Research on developing direct investment of Vietnamese enterprises in the technology sector in Lao PDR

For example, the organizational theories of the industry argue that when monopolies in the US grow and develop, they need to increase business efficiency and exploit their advantages, leading to companies having to expand their markets abroad to exploit their advantages in technology, techniques, and management know-how that companies in the same industry in the host country do not have. The explanation for this phenomenon is similar to the explanation for the emergence of new products. Specifically, when a new product is launched, there will be a tendency for monopoly, so to increase efficiency and exploit the effectiveness of new products, businesses expand their markets abroad to increase production scale, exploit monopoly advantages to maximize profits [13].

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E''

AC F

AC D

The economic efficiency of production activities depends on the market size, so enterprises often tend to expand both domestic and foreign markets. This is an objective factor for enterprises operating for profit purposes. However, the decision to penetrate foreign markets through OFDI, production for export, or production franchising (license leasing, know-how, technology sales, etc.) also depends on the comparison of the advantages of the enterprise.

M'M

A' ACQ

Source [13, p. 57]

Graph 1.1: Average production costs in the host country

In the above graph: OQ is the output produced by the company of the investing country and OP is the price of the product of that country. The function C is the average cost per unit of product arising from investment abroad. The function AC D is the average production cost of the investing country company (regardless of whether it is at home or abroad). The function AC F is the total production cost of the company investing in business abroad and is equal to the sum of C + AC D. The MM curve is the import price function after tax. If the output in the host country is less than OA, the company will exploit the monopoly advantage to produce export goods. If the output is greater than OA and less than OC, the company will lease the monopoly advantage. If the output is greater than OC, the company will directly exploit the monopoly advantage abroad and only in this case will FDI appear [13].

Thus, the core cause of FDI is the difference in production costs between countries. This difference is mainly based on the comparative advantages of enterprises in the international division of labor in the phenomenon of capital movement between countries. In this explanation, the specific approach to the factors that determine enterprises to implement OFDI should be more convincing.

In micro theories, prominent theories include:

First: Product life cycle theory

This theory was systematically developed by Raymon Vernon in 1966. With the product cycle approach, Vernon explained the FDI phenomenon based on the analysis of product development stages from innovation to growth, reaching saturation and then decline. According to him, the innovation stage only takes place in developed countries like the US because there are conditions for research and development (R&D) and the ability to deploy production in large volumes. At the same time, only in developed countries can advanced production techniques with the characteristic of using a lot of capital be effectively utilized.

high. Therefore, products that are mass produced at low cost will quickly reach saturation point.

To avoid recession and exploit economies of scale, the company had to expand its consumer market internationally, but its export activities were hindered by tariff barriers and transportation costs. Therefore, the company moved production internationally to overcome these obstacles. Thus, according to Vernon's explanation, FDI is a natural result of the cyclical product development process. His theory is based on the following assumption:

Home producers gain export monopoly advantage by introducing new products or improving existing products for their home market. As products become standardized, during the growth period, producers will increase OFDI to prevent the possibility of losing the market to local producers.

Thanks to the movement of production factors between countries, technological innovation will lead to the emergence of new products that will bring high profits if mass produced. These factors are only available in countries with a lot of capital. The product and its manufacturing method must be commercialized, the manufacturing method standardized. Then, to exploit the comparative advantage, enterprises invest abroad more efficiently than produce domestically for export.

Second: Eclectic Theory (OLI)

According to this theory, companies will implement OFDI when they have 3 advantages:

1. Ownership Advantage (abbreviated as O advantage)

2. Locational Advantage (abbreviated as L advantage)

3. Internalisation Advantages (abbreviated as advantage I)

Advantage O represents : the foreign company needs to have ownership over a series of other companies in its system. This advantage often arises

from investing directly in exploiting a company's intangible assets rather than selling them. A company is often better off using these advantages with at least some of its inputs abroad.

L advantage represents : Regional advantage - is the advantage originating from the investment receiving country related to the cost of transporting products and raw materials, import restrictions, the ability to generate profits for businesses investing abroad. This advantage includes: the country's resources, capital strength, market size and growth, infrastructure development, labor productivity costs, openness in contact with the government, government policies; political stability, profitability and geographical location.

Advantage I represents : It is an advantage related to factors that help investors to conveniently conduct transactions and manage within the company rather than relying on the external market. The advantage of internalization allows companies to: Reduce transaction costs in signing, controlling and implementing contracts; avoid lack of information leading to high costs for companies; avoid the cost of implementing copyrights and patents; gain benefits from economies of scale and diversification; avoid government intervention such as tariff barriers and control input and output markets.

Third, the theory of monopoly advantage

This theory is also known as the market power theory. The essence of this theory is based on the theory of market imperfections. This theory has extended the neoclassical microeconomic model from the free market to explain the deviation of the free market. According to this theory, FDI exists because multinational corporations invest holding oligopolistic advantages on an international scale, including: the reaction of oligopolistic companies, economies of scale and vertical investment linkage. All of these actions are aimed at limiting competition, expanding the market.

oligopolistic firms are able to dominate the market and prevent other competitors from entering their industries and markets [ 6 ]. Because of oligopoly, these firms operate their foreign branches or subsidiaries more efficiently than domestic firms. These advantages stem from the company's superiority in owning intellectual property, which is essentially intangible resources.

This theory focuses on analyzing the advantages of vertical international investment. This form exists when enterprises carry out OFDI to produce intermediate products. These products are then exported back and used as production inputs in the host country.

According to this theory, multinational corporations undertake FDI for the following reasons:

- Multinational companies organize the exploitation of resources in the host country to reduce the cost of raw materials and transportation costs in production. Because the supply of raw materials is increasingly scarce while the companies of the host country do not have the capacity to explore and exploit new raw materials.

- Through vertical international investment, oligopolies establish barriers that prevent other companies from accessing the raw materials they are exploiting.

- Vertical international investment can also create cost advantages through technical improvements by coordinating production and transferring products between different stages of the production process. This is a much greater advantage than the advantage obtained from coordination between independent manufacturers through pricing [ 6 ].

In addition to the main theories above, we can also mention: the industrial location theory explains that businesses move production abroad to be closer to the source of raw materials or consumer markets; V. Lenin's theory of capital export to collect surplus value outside the border is also a theory.

Microeconomic theory to explain the phenomenon of OFDI implementation by enterprises.

1.2.2 Macroeconomic theories

In the theoretical basis system of FDI, macro theories on international investment flows often have an important position and are considered basic theories. Their core content is based on the principle of comparative advantage of investment factors between countries, especially developed and developing countries.

First: International trade theory

a. Heckscher – Ohlin theory of comparative advantage

In his model, Heckscher-Ohlin made the following assumptions:

- The world has only 2 countries, only 2 types of goods (X and Y) and only 2 factors: labor and capital.

- The two countries use the same technology to produce goods and the tastes of the two peoples are the same.

- Goods X contain a lot of labor while goods Y contain a lot of capital.

- The ratio between investment and output of two types of goods in two countries is a constant. Both countries specialize in production to an incomplete degree.

- Perfect competition in the goods market and input factor market in both countries

- Input factors move freely within each country but are hindered internationally.

- There are no transportation costs, no tariff barriers and other obstacles in trade between the two countries.

+ The content of production factors in goods.

Good Y is capital-intensive if the capital/labor ratio used to produce good Y is greater than that of good X in both countries.

A second country is a country with more capital available than the first country if the ratio of capital rental interest to wages in this country is lower than in the first country.

According to the Hecksher-Ohlin theory, starting at the lower right corner of Figure 1.1, we see that preferences and the distribution of factor endowments (i.e., income distribution) determine the demand for goods. The demand for goods determines the derived demand for factors of production. The quantity demanded for factors of production, together with the quantity supplied, determines prices and factors of production under conditions of perfect competition. The prices of factors of production, together with technology, determine the prices of final goods. The differences in the relative final prices of goods between countries determine comparative advantage and the pattern of trade (i.e., which country will produce good X and which country will produce good Y).

Figure 1.1 shows how all these forces work together to determine the prices of final goods. Among these interacting factors, the Hecksher-Ohlin theorem isolates differences in the physical endowments or endowments of factors of production between countries to explain differences in the relative prices of traded goods between countries. In particular, Ohlin explains that preferences and income distributions are similar between countries. This leads to similar demands for final goods and factors of production in different countries. Since the differences in the endowments of factors of production in different countries lead to differences in the relative prices of different goods, trade between countries occurs. Differences in the relative endowments of factors lead to differences in the relative prices of factors and goods, which are shown by the bold lines in Figure 1.1.

The last SP bridge

Consumer tastes or preferences

Income distribution

+ General equilibrium structure of the doctrine

Product price

Domestic equilibrium product price comparison

Price of production factors

Demand for production factors

Trade model

Technology

Supply of production factors

Source: [6, p. 84]

Diagram 1.1: SP price formation process – general equilibrium framework of Hecksher-Ohlin theory

b. Richard S.Eckaus's theory

Based on the Hecksher-Ohlin international trade theory model, Richard S.Eckaus (1987) eliminated the assumption that there is no movement of production factors (capital, technology, etc.) between countries to expand the analysis of the causes of international investment. According to the author, the goal of maximizing profits on a global scale is due to the effective use of investment capital. This is the main cause of the appearance of international investment capital flows. Richard S.Eckaus believes that the investing country often has low capital use efficiency (capital surplus), while the receiving country has higher capital use efficiency (capital shortage). Therefore,

Research on developing direct investment of Vietnamese enterprises in the technology sector in Lao PDR - 4

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