spread across three countries (Indonesia, Thailand, and Vietnam). In the future, LG Group will continue to develop and simulate investment in ASEAN countries. Decisions will depend on many factors such as economics, politics, society, human resource and so on. One of the priorities to be done is analysis, comparison among ASEAN nations. It Isa basement for the next selections. This paper focuses on
131
KHOA HỌC CÔNG NGHỆ
Só 03/2022
comparative analysis among ASEAN countries with some criteria such as economics development, political stability, investment climate and logistics activities.
2. LITERATURE REVIEW ON COMPETITIVE ADVANTAGES FOR FOREIGN DIRECT INVESTMENT
According to IMF (1993), Foreign Direct Investment (FDI) is defined that it is an investing activity, which is done in order to build long-term economic relationships between businesses running in countries. In this definition, the capital that foreigners use in a country where they directly do business is FDI. Foreign Direct Investment (FDI) has grown significantly as a major form of international capital transfering over the past decade. FDI world flows that are defined as cross-border expenditures to acquire or expand corporate control of productive assets have nearly tripled from 1980 to 1990. FDI has become a major form of net international borrowing for the world's biggest lender, Japan, and borrower, the U.S. (Kenneth, 1993). Although definitions of FDI change over the time, they have some common features so that FDI is international investing form, in which, investors are able to invest a part or entire their capital in a project in other countries; investors do investment by themselves; their purpose is often profit;
and FDI often goes with technology tranfering. Foreign direct investment enterprise is "defined as an incorporated or unincorporated enterprise in which a foreign investor owns 10 per cent or more of the ordinary shares or voting power of an incorporated enterprise or the equipvalent of an unincorporated enterprise" (DITEG, 2004). Basically, most enterprises having an ambition to widen its operational range from region to the global often tend to use its capital in order to invest in many other countries.
It causes FDI, which is usually created by multinational companies. There are several enterprises with FDI in the world, for example, Cormo Ltd. with production and trade of wood joinery, Intra Lighting Ltd with manufacturing and interior lighting, Kamen Sirac Jsc with manufacturing of lime and plaster, Iverica Ltd with production and sale of plain and structural plywood and venner and so on.
The classification of FDI is firstly upon to the investment direction both for assets or liabilities; secondly, the investment instrument used; and thirdly the sector breakdown. As for the direction, it can be considered from the home and the host perspectives. As for the instruments, direct investment capital comprises the capital provided (either directly or through other related enterprises) by a direct investor to a direct investment enterprise and the capital received by a direct investor from a direct investment enterprise. Following this, three basic components made up direct investment capital transactions: equity capital, reinvested earnings and other capital. Finally, there are several sector breakdowns of FDI flows, for instance, agriculture, mining, manufacturing, electricity, construction, wholesale, transport, financing, community and so forth.
Previously, some experts take care of FDI and also
do many research about it such as "Các yếu tố ảnh hưởng tới quy mô vốn đẩu tư trực tiếp nước ngoài vào lĩnh vực nông nghiệp ở Việt Nam" (Nguyên Thị Mai Hương, 2021) that reasearches on factors relating to the selections of FDI scale in Vietnam agriculture; "Foreign Direct Investment in the United States" (Graham and Krugman, 1989) that focuses on the impact of FDI on the United States;"Foreign Investment in Central and Eastern Europe" (Artisien, Rojec và Svetlicic, 1993) that shows the changes in Central and Eastern Europe under FDI; "American Investment in Australian Industry" (Brash, 1966) that represents how American FDI affects on Australian industry; "Foreign Investment in New Zealand Manufacturing" (Deane, 1970) that indicates how New Zealand manufacturing changes under FDI impact; "American Investment in British Manufacturing Industry" (Dunning, 1958) that shows changes in manufacturing industry in British when American FDI goes in.
Overall, different points are listed as possible FDI determinants such as labor costs, returns to investment, level of human capital, financial openess, natural resources, country size, politics, macroeconomic, investment climate as well (Adams, 2009; An, 2012; Baliamoune-Lutz, 2004;
Borensztein et al., 1995; Herzer, 2011; Kinda, 2009; Sekkat etal., 2007).
3. HIERARCHICAL CLUSTER ANALYSIS
Hierarchical cluster analysis is a common analytical method used to classify number of entities following to the their characteristic difference. It provides data summary as the hierarchy, which is useful and may correspond to a meaningful taxonomy. There are two approaches to hierarchical clustering. The first intends to group small clusters into bigger ones, which is called agglomerative clustering approach (Jung and Kim, 2001). The other is called divisive clustering approach which splits big clusters into smaller ones. The former is the most popular hierarchical clustering. Using the data to build a binary tree successfully merges similar groups of points (Subrata Das, 2014). With the given measure, there are some ways to identify intergroup similarity:
The first is Single-linkage or the similarity of the closest pair:
dSL(A, B) = minieAJeBdLj (!)
The second is Complete-linkage or the similarity of the furthest pair:
dCL(A, B) = maxieAj6Bdj j (2)
And the third is Group-average or the average similarity between groups:
dGA = SiGA SjGB di,j (3) Hierarchical cluster analysis is applied commonly in various fields, for example, business, marketing, computer science, social science, and so on. It can be solved by varieties of software including MATLAB, STATA, SASS, SPSS.
This method is suitable for comparative analysis due to its ability to classify objects by their similarity ans difference.
132
The nominated criteria for competitive advantages of :ountries for FDI in this paper are:
- Population: this indicator reflexes potentiality for
^bor resource
- Gross Domestic Product (GDP): presents the size of :he economy
- GDP growth rate (%): presents the economic dèvelopment
- Logistics Performance Index (LPI): presents the :ountry's development of logistics system
- Political Stability and Absence of Violence/Terrorism
;%): presents social and political stability
The given criteria are selected based on the literarure 'eview in section 2 and they match the policies of LG s^oup. All the criteria are provided by the World Bank as the following Table:
Table 3.1. Input data for Hierarchical Cluster Analysis
Source: World Bank (2021)
The data of each criteria in Table 3.1 is average of 10 ye^rs from 2010 - 2019. The analysis result generated by SP^S is presented as follow:
0 Countries Popula
tion (mil) GDP (bil US)
GDP growth
rate LPI Pol Sta
Vietnam 93.14 189.4 6.311 3.2 52.0
Thailand 68.51 425.9 3.647 3.4 16.5
Cambodia 15.40 18.2 7.027 2.5 46.2
Laos 6.7 13.45 7.312 2.7 56.8
Myanmar 52.4 61.42 6.657 2.3 13.6
Malaysia 30.08 317.3 5.332 3.2 51.6
Indonesia 256.5 933.9 5.416 3.1 27.2
Singapore 5.46 315.7 4.978 4 96.5
Philippines 101.1 296.3 6.408 2.9 14.5
Brunei 0.41 149.9 0.5 2.71 89.09
s
Figure 3.1: Dendrogram using Croup Average
KHŨAHỌC CÔNG NGHỆ
Só 03/2022
The analysis shows that the 10 ASEAN countries can be divided into 4 groups: Indonesia and Thailand are in group (1) and (2), respectively. Group (3) consists of Vietnam, Malaysia, Singapore and Philippines. The last 4 countries including Cambodia, Laos, Myanmar and Brunei are in Group (4). Indonesia is remarked with the highest population and GDP. The economy's average growing rate and LPI are quite good compared with other neighbours but Political stability and Absence of violence is evaluated very low.Thailand in the other hand, is similar as Indonesia in terms of social stability and LPI but the population is much lower as well as GDP and GDP growth rate. The 4 countries in Group (4) can be remarked as the group with small size of population and economy and notable limitation in logistics system. Vietnam in Group (3) is noted with large population, positive economic development, high ranking in terms of logistics system and political and social stability.
4. CONCLUSION
According to comparison in competitive advantages for foreign direct investment, the results imply that:
- Among the 3 countries that LG Group has already remained production bases, Indonesia and Thailand have advantages in terms of population and GDP. However, Vietnam is more attractive by GDP growth rate, logistics system and especially political and social stability.
- Philippines has noticable advantages for population, GDP and GDP growth rate but also, critical disadvantages in terms of logistics system and political/social stability.
- Singapore and Malaysia are the two leading economies with stable society and government's policies but population is a big question.
- Cambodia, Laos, Myanmar and Brunei might have difference disadvantages but general speaking, they are far from attractive to foreign investors.
Vietnam, therefore, to some extent will be still potential for LG Group to continue further investment.
The country has a clear advantage in terms of manpower, a positive developing economy in decades. Vietnam's logistics system are being improved very quickly and can be seen by its ranking in 2018. Political stability and absence of violence/ terrorism is another plus point for Vietnam but the government still have to spend more effort to maintain this advantage.
The paper has summarized theoretical background of foreign direct investment and perform a compartive analysis on competitive advantages of ASEAN countries.
The paper results can be used by LG group for further decision in strategic investment.
References
[1]. Artisien, p. M., Rojec, M. and Svetlicic M., eds.
(1993), Foreign Investment in Central an Eastern Europe, New York: St Martin's Press.
[2], Adams, Samuel (2009), Foreign Direct Investment, domestic investment, and economic growth in Sub-Saharan
133
KHOA HỌC CÔNG NGHỆ
Só 03/2022
Africa, Journal of Policy Modeling, 31 (2009), pp.939-949.
[3] . An, Zhiyong (2012), Taxation and foreign direct invesntment (FDI): empirical evidence from a quasi-experiment in China, International Tax and Public Finance, 19 (2012), pp.660-676.
[4], Baliamoune-Lutz, M. (2004), Does FDI contribute to economic growth?, Business Economics, 39 (2), pp.49-56.
[5] , Borensztein, E., Gregorio, J. D., and Lee, J. w. (1995), How does foreign invesment affect economic growth?, NBER Working Paper Series, 5057, National Bureau of Economic Research.
[6] . Brash, D. T. (1966), American Investment in Australian Industry, Canberra: Australian University Press.
[7] . BỘ GTVT (2019), Văn bàn hợp nhất số 03/VBHN- BGTVT về vận tải đa phương thức.
[8], Viện Chiến lược và Phát triển GTVT (2018), Niên giám Thống kê vận tải và logistics.
[9], Cooper, R. and Kaplan, R.s (1999), The design of cost managent systems, Prentice Hall, 2nd edition, Upper Saddle River, New Jersey.
[10], Deane, R. s. (1970), Foreign Investment in New Zealand Manufacturing, Wellington: Sweet and Maxwell.
[11 ]. Dunning, J. H. (1958), American Investment in British Manufacturing Industry, London: George Allen and Unwin.
[12] . Herzer, D. (2011), The long-run relationship between outward foreign direct investment and total factor productivity: Evidence for developing countries, Journal of
Development Studies, 47, pp.767-785.
[13] . International Monetary Fund (1993), Balance of Payments Manual, 5th edition, available at:
external/np/sta/bop/BOPman.pdf (accessed: November 2021).
https://www.imf.org/
[14], Jung, BG and Kim, H. (2001), Severe spontaneous ovarian hyper stimulation syndrome with MR findings, J.
Comput Assist Tomogr 25:215-17.
[15] . Kinda, T. (2009), Investment climate and FDI in developing countries: Firm-level evidence, Word Development, 38 (4), pp.498-513.
[16] . Kreutzberger, E„ Konings, R. and Aronson, L.
(2006), Evaluation of the cost performance of pre- and post-haulage in intermodal freight networks: analysis of the interaction ofproduction models and demand characteristics, in: B. Jourquin, p. Rietveld and K. Westin (eds), Towards better performing transport networks, Routledge,Taylor &
Francis Group, pp.256-284.
[17], Konings, R. (2008), Drayage and the competitiveness of Intermodal freight transport, Proceedings of the 87th Annual Transport Research Board Annual Meeting, Washington.
[18] . Kenneth, A. F. (1993), Foreign Direct Investment, Chicago: The University of Chicago Press.
[19] . Nguyen, T. M. H. (2021), Các yếu tố ánh hường tới quy mô vốn đâu tư trực tiếp nước ngoài vào lĩnh vực nông nghiệp ở Việt Nam, Hanoi: Central Institue of Economics Management.
[20] . Nguyen, T. L. H. and Bui, T. B. p. (2014), Nghiên cứu các nhàn tố tác động đến đầu tư trực tiếp nước ngoài tại những quốc gia đang phát triển, Journal of Development and Integration, 14.
[21] . Sekkat, K., and Veganzones, V. M. A. (2007) Openess, investmentclimate, andFDIin developing countries Review of Development Economics, 11 (4), pp.607-620.
[22] . Subrata Das (2014), Computational Busines:
Analytics, Taylor & Francis Group, pp.282.
[23] . United Nations (1980), Convention or International Multimodal transport of Goods.
[24] , Zhang, M.,Wiegmans, B.w. and Tavasszy, L.A (2009), A Comparative study on port hinterland intermoda containertransport: Shanghai and Rotterdam, 5th Advancec Forum on Transport of China, IET Conference Publications vol.2009, Issue 50 CP, pp.15-25.
Receipt date: 11/01/2022
Accepted date for posting: 20/02/2022
Reviewer: Associate Professor. Dr. Dang Cong Xuong Dr. Vuong Thi Huong Thu
