The Vietnam institutional environments and their impacts on the strategies of foreign construction firms

Foreign investors entering emerging markets have to take strategic decisions on where and how to set up operations. These decisions have to accommodate institutional conditions that vary not only between countries, but also within the host economy. Moreover, in Vietnam transition economy, institution changes rapidly as government carried out many reforms create substantial barriers to foreign investors. We offer a whole picture about institutional changes in Vietnam. We also bring a theoretical framework to analyze how institutions in an emerging economy influence entry strategy decisions of foreign construction firms. On this basis, we analyze the determinants of two key aspects of entry strategy: location and entry mode in Vietnam. We find that sub-national institutional variables have a significant influence on both dimensions. The availability of scarce resources affects the location of FDI and the likelihood of Greenfield entry. Institutional pressures arising from incumbent state-owned firms lead to a preference for joint venture entry. Transparency and ability access to information are important to attract foreign investment, especially in form of Greenfield. In Vietnam, the South has better institutional performance than the North, but difference in region does not influence the entry strategies of foreign construction firms.TABLE OF CONTENTS ACKNOWLEDGEMENTS II ABSTRACT IV TABLE OF CONTENTS V LIST OF FIGURES VIII LIST OF TABLES IX CHAPTER 1 INTRODUCTION 1 1.1. Research Background and Motivation 1 1.2. Problem Statements 3 1.3. Research Objectives 4 1.4. Research Structure 5 CHAPTER 2 INSTITUTIONAL REFORMS IN VIETNAM AND THEIR EFFECTS ON CONSTRUCTION FDI IN VIETNAM 6 2.1. Institutional Reforms in Vietnam 6 2.1.1. Regulatory Reforms in Administrative Procedures, Fiscal and Financial System 7 2.1.2. Security of Private Property Rights 10 1. Land Access and Security of Tenure 11 2. Contract Enforcement and Dispute Resolution 13 2.1.3. Provision of Information 15 2.1.4. Competitive environment 18 2.2. Vietnam Institution Relative to Some Competitors 23 2.3. Effects of Institutional Reforms on the Construction FDI in Vietnam 27 2.3.1. Favorable Policy to Attract FDI 27 2.3.2. Construction FDI in Vietnam 30 CHAPTER 3 REASONS FOR DIFFERENCES IN INSTITUTIONAL PRACTICES AND MEASUREMENT OF INSTITUTION IN VIETNAM 34 3.1. Reasons for Differences in Institutional Practices in Vietnam 34 3.1.1. Urban versus Rural 34 3.1.2. North versus South 35 3.1.3. The Complexity and Ambiguity of the Laws and Regulations 37 3.2. Measurement of Institutional Practices in Vietnam 38 3.2.1. Vietnam Provincial Competitiveness Index (PCI) 38 3.2.2. PCI’s Methodology 41 1. Data Collection 41 2. Construction of the Ten Sub-indices 43 3. Sub-index Weightings 45 3.2.3. PCI in Vietnam by time 46 1. Changes in PCI 46 2. PCI Distribution in Vietnam 49 CHAPTER 4 LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT 52 4.1. Institutional Change and FDI 52 4.1.1. Theoretical Framework for Institutional Change 53 4.1.2. Institutional Change during Economic Transition 57 4.2. Hypotheses Development 60 4.2.1. Institutions and Location Strategy 60 4.2.2. Institution and Entry Mode Choice 66 CHAPTER 5 METHODOLOGY AND EMPIRICAL RESULTS 71 5.1. Data and Variables 71 5.1.1. Location Choice 71 5.1.2. Entry Mode Choice 75 5.2. Empirical Analysis 79 5.2.1. Location Choice 79 5.2.2. Entry Mode Choice 84 CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS 88 6.1. Conclusion 88 6.2. Research Contributions 89 6.3. Recommendations 90 APPENDIX A ENTRY MODE CHOICE – SUSPECTED FIRMS QUESTIONAIRE 92 APPENDIX B PCI FIRM LEVEL SURVEY QUESTIONNAIRES 93 APPENDIX C VIETNAM PROVINCIAL CHARACTERISTIC STATISTICS 113 APPENDIX D VIETNAM PROVINCIAL INSTITUTION STATISTICS 115 APPENDIX E FOREIGN CONSTRUCTION FIRM STATISTICS 116 APPENDIX F VIETNAM MAP 122 REFERENCES 123 LIST OF FIGURES Figure 1 1 Proportion of construction FDI in Vietnam 2 Figure 1 2 Research procedure 5 Figure 2 1 Policy bias of government in Vietnam 20 Figure 2 2 Policy bias by Vietnam province 22 Figure 2 3 Strengths of Vietnam relative to competitor 24 Figure 2 4 Weaknesses of Vietnam relative to competitors 26 Figure 2 5 Vietnam construction FDI 31 Figure 2 6 Construction FDI distribution in Vietnam 32 Figure 2 7 Foreign Business Thermometer by time 33 Figure 3 1 Changes in PCI by time 47 Figure 3 2 Changes in Sub-indices of PCI by time 48 Figure 3 3 Vietnam PCI map 49 Figure 3 4 Provincial Competitiveness Index 50 Figure 4 1 Sub-national organizations and institutions influencing FDI 53 LIST OF TABLES Table 2 1 Construction FDI distribution in Vietnam 32 Table 3 1 Description of sub-indices and component indicators 43 Table 3 2 Sub-index weightings by time 46 Table 5 1 Descriptive statistics of location choice econometric model 73 Table 5 2 Correlation in the dataset of location choice econometric model 74 Table 5 3 Descriptive statistics of entry mode choice econometric model 77 Table 5 4 Correlations in the dataset of entry mode choice econometric model 78 Table 5 5 Location choice_ Results of OLS regression analyzes 80 Table 5 6 Entry mode choice_ Results of OLS regression analyzes 8