The Capacity of Domestic Partners is Still Limited

2.2.2.2 The capacity of domestic partners is still limited.

A capable investment partner who knows how to cooperate with foreign investors is an attractive factor for foreign investors. When investing in a country, foreign investors often encounter some difficulties such as: not being familiar with customs and laws, not being able to open up relationships with authorities at all levels, not understanding the market, etc.

In fact, the competitiveness of Vietnamese enterprises is assessed as low compared to other countries in the region and the world. According to the 2007-2008 Global Competitiveness Report of the World Economic Forum (WEF), Vietnam ranked 68th out of 131 countries and economies ranked in 2007, down 4 places compared to the same assessment last year. The 2007 WEF Competitiveness Report is based on a survey of 11,000 international businessmen, and considers economies on 12 criteria, including: Institutions, infrastructure, macroeconomic stability, primary health care and education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business community agility and innovation [29].

The weakness in the competitiveness of enterprises is manifested in a number of aspects such as: lack of capital, outdated technology, low labor productivity, poor management skills, lack of marketing skills, lack of understanding of the world market and international business laws.

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The reason for Vietnam's weak competitiveness is not only due to enterprises but also due to the many weaknesses in the domestic business environment. With a scale of 5 for decisive significance, Vietnam's government policies only achieved an average level of (2.6 points), tax regulations (2.9 points), capital incentives (2.9 points), product quality standards (3.1 points).

points)… in addition to a series of obstacles such as complicated and cumbersome investment licensing procedures containing negative factors, inappropriate incentive policies, and low management level.

The competitiveness of Vietnamese enterprises is low, so they cannot meet the domestic and export consumer markets. Even very simple products such as daily household items are imported from China, Thailand, etc. When Vietnam opens its market for foreign goods and services as committed in the WTO, the risk of domestic enterprises being encroached upon is inevitable. Foreign enterprises, especially TNCs from the United States, with their advantages and strengths in capital, technology, and management capacity, will easily defeat Vietnamese enterprises.

Therefore, in order for domestic enterprises to effectively carry out joint ventures and investment cooperation with US multinational corporations, enterprises need to make every effort to improve their competitiveness and become reliable partners of US investors.

2.2.2.3 The structure of US investment capital in Vietnam still has many shortcomings.

reasonable

* Investment structure by sector : Projects in the agriculture and forestry sector

Although the State has specially encouraged investment in the industry, in recent years the number of projects has been on a downward trend, the FDI rate in this area only accounts for a very small proportion of 1.8% of the total US investment capital in Vietnam. The total FDI capital and the rate of projects dissolved before the deadline, projects registered but unable to be implemented are higher than in other investment sectors.

The economic efficiency of many projects in this field is not high, especially fishing and aquaculture projects... The main reason is that these projects

Facing difficulties in supplying raw materials and consuming products, many projects have not found suitable methods to cooperate with partners who are farmers - who have long been accustomed to small-scale production, focusing on immediate and local benefits, and have limited awareness of complying with commitments.

In the industry and service sector, the investment capital structure is also not reasonable. In the industry, investment capital is only concentrated in the oil and gas and heavy industry sectors. The oil and gas sector has implemented capital of up to 1,545 billion USD, accounting for 20% of the total investment of the United States in Vietnam. In the service sector, the hotel and tourism sector alone has attracted 2,362 million USD of investment capital, accounting for 31% of the total investment capital. The trend of increasing investment in the industry and service sectors is good, but most of the US projects often focus on on-site services, targeting the domestic market, so the contribution of US enterprises to exports is still low. Finance and banking are the strengths of the United States, but in the past 20 years, it has only attracted 215 million USD of investment [4].

* Investment structure by locality: The structure of FDI capital distribution and use by locality has not yet met the requirements and strategic orientations for socio-economic development. US investment is only concentrated in a number of large provinces and cities such as Ho Chi Minh City, Ba Ria - Vung Tau, Binh Duong, Binh Dinh, Hanoi. These 5 provinces and cities account for 70% of total investment capital from the US in Vietnam. US FDI capital is often concentrated in the southern provinces, where there are open policies. This large amount of investment capital has helped these economic regions have high growth rates, but also makes the gap between these regions and the northern mountainous regions, some central provinces, the Central Highlands, and the Mekong Delta even larger.

The reason for these limitations is that in investment decisions, TNCs always have to consider the investment rate and costs as well as expected profits.

The expectation of the projects, so the decision to invest in areas with high level of infrastructure development and especially with high-tech labor market is understandable. Therefore, most of the current projects are established in big cities.

2.2.2.4 Forms of attracting investment capital are not yet diverse.

This is a common limitation of foreign investment in Vietnam. In the past, foreign investment in Vietnam was mainly carried out in 4 basic forms: 100% foreign investment, joint venture, business cooperation contract, and shares.

2.2.2.5 Investment environment still has many limitations

The legal and policy system is still in the process of being perfected, so it is still inconsistent and unstable, and does not ensure clarity and predictability. Some laws and policies have changed but have not taken into account the legitimate interests of investors, causing business plans to be disrupted. Legal documents have many unclear and contradictory points, leading to delays in implementation by law enforcement agencies, or inappropriate understanding and application. Obstacles in the implementation process are slower than regulations. Some documents of ministries, branches and localities have overlaps and lack of consistency, causing difficulties for business operations. Laws and policies have not really created a level playing field for domestic and foreign investment activities.

Management work still has many weaknesses. State management focuses too much on investment licensing without paying due attention to the post-licensing stage.

2.2.2.6 Transfer pricing issues

Currently, transfer pricing is a common problem with multinational companies. In Vietnam, the phenomenon of transfer pricing appears and is becoming more and more popular.

FDI enterprises in general and US FDI enterprises in particular. Some enterprises belonging to branches of multinational companies have taken advantage of loopholes in state management to transfer pricing by "subsidiary company's loss, parent company's profit" by raising input prices, lowering output prices to take advantage of the difference from the outside, committing trade fraud, tax evasion, and taking advantage of monopoly to raise product prices higher than the prices of similar imported goods. Specifically as follows:

- Declaring increased value of contributed capital assets. When contributing capital to join a joint venture, foreign parties often declare increased value of contributed capital in the form of machinery, equipment, and technology values many times higher than the actual price.

- Purchase of raw materials and other inputs. Subsidiaries in the multinational corporation system must purchase raw materials and input production factors at prices much higher than actual prices and are priced by the parent company. Therefore, in each case, if the subsidiary makes a loss, the parent company will not be affected much.

- Management and use of production costs. FDI enterprises have not had a plan, and have not based on business results to calculate the use of production costs, especially costs for foreign workers. Joint venture enterprises under the management of foreign investors have spent a lot on advertising and marketing compared to actual requirements. The amount of salary that Coca Cola joint venture company spent on advertising, promotion, product distribution, and administrative management of the joint venture accounted for 41.77% of revenue compared to the figure of 20.01% of revenue approved in the initial economic thesis.

- Tax evasion: FDI enterprises have taken advantage of loopholes in state management, using fraudulent trade and accounting tricks to make enterprises lose money on accounting books and make profits in reality. This is the phenomenon of "losses"

"Virtual" is exploited by foreign investors in general and US investors in particular to evade taxes for the purpose of illegal profit in Vietnam.

In addition, the analysis also shows that attracting US FDI capital is not commensurate with its potential. US FDI in Vietnam only accounts for a small part of the total US foreign direct investment capital and compared to other countries in the region, this number is still limited. US FDI capital is also uneven in industries and localities. There are not many large US TNCs investing in Vietnam...

In the coming time, to attract more FDI capital from the United States to Vietnam, we need to solve all the above mentioned difficulties and obstacles. The analysis in chapter 2 will be the practical basis for us to have practical solutions to improve the investment situation in chapter 3.

In summary, the above statistics and analysis show that the United States is currently the leading country in foreign direct investment in Vietnam, including investment through third countries. US FDI has contributed to the industrialization and modernization of the country. US companies have contributed to improving management capacity, creating jobs for millions of workers, creating many new industries, and promoting the competitive environment of Vietnamese enterprises. Through US FDI capital, Vietnam has also expanded its foreign economic relations, creating trust with new partners.

CHAPTER 3

PROSPECTS AND MAIN SOLUTIONS TO PROMOTE FDI ATTRACTION FROM THE UNITED STATES TO VIETNAM IN THE COMING TIME

3.1 PROSPECTS OF ATTRACTING FDI FROM THE UNITED STATES TO VIETNAM

3.1.1 International and domestic situation

3.1.1.1 Domestic context

Over the past years, our Party has consistently implemented a foreign policy of independence, self-reliance, peace, cooperation and development; an open foreign policy, multilateralization and diversification of international relations. We have been proactively and actively integrating into the international economy, while expanding international cooperation in all fields. Vietnam is a friend and reliable partner of countries in the international community, actively participating in the process of international and regional cooperation.

The socio-political situation of our country continues to be stable. The success of the 10th National Party Congress with the affirmation of continuing to consistently implement the renovation policy, which sets out the task: "Strengthening the attraction of foreign investment capital, striving to reach over 1/3 of the total development investment capital of the whole society in 5 years. Expanding the fields, locations and forms of attracting FDI capital, targeting potential markets and the world's leading economic groups, creating a strong change in the quantity, quality and efficiency of FDI capital" [6] continues to strengthen the confidence of the international investment community, promoting the increase of FDI capital flows into our country.

The economy continued to grow rapidly with GDP growth rate in the period 2001-2005 being 8.17%/year, in 2006 it was 8.17%, in 2007 it was 8.48%. The macro economy was relatively stable, the main relations and balances in the economy (accumulation - consumption, budget revenue - expenditure...) were improved; Capital mobilization

Resources for development have changed positively, the rate of GDP mobilization into the state budget exceeded expectations. The rapid increase in total investment capital in the economy has significantly increased production and business capacity, created many highly competitive products, completed and put into use many large projects on economic and social infrastructure, and strengthened the potential and material and technical facilities of the economy.

Vietnam's investment and business environment continues to improve. In addition to the implementation of the Investment Law, Enterprise Law and a number of other laws, along with the issuance of decrees guiding their implementation, which have created a more favorable legal environment for investment activities, many measures have been taken to limit and overcome the weaknesses of the infrastructure system, improve the quality of human resources, etc.

In fact, since realizing that the general business environment and measures to encourage foreign investment in Vietnam are lagging behind other countries in the region, the State has continuously introduced measures to improve the domestic investment environment. In January 2000, after the National Assembly passed the Law amending and supplementing a number of articles of the Law on Foreign Investment in Vietnam, on July 31, 2000, the Government issued Decree No. 24/2000/ND-CP detailing the implementation of the Law on Foreign Investment in Vietnam. Next, Decree No. 27/2003/ND - Government dated March 19, 2003, expanded the fields of foreign investment incentives, eliminated the mandatory export ratio for some industrial products, limited the capital contribution ratio by technology, etc. Decree No. 38/2003/ND - Government dated April 15, 2003, diversified the forms of foreign investment. In addition, the system of documents related to foreign investment activities continued to be supplemented and completed with the National Assembly passing the Land Law (amended), Construction Law, Fisheries Law, Corporate Income Tax Law, etc., along with guiding documents.

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