the instability of today's world. This is a factor that we need to promote and exploit to improve the competitiveness of the national investment environment.
2.1.2.
2.2 Economic factors
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Depending on the different investment motives or purposes of TNCs, they will decide to seek different economic factors in the investment environment of the host country. The economic factors of the host country can be divided into two types: traditional economic factors and new economic factors. In which, traditional economic factors can be divided into 3 groups, each of which reflects a motive or investment purpose of TNCs when penetrating the market of each country: the motive of searching for markets, the motive of searching for resources and the motive of searching for efficiency. As well as the legal policy framework for FDI with the rapid internationalization and globalization process today, these traditional factors also have certain changes to adapt to the times. However, new economic factors are produced at the high development stage of the economy, it reflects the motive of TNCs: searching for strategic assets.
2.2.1. National and regional markets (market-seeking FDI)
- National market
TNCs investing in market-oriented FDI seek to exploit the advantages of market size, population size, per capita income and market growth in the host country. Larger markets will have room for more companies to operate, helping companies take advantage of economies of scale through producing more products. Per capita income and growth of the country are the factors that attract
Leading in the investment environment, if the increase in income reflects the ability and level of spending on purchasing products of the people, then market growth shows the development prospects of that economy. All of these will encourage production and foreign investment.
Directed FDI became an important factor promoting investment in manufacturing in developing countries in the 1960s and 1970s, during the period of import substitution industrialization. This motive also promoted the wave of US investment in Europe in the post-war period. The existence of this type of FDI is partly due to import barriers of the investment recipient countries. In addition, in some cases, expensive transportation costs when exporting also make investors choose this type of FDI as a perfect alternative. And the difference in consumer tastes and the need to produce locally products that meet the preferences of local people is also an investment motive.
Market factors are also important for many FDI in services although the main reason is not because of tariffs but because services are often difficult to export, so the only option and also the most advantageous to export services is through the establishment of service establishments abroad. This sounds like the size and growth of the market becomes an important determinant of FDI of the host country in the service sector. However, the scale of this investment is very small compared to the scale of the service sector, the main reason for this is the limited FDI framework in all less developed and developing countries. Because the service sector is characterized by its extremely sensitive nature and is monopolized by the government, especially the financial, banking and insurance services sectors, which are almost not allowed or, if they are, are very limited and cautious.
- Regional market:
The globalization process is taking place more and more rapidly, leading to the emergence of more and more regional alliances, so the concept of market capacity is now not only limited to the scope of that agreement area. And investors when investing in a country that is a member of the agreement will have the opportunity to access a much larger market. This will strongly attract FDI flows to replace imports because the ability to consume products in a huge regional market is very promising. Although this depends on the level of protection of each agreement, even without any protection for member countries, the regional market is still an attractive investment destination because agreements such as RIFs have removed non-trade barriers, facilitating the exchange of goods within the bloc. In addition, goods of FDI companies are also more competitive because they enjoy preferential treatment from member countries on preferential origin...
Along with expanding the consumption market capacity, a country being a member of a region such as RIFs also helps TNCs take advantage of many economies of scale in all stages of the value chain. Companies can simultaneously have multiple location advantages without having to sacrifice one advantage for another. For example, when investing in member countries of the NAFTA region, TNCs have the opportunity to take advantage of Mexico's cheap labor and access a large market in the North American region.
2.2.2. Resource/Asset seeking FDI
-Natural resources:
Perhaps in the early development period of FDI today, the first and most important investment motive was the rich and diverse natural resources of the recipient countries. Until World War II, 60% of the total FDI in the world was still related to the search for natural resources. FDI activities taking place at this time were the result of the meeting of all
The weak point between supply and demand. On the one hand, developing countries have natural resources such as minerals or raw materials for industrial production. Although they have potential, most of these countries lack investment capital for exploitation, lack of management experience or advanced technology, which is also a significant obstacle to the development of these countries. Meanwhile, TNCs in developed countries have financial potential as well as modern management skills, they are always looking for investment areas to seek profits.
However, since the 1960s, the relative importance of natural resources in attracting FDI has gradually decreased. In most host countries, only 11% of total FDI capital in 1990 was spent on searching for natural resources. Especially for leading industrialized countries such as the UK, France, Germany, Japan, and the US, in the period 1991-1995, this ratio dropped to less than 5%. There are many reasons to explain the above phenomenon: First, the strong development of the economy of the host country has created large indigenous companies. Most of these companies are often state-owned companies, with enough capital and technology to exploit the country's available potential. Therefore, indigenous companies have a clear cost advantage over foreign companies, which has narrowed the profit and scope of operations of FDI companies. The second reason is the decline in the proportion of basic sectors in the total world output as well as the change in the world economic structure towards the increasingly high proportion of service sectors. This makes the motivation to seek natural resources less important than before, and an investment environment with only an abundance of natural resources is no longer the absolute strength of countries.
Although the importance of the dominant status of natural resources has
Although natural resource availability is declining, it remains one of the leading and decisive factors of FDI, continuing to provide many opportunities to attract FDI for countries rich in natural resources.
Infrastructure
The elements of a country's infrastructure include: road systems, bridges, airports, seaports , etc.; information and communication networks, communications or multimodal transport services; the level of satisfaction with services for production and daily life such as electricity, water, telecommunications, the ability to rent land and own a house , etc. All of these elements create the basic foundation to promote the development of each country as well as create favorable conditions for attracting FDI. However, this condition often comes in addition to other important conditions such as natural conditions or market conditions. Obviously, improving a country's infrastructure not only speeds up the implementation of FDI projects but also ensures the quality of life of foreign employees.
Human resources
Human resources of each country include the number of people of working age, capable of working; the proportion of labor in relation to sectors in the economy; the average cost of labor, and the quality of human resources. The population size of a country is the foundation for the formation and development and is a source of abundant labor supply. The availability of labor resources is an attractive factor for investors, especially investors operating in the fields of manufacturing products with high labor content. Besides, competitive labor prices are also a certain advantage in attracting investment, especially for China and Vietnam. However, with the development of science and technology and the shift in production structure towards modernization, the trend of an economy
Knowledge and quality of human resources are increasingly valued. Therefore, each country must focus more on training skilled labor with high technical qualifications.
2.2.3. Efficiency-oriented FDI
Efficiency-seeking investment is a form in which investors allocate some stages of production abroad to take advantage of low costs to optimize the production process. This form is called vertical investment, mainly applied to export-oriented industries. Its most classic form is investment in developing countries to seek low-cost labor sources.
Efficiency-oriented FDI occurs when TNCs decide to locate a part of their entire value-added chain abroad in order to increase the profits from these facilities. The oldest form of efficiency-oriented investment is labor-seeking investment. As labor costs increase in host countries, TNCs seek access to low-cost labor in developing countries by establishing production facilities in these countries. This is also the attractive feature of some Asian countries for Japanese investors; and is also the decisive factor in the decision of American investors to choose Mexico as an investment location.
Labor-oriented investment projects also occur in service industries. For example, the development of data processing, a relatively labor-intensive industry, may take place in developing countries where labor costs are lower than in the host country. A typical case is the development of the software sector in India. These investments in service industries may be made through the establishment of a foreign subsidiary or by subcontracting in a developing country.
2.3. Factors facilitating business
In today's era of rapid globalization, fierce competition in attracting foreign investment takes place not only between developing countries but also between developed countries, or even between developed countries and developing countries. The expansion and development of free trade and investment liberalization policies worldwide have eroded and limited the advantages created by classic FDI attraction factors. The creation of a complete and transparent legal corridor as well as the promotion of the strengths of the national economic factors as mentioned above only create conditions for the formation of a framework to establish a level playing field for all investors, thereby helping them to participate in the game. However, host countries need to further improve their investment climate through more proactive and professional measures to promote investment activities, in order to become more attractive to potential investors. Business facilitation measures include promotion efforts, preferential terms for foreign investors and other business facilitation conditions. It is clear that most of these measures are not new; what is new is that in a new world economy with many changes, these measures have increased rapidly and become more frequent and more complex.
2.3.1 Investment promotion activities
Most countries have established investment promotion agencies with the aim of attracting more FDI into the country, and also to support previously established foreign FDI branches through the host country providing a series of post-investment services.
Previously, the importance of investment promotion activities was not appreciated.
importance, people only use this activity when countries change their strategies or attitudes towards investment, which leads to a change in the consequences of a series of policies on the role of FDI in economic development from negative to positive. However, in most cases, investors do not react to these changes, or react less than expected. From a marketing perspective, the basic skills of investment promotion activities include: image building, investment generating measures and investment facilitation.
However, investment promotion activities have now proven their indispensable role. Especially for countries that have long had a short-sighted view, for investors they are countries with a bad image and are not friendly to FDI. This way of thinking is probably ingrained in the investment community and is extremely disadvantageous for these countries. Therefore, if they want to attract more FDI, they must make more efforts to reform themselves and improve the national image in the eyes of foreign investors. Governments are increasingly aware that in order to convince potential investors, they must change their policies on the one hand, and actively convey information about the changes to them on the other hand. Even when a country has become more open to FDI and has implemented many reforms that are beneficial to investors, they are still promoting investment promotion activities to gain the sympathy of investors in order to attract more FDI. Promotional activities are also carried out to shorten the time lag for investors in selecting a new investment opportunity or to help companies, especially small and medium-sized companies, discover new opportunities that they would not have found on their own. Finally, the decline in the effectiveness of investment liberalization has led governments to “do more” to influence location decisions.