FDI spillover effects on Vietnam textile enterprises

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INTRODUCTION
1. The essence of the thesis
Foreign direct investment (FDI) plays an important role in developing the socio-economy
in developing countries, including Vietnam. Vietnam has attracted and utilized FDI for 25
years, but there have been a lot of problems. The amount of FDI in enterprises, particularly in
textile and garment businesses is still low.
The textile industry has developed well and has become one of the major industries of
Vietnam. However, textile and garment enterprises are now facing difficulties and challenges.
Although the quality and models of textile and garment products have been improved, they
have still proved poor. In addition, there are few overseas markets. Owing to the increasingly
severe criteria, Vietnamese enterprises need to modernize technology, renovate management,
improve the human recourses, improve modes and comply with international regulations and
standards in order to increase their competitiveness. With the existence of FDI, Vietnam
enterprises will have to improve their productivities and business performance, boosting the
process of transferring modern technology, improving local workforce in all aspects.
Furthermore, FDI has consolidated the relation between FDI enterprises with domestic
suppliers, leading to higher productivities and better performance in textile enterprises and
ultimate economic growth of the country.
The FDI quantitative effects on the economy have been researched and analyzed in the world. A
lot of research has found out that FDI spillover effects can be positive, negative, or mixed.
In Vietnam, although a lot of research on FDI spillover effects on domestic enterprises has
been conducted, no research has been made about those on Vietnam textile enterprises.
Therefore, the author has decided to carry out research on “FDI spillover effects on Vietnam
textile enterprises”.
2. The aim of the thesis
- The thesis is aimed at reviewing theories about FDI spillover effects on domestic
enterprises, indicating a number of channels through which FDI spillover effects on Vietnam
textile enterprises are transferred; In addition, the thesis analyzes and deletes the reality of FDI
spillover effects on Vietnam textile enterprises. As a result, several major factors affecting FDI

spillover effects on Vietnam textile enterprises are pointed out.
- The thesis also makes several recommendations for taking the advantages of positive
spillover effects and limiting the negative ones on Vietnam textile enterprises.
3. An overall review of the research
3.1. Research in other countries
A lot of researches have been done regarding FDI effects on domestic enterprises. Sgard
(2001) has pointed out that FDI creates positive spillover effects on TFP. Haddad and Harrison
(1993) have concluded that enterprises with high ratios of FDI create lower productivities than
enterprises with lower ratios of FDI. By using network data, Begoa and Sancher-Robles (2003)
have indicated that FDI creates positive spillover effects on the economy when the invested
countries posse a good human resources, stable economies and free markets. According to
Laura Alfaro (2003), FDI creates positive spillover effects on the productivities of processing
enterprises and negative spillover effects on agriculture and mining industries. Javorcik (2004)
has shown the positive spillover effects of FDI enterprises on medium of the domestic


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enterprises in Lithuania, increasing productivities and supplies made by domestic enterprises.
Bwalya (2005), in Zambia, has indicated 3 main results: (i) FDI enterprises creates
negative effects on domestic enterprises via across links; (ii) Domestic enterprises may get
benefits from FDI enterprises’ participation; (iii) With the assistance from FDI enterprises,
domestic ones will be able to increase their productivities and change their regional
investments. By using data collected in the manufacturing field in Lithuania, Smarzynska
(2002) has indicated that an increase of 10% of FDI enterprises’ participation in later stages of
the production leads to an increase of 0.38% of the outputs of domestic enterprises. FDI
enterprises selling in domestic markets obtain higher productivities than those selling in
overseas markets. The author also points out that there are no differences between state-owned
enterprises and joint-ventures or foreign-owned ones. These results are corresponding to the
intellectual spillover effects from FDI enterprises on local suppliers. However, these are also

resulted from the increasing competition in industries belonging to the earlier production
process.
3.2. Research in Vietnam
In Vietnam, there has been some research on FDI spillover effects on domestic enterprises.
Le Thanh Thuy (2007) determines the level of FDI effects on productivities in Vietnam
enterprises and points out that the gap in technology is one of the most decisive factors.
Enterprises with advanced technology are able to absorb technological transfer from MNCs.
Le Quoc Hoi and Richard Pomfret (2008) have found out that FDI creates technological effects
horizontally. These effects occur in private enterprises and domestic enterprises with low
research and development index. Le Quoc Hoi (2008) has explored data in enterprises in the
period 2000-204 and applied Cobb-Douglas equation to find out the evidence about the
adverse link between FDI enterprises with domestic ones. Nguyen Khac Minh (2008) has
indicated that the ratio of capital in FDI enterprises tend to increase in domestic enterprises,
and does not find effects in domestic enterprises both horizontally and vertically. Moreover,
the ability to absorb capital of these enterprises is lower. Nguyen Ngoc Anh (2008) has
indicated the positive effects in manufacturing industries, and horizontally positive effects in
service areas. Nguyen Phi Lan (2008) has concluded that there is evidence of horizontally
positive effects and vertically adverse link between FDI and processing, domestic
manufacturing, while vertically negative effects only occur in domestic manufacturing
enterprises.
Above are some researches into the effects that FDI has on domestic enterprises. Although
a lot of researches have been carried out in Vietnam and in the world, there is a limited number
of quantitative researches into the FDI effects on textile enterprises. In this research, to solve
the problem of endogenous input variables, the study used data array and sell the estimation
method parameters (the Olley and Pakes, 1996 proposal).
4. The objects and scope
4.1. The objects of the research: The thesis studies the effects that FDI has on textile
enterprises in Vietnam.
4.2. The scope of the research:
The research has involved textile enterprises in 8 regions in Vietnam. The data are

collected from yearly Statistics according to regions in the period 2000-2011, mainly from
2000-2008.


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5. Methodology
The thesis has applied various research methods including document analysis, consulting,
etc. In addition, such methods as economic analysis, comparisons, statistics, logics have been
used in order to clarify the issue. Preliminary data have been collected from surveys into
expenses made by the General Statistics Department during the period 2000-2008.
6. New points in the thesis
6.1. New theoretical contributions
The thesis distinguishes and emphasizes 8 channels through which FDI spillover effects on
domestic enterprises in general and textile enterprises in particular. The thesis has pointed six
channels transfer FDI spillover effects horizontally (i.e. spillover effects within an industry):
(1) creating competition urging domestic enterprises to increase their business performances;
(2) Presenting and Imitating; (3) Technological transfer and Research and Development
activities within one industry; (4) Investing and developing human resources, and shifting
workforce between FDI enterprises and domestic ones; (5) Connecting FDI and domestic
enterprises in one industry; (6) Learning industrial managerial skills; In addition, there are two
channels transferring FDI spillover effects vertically (i.e. inter-industry FDI spillover effects):
spillover effects through backward linkages and spillover effects through forward linkages
6.2. Findings and recommendations:
By applying the econometric model, the two methods: (i) sale of parameters, (ii) the
estimated effect and random effect estimates, the thesis shows experimental evidence for that
have negative spillover effects of the presence of FDI firms in the sample of firms. This is
reflected in the negative coefficients and statistical significance of each variable in the
Horizontal DN. This result implies that the presence of FDI firms have reduced productivity
growth of domestic firms Textile due to competitive effects. However, for each group of

enterprises of all sizes will have different effects. Specifically: (i) For the group of micro-scale
enterprises are strongly influenced by the effect of competition; (ii) The group companies are
small and medium scale, the spillover effect is positive vertically down dimensional and have a
negative spillover effect horizontally; (iii) as for large-scale enterprise group, there is no
horizontal spillovers and no vertical spillover effects, are not affected downsize business by
FDI enterprises, can simultaneously be active materials, not to cooperate with companies that
may Textile FDI direct cooperation with overseas parent companies to buy raw materials.
4) Specify and analyze a number of limitations and the main reason affecting the spillover
effect of FDI to Vietnam Textile enterprises.
Take advantage of the views of spillover effects and limit the negative spillover effects of
FDI into Vietnam Textile companies, which emphasizes the breakthrough point 3, that: (i)
must be screened FDI projects, selection, no FDI at all costs, technology factors have placed
top and requires a commitment to technology transfer relevant to each sector and projects, (ii)
attract Priority foreign investors in the world's largest MNCs in Vietnam and (iii) enhance the
sound, and post-test inspection FDI enterprises.
On the basis of 3 break point, the thesis offers systems solutions following: (1) Group
solutions utilize positive spillover effects and (2) limited Solutions, preventive impact negative
spill brought by FDI enterprises Textile Vietnam. At the same time, the thesis proposes a
number of recommendations for Government , Vietnam Textile and Garment association.
7. Organization of the research


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Apart from the Introduction, the Conclusion, the Appendix and References, the thesis
includes 3 chapters as follows:
Chapter 1: This chapter discusses some theories about FDI effects on domestic enterprises.
Chapter 2: This chapter analyses the reality of FDI effects on Vietnam textile enterprises
Chapter 3: This chapter provides some viewpoints and suggestions for exploring positive
effects and limiting negative effects that FDI creates on productivities and business

performance in Vietnam textile enterprises.


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CHAPTER 1
SOME THERIES ABOUT FDI EFFECTS ON DOMETIC ENTERPRISES
1.1. Theoretical framework
1.1.1. Concepts:
There are a lot of concepts about FDI, most of which indicate that FDI refers to the case
when investors, individuals or organizations, invest an amount of capital that is big enough for
the receiving countries to carry out business activities and services for profits and socioeconomic benefits; This is a type of international investment that receiving countries expect
not only large capital but also positive effects generated by FDI. It is a type of international
transfer of capital through which capital owners expect to maximize the benefits of
investments or to obtain profits from the receiving countries. In addition, FDI produces effects
on invested countries.
1.1.2. Characteristics: (1) FDI is long-term and is conducted in various forms; (2)
Investors directly manage, regulate and are responsible for projects and divide business output
according to their capital. Parties participating in FDI projects must have different
nationalities, speak different languages and are from different cultures. (3) FDI is a way to
prolong “a production lifecycle”, “a technical lifecycle” and “internal migration of technical”
and accompanied by three factors: import-export activities, technology transfer and
international labor migration; (4) FDI projects are subject to various laws according to the
regulation of “mutual benefits”; (5) Moreover, in construction, there are such forms as BOT,
BTO, BT, BCC, etc.
1.1.2. Some theories and FDI stimuli: The author discusses Theory of International
Lifecycle of Products; Theory about the market powers, etc. Those theories supplement one
another in explaining the spillover effects that FDI creates on domestic enterprises.
1.2. Theoretical framework
1.2.1. Concepts and types of FDI effects.

FDI “spillover effects” can be understood as indirect effects that appear when FDI
enterprises generate effects on the local economies and cause domestic enterprises to change
their behaviors such as changing their technology, changing their business strategies. Spillover
effects can be considered as the performance of FDI enterprises that take place at the same
time as the domestic enterprises’ changing their behaviors.
1.2.1.2. Types: (i) Horizontal spillover effects (that takes place within a sector); (ii) vertical
spillover effects (i.e., inter-sector spillover effects)
1.2 . Rationale of spillover effects of FDI on domestic firms
1.2.1 . Definition and forms of FDI spillovers
1.2.1.1. Definition
The concept of “spillover effects” (also known as crossover effects) of FDI can be
interpreted as an indirect impact which occurs when the presence of FDI firms brings about
influences on the economy of the country in general and forces domestic companies to change
their behavior, as well as their technology and business strategies in particular. Spillover
effects can be considered as the performance of FDI companies carried out simultaneously
with the process domestic firms adjust their behaviors.
1.2.1.2. Forms: (i) horizontal spillover effects (spillover effects within an industry), (ii)


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vertical spillover effects (spillover effects between sectors)
1.2.2. Transmission channels of FDI spillover affecting on domestic firms
1.2.2.1. Horizontal spillover effects (spillovers within an industry)
(1) Putting competition pressure on domestic companies and forcing them to improve
business efficiency: The presence of FDI enterprises has triggered more competition and greater
pressure for domestic firms, primarily for companies in the same industry. The FDI enterprises
can bring adverse effects to enterprises of the country, creating negative spillovers on yields and
productivity of domestic enterprises, especially in the short term when they compete with the
domestic firms and "take" their markets or human resources in the country, known as the

competitive effects. This then pushes domestic enterprises to operate in less efficient production
scales, consequently leading to low labor productivity. In the long term, many companies can
learn about technology from FDI enterprises in order to participate and compete in the markets.
With competition from FDI enterprises, domestic enterprises are forced to improve, find new
technology, or distribute and use their resources efficiently. Thus, under the increase of
competition and pressure to fend against competitors, domestic companies are required to
operate more efficiently and to improve or apply new technology sooner.
(2) Performance and imitation effects: performance (of FDI enterprises)/imitation
(of domestic firms ) may be the most obvious spillover channel. Spillover effects occur when
domestic firms learn or copy the advanced technology (including skills, techniques or
management ) from the presence of FDI enterprises. The introduction of new technology into a
new market can be risky for FDI enterprises and too costly for domestic ones to implement. If
technology is used successfully by FDI enterprises, domestic enterprises will be encouraged to
apply this technology.
Spillover channels demonstrate "imitation" or "observational learning effect" through FDI
firms. The domestic enterprises can observe FDI firms’ techniques and then imitate them. Due to
the superior know-how technological advantages of the FDI firms, spillover effects can occur
through the application of new technologies. Technology spillover effects can occur through
imitation, technology for reversing and copying products and production process of FDI firms.
Then domestic companies can copy the product and production process. Imitation is the main
mechanism for the transmission of FDI to domestic firms and especially reversing technology
allows technology transfer of new products manufactured with new processes. Any
technological upgrading of domestic companies arising from imitation can lead to productivity
spillovers from FDI firms to domestic firms.
(3) Technological transfer and R&D activities in the same industry
This is a very important channel to generate positive spillover effects of FDI, is a highly
expected impact for all local businesses in general and each in particular. Technology transfer
through FDI is an inexpensive technology spillover solution, being compatible with the limited
resources of developing countries. In addition to capital, FDI firms also bring advanced
production technology, skills, management, which domestic companies can receive through

various channels. For this reason, the technology transfer will help improve all aspects of the
domestic labor force. The FDI enterprises have numerous links with domestic suppliers, which
are shown at two levels of relationships: domestic companies become suppliers of parts,
accessories and materials for FDI firms, that is, acting the role of industry support while FDI
enterprises ordered domestic companies to produce components and sell products and then


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transfer technology to domestic firms.
Another activity, which can stimulate spillovers and technology transfer, is the effective
implementation of R&D activities of MNCs which may proceed in the host country. The
MNCs often carry out intensified R&D activities, but most concentrated in the parent
company, which limits the scale of the spillover effects. The focus of R&D activities carried
out in foreign association is usually a change of mother technologies, so it is suitable for
foreign markets. The spillover effects from R&D is usually generated outside of the host
country and brought in through FDI.
(4) Investment in human resources development and labor movement between FDI and
domestic firms in the same industry. This is the spillover channel related to the ability of
domestic firms to hire workers previously working for MNCs with the knowledge, experience,
and ability to master the technology and apply it to domestic firms. It is also an important
channel of spillover through the presence of FDI firms and then directly affects the productivity
of domestic firms. This effect can be noted in the same industry as skilled workers and managers
in FDI firms - those who have been trained with managerial skills and advanced techniques move to domestic firms or set up their own businesses. The MNCs can provide their employees
a form of training that cannot be replicated for local businesses or purchased from abroad. The
labor movement between FDI firms and domestic firms takes place in two dimensions: (1) labor
transfer from FDI firms to domestic firms, which is considered to be an important channel to
generate positive spillover effects. The spillover effect occurs if the number of employees apply
the knowledge learned during their time at FDI firms to the work at domestic companies,
especially companies in the same industry as FDI firms’, or if they establish their own

companies; (2) a number of employees after a period working for domestic companies and
accumulating some necessary experience, they will apply for a position in FDI enterprises.
(5) Association between FDI firms and domestic companies in manufacturing products
Production association is also one of the most important channels generating positive spillover
effects in the scale of most businesses. “Reverse” impact may occur in domestic firms supplying
materials or distributing FDI firms’ products. The more the amounts of distributed products and
provided materials are, the higher the spillover effect will be, that is, the proportional relationship.
Production association includes two forms of vertical (outputs of one company will be inputs of
another) and horizontal association (companies produce the same product).
The association between FDI and domestic firms is not only beneficial to both parties
involved but also contributes to the soundness and stability of the business environment. When
being associated with FDI firms, domestic enterprises will have more business partners and
markets, as well as more manufacturing experience. On the other hand, FDI enterprises can save
transportation costs (such as when purchasing raw materials from domestic companies), and can
obtain cheaper production inputs than imported ones.
(6) Learning and imitating industrial management skills
The superior organizational managerial skills of FDI enterprises can benefit the host
country greatly. If the resources are used more efficiently, local businesses are able to improve
their management and enhance efficiency of investments in their businesses. In addition, FDI
can play an important role in introducing marketing and advertising techniques in the host
countries’ economies. Paying close attention to quality is a key factor for success in
international markets, and branding is an important part of successful marketing and of


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expanding care for products from consumers. The MNCs often have better knowledge and
experience in international markets, and thus can help local companies learn more about
exporting activities. Through imitation or association with FDI firms, domestic enterprises can
learn different managerial techniques and the importance of marketing strategy, and thus

expand their domestic or international markets.
1.2.2.2 . The transmission channels of vertical spillovers (spillovers between sectors)
Vertical spillovers occur as a result of the interaction between FDI and domestic enterprises
in the same industry. That was the case when the MNCs function as suppliers (upstream forward linkages) or buyers (downstream side-reverse linkages) of domestic firms in
intermediate goods markets.
(1) Spillovers through backward linkages: FDI can also contribute to technological
improvements of local suppliers or potential suppliers by providing technical assistance and
supporting these enterprises. With the increase in size, MNCs can bring benefits to local
suppliers if it increases demand for local inputs.
Spillover effects can be generated through a number of mechanisms. First, it is the
productivity benefits of domestic enterprises directly from the technology transfer or from
technology support of MNCs. Second, domestic firms require product quality and on-timedelivery of MNCs; Therefore, this encourages suppliers to improve manufacturing processes,
technologies and delivery methods. Finally, spillovers can arise through the entry of MNCs with
increased demand for intermediate products, which provide local businesses a better chance to
get the benefits of economies of scale.
(2) Spillovers through forward linkages: Forward linkages are formed when the presence of
FDI enterprises leads to opportunities for domestic enterprises to access new technology,
improve or reduce costs of weak intermediate inputs produced by the MNCs in the upstream
sector. However, the attendance of MNCs causes difficulties for local businesses that provide
intermediate the same goods as FDI enterprises, which forces these local providers to changes
their business or get leave the markets.
The forward linkage is the most obvious to demonstrate that MNCs offer higher quality input
and/or at a lower price to produce goods for final consumers. However, we cannot exclude the
possibility that upgrading the quality of production could lead to a rise in prices. If local
businesses are not able to benefit from the quality improvements, they will suffer the negative
effects related to increased expenses.
In short, FDI enterprises may have spillover effects on the productivity of local competitors
(horizontal spillovers) as well as domestic firms in upstream and downstream (vertical
spillovers) . The technology transfer can take place through several channels. Local businesses
can also gain benefits from the presence of new and professional services and providers as a

result of the entry of MNCs .
1.3 . Factors affecting spillover effects of FDI on domestic firms
1.3.1 . Internal factors of the business
1.3.1.1. Organizational and managerial competence, which is expressed though: (i) levels
of managing staff, (ii) levels of organization and management of the enterprise to improve the
competence of managing and operating the enterprises, through which new positive spillover
effects can be made use of and negative spillover effects of FDI can be limited.
1.3.1.2. Human resources, absorptive capacity and technology gap of local businesses. To


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obtain technology spillovers, businesses must get their human resources ready to adapt
themselves to requirements of the technology, with the ability to quickly acquire production
processes and new technology. When new technology is introduced into the host country by
FDI firms, the ability to observe, learn and absorb new technology of local businesses rests on
the competence of their human resources. The decisive factor of FDI spillover is the absorption
of domestic companies along with the impact of the technology gap between domestic and
foreign enterprises. If the technology gap is too small, benefits will be transferred from FDI to
domestic firms. However, the technology gap must not be too large as this will hinder the
domestic firms to absorb technological advantages of FDI enterprises.
1.3.1.3. Export capacity of domestic firms. The domestic export enterprises face significant
rivalry pressures in the foreign market and, therefore, FDI enterprises operating in domestic
market will put additional pressure. If export capacity of domestic firms is boosted, the stress
from domestic markets is reduced and positive impact associated with the competition from
the MNCs is of less importance. In contrast, domestic companies which have been exposed to
competition from FDI enterprises may have the capacity not only to absorb foreign technology
but also to deal with competition by MNCs in the domestic market, thus preventing negative
impacts through channels of competition.
1.3.1.4. Sizes of domestic firms. Competition from small businesses against FDI firms is

unpronounceable, but the loss they suffer is considerable. Furthermore, companies lack
sufficient production scale to mimic a number of technologies introduced by FDI enterprises.
Therefore, the larger companies will probably gain more benefits from the participation of FDI
enterprises. In addition, enterprises with different capacities will receive different benefits
from spillover effects.
1.3.1.5. Financial strength: This factor is important for the operation of technological
innovation. Enterprises with capital allow such activities as R & D and technology transfer to
be carried out easily, and facilitate spillover effects from FDI. If companies know how to raise
capital quickly, and how to use capital efficiently for technological innovation, the efficiency it
brings is enormous, helping companies prove their position in the market .
1.3.2 . External factors of the business
1.3.2.1. Strategy of MNCs: If the sole purpose of FDI firms is to serve local markets, the
transferred technology transfer must be in line with the domestic markets, creating
opportunities for local business to receive technology from MNCs . If FDI enterprises only aim
at exploiting cheap labors, their role and the training practice is limited in the host country. The
result then will be unremarkable and technology spillovers from training can hardly be seen.
1.3.2.2. Institutional factor: Regulations, laws and institutions will determine the
possibility that each agent can react to market signals. Copyright owning can limit the leakage
and spread of technology from FDI to domestic firms, but it may stimulate technology transfer
from the parent company to its subsidiaries. Incentive policies on tax and credits encourage
investment in technological innovation, while other government supports also have a positive
impact on technological innovation.
Another factor that also affects the occurrence of the spillover effects is the use of multiple
intermediate inputs of FDI enterprises, because this is an important condition for the
occurrence of the spillovers through backward linkages. What motivates FDI enterprises to
decide on overseas investment also influences the existence of FDI spillovers.


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1.3.2.3. Competition in domestic markets. The stronger the competition is, the more
advanced technology will be introduced into domestic markets. With a less competitive
environment, the domestic companies will make fewer efforts to acquire and exploit
technological spillovers from FDI enterprises.
1.3.2.4. Characteristics of FDI and ability to learn new technology of FDI enterprises
FDI from different countries has the ability to create different spillover effects for domestic
firms. Joint ventures are more likely to benefit from spillover effects than enterprises with 10%
of foreign investment. The domestic firms benefit from positive horizontal spillovers from FDI
enterprises LD with, but are faced with negative spillover effects from the 100% foreigninvested enterprises.
Technology productivity gaps between FDI and domestic enterprises can stimulate spillover
effects. If domestic firms have lower productivity than FDI firms, within a scope for them to be
able to catch up, technology by imitating leading foreign technology. Another factor affecting
the emergence of spillover effects is the accessibility of the new technology of FDI enterprises.
The higher the ability of FDI firms operating in the host country to access new technology, the
better the process generates positive spillover effects through technology leakage.
1.3.2.5. Regional effects. The scale of spillover effects is restricted by geographical
distances or, at least, its effect is reduced proportionally to the distance. The reason is that the
technology diffusion channel is intensified at the regional level; labor productivity and the
performance impact is limited in distance, vertical linkages are mainly restricted according to
different areas due to transportation costs. Finally, competitive efficiency is stimulated by the
limitation of its scale of size. Productivity of domestic firms can be positively impacted by the
emergence of foreign firms in the same region.
1.3.2.6. The development of supporting industries and related sectors: A system of
developed supporting industries can provide enough raw material and components needed for
FDI enterprises, helping them easily choose product supplies and reduce costs which is cheaper
than when they purchase imported supplies. Therefore, the development of supporting industries
in the country is also an important factor for the emergence of spillover effects. On the other
hand, investments from FDI firms also provide an opportunity to develop supporting industries
in the country, to meet the needs or raw materials and production parts of the FDI enterprises.
1.3.2.7. Information on the market. The market factors may also affect the choice and

technology innovation. The lack of opportunities for interacting, capturing new technologies
and cooperating with foreign S&T organizations will be the major obstacles to the process of
technological innovation.
1.4. Model testing and evaluating the effect of FDI spillovers to domestic firms
To test the spillover effects of FDI firms to domestic firms, the estimated model is defined
as follows:
LnYjit = α + β1LnKjit + β2LnLjit +
β3Lnmjit + β4FSjit +β5Horizontaljt +
β6Backwardjt + β7Forwjt + β8Herfjt + β9R&Djt + β10Gownshipjt + β11Fownshipjt + αtyear +
αiindustry + αrregion + εit
(1.1)
j
j
In particular: Yit - output of firm i, industry j year t, K it capital of firm i, industry j year t,
j
measured by the value of total asserts from the beginning of the year; Lit - qualified labor of
j
firm i; industry j year t, represented by total salaries and bonuses on workers; mit - intermediate
j
inputs of firm i, industry j year t, measured by the value of intermediate inputs; FSit - the rate


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of capital of foreign investment in firm i, industry j year t.
Horizontaljt is to know the level of foreign participation in this sector and is calculated by
the average proportion of FDI enterprises in all sectors, weight is measured by the proportion
which taken by each enterprise output in industry output:
FS ijt Yijt
i

H orizontal jt

j

Yijt
i

(1.2)

j

Therefore, the value of variables is increasing as well as the increasing in the FDI firms
ouput and FDI share in this company. Backward variable represents the degree of foreign
participation in the industry sectors that provide inputs to the companies they are working, and
so it will reflect cooperation level between the domestic supplier and the clients which calls as
MNCs. It is calculated as follows:
Backward jt

a jk Horizontalkt
k

j

(1.3)

In particular: ajk is the proportion of sector j output supplied to industry k, it is derived
from the matrix of the IO table. Forw Variables (forward) is defined as follows:
(1.4)
δ jlt Horizontallt

Forw jt
l khi l j

In particular, the rate δjlt of industry j output purchased from sector l at time t . The inputs
purchased inside the industry were excluded, because it was included in the Horizontal
variable. Herf Variables (index of industrial concentration Herfindhal) is defined as follows:
2

X

H e r f it
g

g

(1.5)

gt

X

J

gt

J

In particular, Xgt denotes the output of enterprises g at time t, g is the index of companies
(domestic or FDI) in sectors J that have firm i.
R & D variable is approximately equal to the Solow residual. Gownship and Fownship

represents the state-owned enterprises and foreign ownership. Finally, the model also includes
year dummies, industry and region. The fixed effects for time, sectors and regions to control
the uncontrollable factors that influence changes in the attractiveness of a particular industry or
region. Thus, the model estimates indicated the following thesis:
∆LnYjit
α + β1∆LnKjit + β2∆LnLjit + β3∆Lnmjit + β4∆FSjit +β5∆Horizontaljt +
β6∆Backwardjt + β7∆Forwjt + β8∆Herfjt
+ β9∆R&Djt + (1.6)
=
β10Gownshipjt + β11Fownshipjt + αtyear + αiindustry + αrregion + εit
Production function to calibrate the Levinsohn - Petrin is estimated will measure total
factor productivity. It is the difference between the actual output and the predicted output.


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Chapter 2
SITUATION OF SPILLOVER IMPACT OF FOREIGN DIRECT INVESTMENT
NOW TO VIETNAM TEXTILE INDUSTRY
2.1. Overview of foreign direct investment in the textile sector in Vietnam
2.1.1. Capital projects: The number of projects and total FDI capital in the Vietnam textile
sector has increased over the years, which is the highest number of projects in 2008 with 360
projects and the capital nearly $ 2.2 billion. According to MPI, in 1998-2011, there were 2,049
FDI projects from 30 countries and territories investing in the textile sector, with total
registered capital of over 10.7 billion. The period 2001-2011, there are 1,834 projects with
total registered capital of $ 8.8 billion.
2.1.2. Type of Investment: Vietnam has attracted significant foreign investors in any form
investing to the Vietnam Textile industry, particularly corporate form 100% foreign-owned
and joint venture enterprises. In addition, FDI in the industrial zone and export processing
zones producing textile exports has also increased.

2.1.3. Investment structure: The structure of FDI between the textile and garment sector
imbalanced because almost all FDI projects invested in the garment industry, textile industry
and then, finally, raw. Investors do not have a strong focus on this area because of low profit in
the garment industry.
2.1.4. Areas of investment: Investment of FDI enterprises in the textile sector mainly
focusing on the larger provinces and major cities such as Hanoi, Ho Chi Minh City, Binh
Duong, Khanh Hoa. Due to the support policy is weak, only the industrial zones, export
processing zones in major cities can meet the requirements of foreign investors. Moreover, the
imbalance in investment areas that promote FDI has not been its best advantage. This involves
unskilled focus too much in one place, while the other areas which need to address not being
developed.
2.1.5. Investment partners: The majority partner investment in the textile sector of
Vietnam is the business of fashion, apparel business in Asia and a number of investors in
Europe, the Americas. The cause of this situation is due to the Western countries tend to
develop to the sector which have high science and technology levels and high gray matter. On
the other hand, Asia is the place where labor is cheap and abundant natural resources. The
product produced is consumed in the domestic market and exported to foreign countries.
Besides, in recent years, many manufacturers textiles from Europe and the United States have
invested into Vietnam in many different forms.
2.2. Current status of the spillover effect of FDI to Vietnam textile enterprises
2.2.1. Current status of the spillover effects of FDI in horizontal (spillover effects within
the textile sector, Vietnam)
2.2.1.1. Creating competitive pressures, forcing domestic firms enhance business efficiency.
The appearance of the Textile FDI enterprises, with new and more efficient business
methods and better quality products has forced the domestic textile enterprises to innovate to
enhance competitiveness, stimulate business domestic change business methods. According to
the survey, 39.66% Textile business maintaned their advantage by the price products factor ,
53.82% companies take the advantage of search marketing. The discovery of new market
segments, the potential demand of the consumers is the first advantage of many companies

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entering the international arena. This is a positive move in the process of improving the
competitiveness of enterprises.
Increasing competition has forced Vietnam businesses to adjust and responded by moving
to a higher quality product, which requires more advanced technology, more investment and
require more highly skilled labor. According to the VCCI (2011), 68.16% Textile business has
made efforts to improve the quality of product design.
The Vietnam bussiness now faces fierce competition from FDI enterprises in all market
segments, at the same time they having to deal with contraband and counterfeit goods from
China dominate the bargains market segment. This situation has created an unhealthy
competition, making difficulties for local businesses. Vietnam enterprises are weak in
fashionable goods design, especially fashion items. Many businesses still have not built the
brand and concentrate processing exports. FDI enterprises are considered the brand as the
property and an important weapon to compete. They have invested a lot for your brand.
Turning to the Vietnam business, there are many difficulties in building and developing brand.
Many businesses underestimate the role of brands in competition; therefore, they have not
focused on investing and building their brands.
Features such as cost, research-oriented, production capacity, marketing and distribution
networks are key factors for a successful enterprise and can compete effectively with the FDI
enterprises. The domestic companies are at a disadvantage on those factors. They are forced to
work harder to catch up the marketing capabilities of FDI enterprises. Enhancing competition
has made the difficulty for small-scale enterprises Textile, leading to the decline of inefficient
enterprises, and in short, the inefficient enterprises are easily excluded from the market.
Besides, many domestic companies are strong enough to face the increasing competition in the
new context. In the long term, through competition, the Vietnam Textile industry can develop
better and allocated resources better.
2.2.1.2. Copy and demonstrate effects
Vietnam garment and textile sector is fundamentally based on imitation and demonstration

effects through models and developed technologies by foreign countries. The FDI firms
entering Vietnam market is bring new product designs with advanced technology, allowing
domestic companies copying and dissemination of technology from FDI enterprises. Product
innovation, easily copied and technology can leak out through the replacement employee or the
codified method. The mimic existing product choices lead to production know-how and
technology for the development of enterprises in Vietnam. Hence, the spillover effects from
the imitation of technology and knowledge of FDI enterprises in Vietnam Textile industry are
quite large.
Most Textile enterprises in Vietnam today is the small and medium. Many larger
businesses owned advanced technology and can spillover effects from imitation is not as
strong as before. However, there is still scope for spillovers through imitation if the MNCs
introducing new technology. With the strong patent regime to protect intellectual property
rights, spillovers through imitation are less likely to be created in the future. Vietnam has
creative ability and the number of domestic firms increasingly investing in R & D activities to
develop new products. The spillover effects through imitation may be reduced, but with the
emergence of many FDI enterprises, new technologies are gradually introduced into the
country, through collaboration, demonstration effects can still occur. Furthermore, the effect of


14

spillover effects from imitation and performance can also be found in the stages of marketing
and management.
2.2.1.3. Dissemination channels and technology transfer to domestic firms
The FDI enterprises receiving technology from the parent company, deployed in
management and production processes, which may stimulate the emergence of spillover
effects. The spillover effect of FDI in technology transfer from MNCs conditions in the textile
sector, Vietnam took place in the early stages through modern management skills, knowledge
and know-how with high technology. The MNCs contribute to the technological advances
primarily through creative imitation, and the enhancement of technology from FDI enterprises

allow domestic firms to increase labor productivity and competitiveness building in new areas.
A number of FDI firms in Vietnam technical assistance to their suppliers in the country to
improve Product Quality. And thus, technology transfer takes place between a number of FDI
firms and their suppliers. Some suppliers can be able to upgrade the production facilities
according to international standards. This is beneficial for the economy and technology
providers than by producing. However, production for FDI enterprises requiring higher
standards. They provide incentives for providers to improve quality and keep the technology to
be able to compete. The spillover effect in terms of perceived quality for products and
manufacturing processes thus created.
Considering the textile sector, we can see the limitations of technology transfer. Through
the survey, the majority of businesses choose the form enclosed at the exchanges and
cooperation with foreign countries. The method is most applicable technology from foreign
buyers and designers to mimic the form. In fact, investment in research and technological
innovation of enterprises Vietnam is very low compared with the world. Common Investment
in R&D, which has invested in technological innovation accounts for only 0.4-0.5% of GDP
(compared with 2% in the country). The most innovative activity is concentrated in the SOE
sector. In the third stage of absorption and technological development are: to acquire
technology; mastering technology and innovation, technological innovation, the new domestic
firms stopped at an early stage is receptive but passive technology through imports of
machinery and equipment, investment ratio is very low for the software, to reach less than 20%
of the total investment.
2.2.1.4. Research and development
R&D activities of the textile sector is the main idea, research and product design, and this
is a channel of positive spillover effects. However, the level of R&D in the textile sector in
Vietnam is quite low and spillovers from FDI enterprises is negligible. R&D activities of the
textile sector, mainly deployed outside the host country and are brought into the country
through FDI enterprises.
Investing for unique products, novelties, meet consumer tastes is a path created many
advantages for businesses. 32.77% companies surveyed considered that it is their competitive
advantage. Currently, between Vietnam enterprises and FDI enterprises have a huge gap in

R&D. Vietnam firms rarely introduce a new product based on new technology was discovered.
Cooperation with FDI firms can help Vietnam in business R&D process, and so a number of
potential spillover effects of R&D appears. On the other hand, the cooperation will bring
benefits for local businesses while FDI enterprises to financial means and at the same time
helping Vietnam enterprises to gain international credibility.


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Spending on R&D activities between domestic firms and FDI firms have low discrepancy.
This may be due to textile products of domestic companies have higher competitive pressure,
thus forcing companies to constantly innovate and improve products to adapt to the market. In
global value chain of the textile sector, R&D stage is the stage with the highest profit margin,
but it is the weakest stage and have not yet been interested investment properly by Vietnam
Textile industry.
Public enterprises proactively offer products with their own designs, the profit earned will
be higher. However, at present only about 30% of the export value of Vietnam's textile are in
FOB form, with the participation of R&D stage, the rest is in the form of outsourcing
manufacturing to FDI enterprises. Number of enterprises with the ability to design and produce
fashion products is still not much. The export garment companies in Vietnam still have to
produce the designs of the foreign orders, VAT from design to fashion garments belonging to
foreign firms, making the value of textile exports Vietnam garment limited.
Designs of products is one of the factors contributing to the competitiveness of products in
the market, especially in international markets. However, the design of enterprise products are
monotonous, lacking creativity and sophistication. Besides, Vietnam's fashion industry is still a
big gap with the world fashion industry. Including coloring fabric design, styling products in
Vietnam is poor, monotonous and slow to change, not in line with market requirements.
2.2.1.5. Labor flows between FDI enterprises and domestic firms and strengthen the
training of employees in the domestic corporate.
Skilled labor migration from FDI to domestic firms is considered as an important channel

to create positive spillover effects through the transfer of advanced technology and
management experience from business production FDI to domestic firms, capacity and
qualifications of the workforce. Through FDI, employees are trained, improved skills,
acquired skills, advanced technology, trained industrial behavior and adapted to the new
working mechanisms... According to CIEM (2006), the share of workers movements relative
to the total labor force in the 3-year average (2001-2003) in the textile sector is 53.4% from
5.8% from FDI enterprises and domestic enterprises. Among workers move out of the area of
FDI firms, about 37% are skilled workers. However, 32% of respondents said that FDI
companies have moved away from labor largely moved to other FDI firms, 23% said that the
number of employees in this open company and 18% said work for labor transfer domestic
companies. Thus, although the flexibility of the labor movement's high FDI sector enterprises,
but one third of the labor movement within the area of FDI firms.
In the labor movement, although we have not sufficient data to analyze the system, the
information gathered in recent years shows that the transfer efficiency is very weak because:
(i) The majority of Vietnam partners in the joint venture are state-owned enterprises. The
representative of Vietnam in the joint venture is often officers at state-owned enterprises or
ministry of state enterprises. They have not fully committed and operated to the joint venture
development, (ii) FDI enterprises in Vietnam tend to establish 100% foreign equity joint
venture instead. The joint ventures in the past tended to be transferred to the form of 100%
foreign owned. Thus, there is the phenomenon of labor migration between FDI firms and
domestic firms, but at very low levels and the possibility of spillover effects is very low in this
channel. In fact, FDI enterprises barely exploit low labor costs, not make a lot of technology
transfer-high technology and manpower training to develop local industry. Because of the


16

highly technical processes need not labor to Vietnam by taking limits of positive spillovers
from FDI firms to domestic firms.
2.2.1.6. Spreading advanced management skills

The companies stressed the advantages of advanced management skills of FDI enterprises.
Marketing, advertising performance and strong distribution network affect the results of
Textile enterprises. The FDI enterprises in Vietnam has developed marketing techniques and
can dominate the market due to the activities of their aggressive marketing. By introducing
new marketing ideas and new management techniques in Vietnam, spillover effects for
domestic firms thus created. The presence of MNCs have contributed learn marketing
techniques, directly through marketing partnerships and indirectly through imitation and
competitiveness of domestic firms. The largest domestic companies have received skills
development and management of MNCs in Vietnam. The presence of FDI enterprises have
contributed to raising awareness about quality standards in the textile sector in the country.
The FDI enterprises require large quantities of products with high quality and good
manufacturing practice, they indirectly put pressure on local suppliers to increase their
standards and deliver large quantities of good quality. Spillover effects on quality standards
thereby creating industry.
Many businesses state capital associated with FDI companies to get "free" access to
international markets. Many companies make the work of popular marketing medium
businesses that do not have the resources to reach international markets. The largest companies
in the country with the development of industry management and thus generate spillover
effects to the big companies may be limited in the future.
2.2.2. The situation of FDI spillover effects of vertical (inter-industry spillover effects in
Vietnam Textile sector)
2.2.2.1. Spill through backward linkages
The spillover effects of FDI occurs when firms use intermediate goods by domestic
production enterprises. According to CIEM survey results, only 35% textile material
production that FDI firms use purchased from domestic companies, the rest bought or
imported from FDI enterprises.
For the apparel industry, the upstream products are yarn, cotton with loosing vertically
relationships. The import of foreign investment plus much quality of raw materials leads to
poor water relationship links in the country is not firmly established. FDI firms tend to use
materials and semi-manufactured or imported by other companies manufacturing FDI. The

reason is because domestic companies did not meet the requirements for garment exports, both
in terms of quantity and quality. Through the survey showed, 50% cloth interior does not meet
the requirements of garment enterprises, 80% of companies surveyed that the relationship
between enterprises producing upstream materials and apparel is currently open mining low
and ineffective.
Quality materials upstream in local countries are very low. Demand high but very few of
these countries do not meet the textile enterprises. Most of the fabric of enterprises producing
only for domestic main engine operations of enterprises and domestic demand in products with
lower average quality. The textile enterprises also claim that they are not proactive in finding
customers and new design, especially in SOEs. Many companies are very passive in marketing
activities, not even seen all the benefits of marketing activities.


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2.2.2.2. The spillover effects through forward linkages
Spillover effects can occur if domestic firms using intermediate goods of FDI enterprises.
Survey data shows that the majority of FDI firms producing for export. Even if sold in the
domestic market is their main customers are individuals or businesses and FDI. According to
CIEM (2006), only 8-13% of the total value of domestic materials that companies use are
bought from FDI enterprises.
According to VITAS, apparel companies have built relationships inextricably linked with
many importers, consuming large corporations around the world. However, most of the export
garment processing method, the sample design, fashion undeveloped, business rates manner
FOB low, low production efficiency. Moreover, most companies operating in the garment
industry are small and medium enterprises. The small size makes the DN not achieve
economies of scale, and can only supply a certain market.
Loose linkages between FDI and domestic enterprises with the popularity of this form of
100% foreign invested investment that Vietnam does not gain a lot of intangible benefits of
technology transfer and management skills. Activity patterns of many FDI enterprises import

only-assembly-exports. Thus, the benefits of FDI will only be short term as Vietnam capital
deficiency, excess labor. But the role of FDI in Vietnam contributed to become a dynamic
economy, creative and capable of sustainable development is very limited.
2.3. Applying econometric models assess the spillover effects of FDI to Vietnam
Textile enterprises
2.3.1. Describe data
The data is the data used by the textile sector inVietnam is taken from the investigation of
the GSO enterprise in the years from 2000 to 2008. There is a change in ownership type of
firms included in the sample... Thesis using the 2000 IO table to structure the relationship
impact of vertical and horizontal FDI through Backward, Forward, Horizontal variables.
2.3.2. The estimation results
The estimation results show that there is a negative spillover effects of the presence of FDI
enterprises to enterprises in the sample. This is reflected in the negative coefficients and
statistical significance of the variables Horizontal. This result implies that the presence of FDI
firms have reduced output growth of the domestic textile enterprises. However, for each group
of enterprises of all sizes will have different effects. Specifically, the group of micro-scale
enterprises, the spillover effects of FDI spillovers only negative horizontal and vertical impact,
this is not a positive impact. In contrast, for the group of companies with small and medium
scale, the spillover effect of FDI is vertical and horizontal impact, but very weak. This
indicates that the spillover effect of FDI on small groups of enterprises are small and positive,
this means that the companies will develop and produce in depth. Thus, small businesses and
medium-scale production will boost but mainly focuses on improving technology and Product
Quality, this is a prerequisite for sustainable development of enterprises. As for large-scale
enterprises, due to ownership competitiveness should not be affected downsized production by
FDI enterprises. At the same time, companies with large-scale Textile, may be active
materials, not to cooperate with the Textile FDI enterprises to purchase raw materials, which
the companies can directly cooperate with overseas parent companies.
2.4. General assessment of spillover effects of FDI to Vietnam Textile enterprises
2.4.1. The positive results:

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(1) To improve the competitiveness of Vietnam Textile firms, (2) facilitate and promote
innovation and technological capacity of domestic enterprises Textile (3) Enhancing level
management and labor skills of the Vietnam Textile companies, (4) Contribute to promoting
links between enterprises and the development of supporting industries in Vietnam.
2.4.2. Limitations:
(1) Competitiveness of the Vietnam Textile enterprises are limited in receiving spillovers
from FDI, (2) spillover effects through common channels and Textile technology transfer from
foreign companies to the DN domestic textile is limited; (3) the Vietnam textile companies
limited autonomy in the raw materials and inputs, (iv) the spillover effects of activities from
fashion designer FDI firms to domestic firms is limited; (5) Method of production and export
of domestic Textile companies did not meet the conditions required in the fierce competition
for FDI enterprises Textile.
2.4.3. The cause of the limitations:
(1) Investment in technological innovation of enterprises Textile which can not be properly
concerned, (2) Human resources of enterprises Textile is still weak; (3) The R&D of
enterprises Textile which can not development, (4) support Textile industry is undeveloped;
(5) the construction, development and brand protection has not been enough attention; (6) the
alliance of enterprises linked textile and textile in foreign countries is limited.


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Chapter 3
VIEWPOINTS AND SOLUTIONS FOR THE EXPLOITATION OF POSITIVE
SPILLOVER EFFECTS AND LIMITATION OF NEGATIVE SPILLOVER EFFECTS
OF FDI TO TEXTILE ENTERPRISES IN VIETNAM
3.1. Goals and orientations to attract FDI to the textile sector in Vietnam

3.1.1. Development Goals for the textile sector by 2020
3.1.1.1. The overall goal
Textile industry development has become the key industry regarding export; successfully
build a number of famous brands, world market integration, oriented textile products with high
added value, ensuring enterprises for sustainable development.
3.1.1.2. Specific Objectives: To achieve growth rate in the value of industrial production
sector at 11.49 %/year; export growth reached 9%/year to reach U.S. $ 31-32 billion in 2020,
accounting for 14,85% of national exports (2016-2020); growth rate of industrial production
value of the sector is 7,5%/year, export growth reached 7%/year, reaching 62-63 billion in
2030, accounting for 11,27% of national exports (period 2021-2030);
3.1.2. Orientation to attract FDI into Vietnam Textile industry: (i) Development of textile
sector in terms of size, production capacity , as well as Product Quality, (ii) Balance, closed
production processes in the area where the product production , from spinning and weaving...
(iii ) Develop a close relationship, both assigned and medium cooperation between production
units and non-state owned enterprises , between enterprises in the country and FDI enterprises,
(iv) Ensuring socio-economic efficiency of investment growth productivity, quality, price,
competitiveness of products, etc. (v) Investment and balanced development between the textile
and garment industry and encourage FDI upstream development and developing the textile
sector, Information Technology in textile sector.
3.2. Viewpoints to take advantage of positive spillover effects and limit the negative
spillover effects of FDI to textile enterprises in Vietnam
3.2.1. Take advantage of positive spillover effects and limit the negative spillover effects
of FDI by improving competitiveness of domestic textile enterprises from foreign textile
enterprises.
3.2.2. Take advantage of positive spillover effects and limit the negative spillover effects
of FDI by increasing the scale and financial resources, organizational capacity building, and
human resources management of the Vietnam Textile enterprises;
3.2.3. Take advantage of positive spillover effects and limit the negative spillover effects
of FDI by attracting investment in upstream textile industry, and active in supporting industries
closely associated with FDI enterprises;

3.2.4. Take advantage of positive spillover effects and limit the negative spillover effects
of FDI by FDI projects screening and selection, that means no attracting FDI at all costs, to set
up factors leading technology and should have the commitment to technology transfer relevant
to each industry, each project;
3.2.5. Take advantage of positive spillover effects and limit the negative spillover effects
of FDI attracted by prioritizing the investors of the world's largest MNCs in Vietnam;
3.2.6. Take advantage of positive spillover effects and limit the negative spillover effects


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of FDI by improving the test inspection FDI enterprises.
3.3. Solution for the exploitation of positive spillover effects and limitation of the
negative spillover effects of FDI to textile enterprises in Vietnam
3.3.1. Group of solutions to take advantage of positive spillover effect
3.3.1.1. Takeover and promote investment in developing textile human resources.
Human Resource is regarded as a determinant factor to take advantage and exploit positive
spillovers effect of FDI for Vietnam Textile enterprises. Therefore, improving the quality of
human resources in the physical, mental and skill is an urgent requirement to Vietnam Textile
enterprises in the context of fierce competition in the domestic market and international
market. In order to do this, the following solutions are needed to do:
a) Clarify the training of human resources as the textile sector: (i) technical and professional
training, (ii) Professional training administration and management, (iii) professional training
and (iv) Organization management training apprentices to train resource persons in the field of
management and technology for enterprises at rural areas.
b) Determine the form of training and retraining of human resources. Combining long-term
training with short-term training , between formal training with on-site training, training in the
country between the elected officials for training abroad.
c) Develop training human resource programs in textile consistent with the characteristics of
the textile sector. Innovation of objectives, training programs and focusing on suitable course

with specialized training, getting practical skills are the focus. Regular system of training
colleges, secondary, technical workers through the system of industry professionals need to be
maintained. There should be mechanisms for monitoring the quality of teaching at all levels of
education.
d) To strengthen and develop the school system, human resources training center for textile
industry: Continue to strengthen the vocational school in the system, in collaboration with the
universities to train textile depth training on technological. Strengthening research institutions,
additional forces for effective institutions, establishing the center of the design and construction
of high-end fashion brand, increase investment in technical equipment for schools, the training
center, built University Textile and Fashion to create facilities for deployment training classes.
With the fashion design industry, there could be a solution that to invite foreign experts to work
in regular schools and training centers;
e) To expand joint training between the Textile enterprises with schools and training centers
for the textile industry workforce: Textile companies proposed initiative needs , provide practice
location and partly responsible for financing the training process, schools, training centers active
in human Textile companies find understand the needs, innovative programs and curriculum in
accordance with requirements of human use, quality assurance training as required;
3.3.1.2. Takeover and increase investment in science and technology development,
technology transfer and improve management level.
This solution is established for the purpose of improving the efficiency of technology
transfer and take advantage of technology spillovers from FDI enterprises to the Vietnam
Textile enterprises. Improving technology devices along with improving the quality of human
resources is the fundamental condition for enhanced absorption of spillovers from FDI
Vietnam Textile enterprises.
a) Domestic firms have to focus on investment in research, technological innovation,


21

through Ensuring uniformity in the line technology, (ii) Ensuring uniformity in technological

innovation between Textile and Garment (iii) The choice of technology, technology selection
depends on the item requirement and market, (iv) selection of modern technology is relatively
backward in order to avoid a short period of time, (v) investment in technological innovation to
match mission requirements as well as financial situation of the company, combined with test
review and evaluate the entire machinery.
b ) Combined use of technology, information relating to: (i) The firms must have a good
combination between the lines procurement of modern technology, high automation to meet
the increasing demands of the market with the technology line using labor, (ii) the purchase
shopping should be done sensibly, avoid waste, (iii) procurement of new technologies, require
companies to pay attention to the technology transfer, user manual and warranty of new
technologies, (iv) Promotion encourage the free enterprise research, invention or collaboration
with scientific institutions in the country; joint ventures with other companies inside and
outside the country; hire foreign experts.
d) Strengthen the capacity to receive new technology Textile enterprises in the country: To
take advantage of and exploit the spillover effects of FDI, enhancing the absorptive capacity of
firms is a very important factor. To achieve the effect of technology, the Textile enterprises in
Vietnam, first to implement solutions: (i) The members of the company must be able to
perceive, to acquire knowledge and technology; (ii) Transfer of technology into the process,
the basic practices in daily operations of the company, (iii) There are appropriate policies and
flexible for business venture type, (iv) companies should also focus on the scientific research,
cooperation with foreign training for themselves can get technology, (v) Always exploitation
spillover effects of FDI in relation to the employment scale, eliminate prejudice technologies
that will reduce employment scale.
e) Training new human resource technology: improving capacity building consultancy,
research and development, technology transfer, and the ability to design patterns composed of
research institutes. Encourage students to study at the Institute of Textile industry and at
universities outside the industry. Conducting international cooperation in training, collaboration
with foreign schools send students to school; improving advisory capacity, research and
development, technology transfer, capacity design and composition of the sample research
Institute, support for businesses in the industry to promote research activities and implementation

of technological advancements, technology transfer.
3.3.1.3. Strengthening research and designing products
This solution is designed to take advantage of positive spillover effects of FDI enterprises
through channels Textile R&D. With the aim of shifting the global value chain towards fashion Technology-brand, Textile enterprises in the country are heading to fashion as an important
solution to absorb and utilize positive spillover effects of FDI. Manufacturers need to focus on
the tastes of the market and its segments, bringing design elements and fashion of Vietnam on
the garments. To do this, proceed to the following measures: (i) Develop specialized department
of fashion design, product design, (ii) Training team of fashion designers selected by the
professional designers and savvy market, especially international markets , organizing training,
improve training professional staff for the design ; improve skills for young designer, created the
opportunity for them to have access to the fashion world and forming collections of fashion
apparel seasonally appropriate for each different time , under different fashion trends, (iii)


22

Develop planning, investment research and analysis of the export market, paying special
attention to the U.S., Japan, EU... and basically a more professional, (iv) Strengthening of
market research to updated fluctuations, trends in the world of fashion to design changes
promptly in order to best meet the needs of customers in specific stages.
3.3.1.4 . Development of supporting industries, strengthening links production and supply
of raw materials to the Vietnam Textile Enterprise
This solution is designed to leverage and capacity to absorb positive spillovers of FDI to
Vietnam Textile enterprises. Because the development of Information Technology for the
textile sector is one of the important factors to attract FDI from MNCs, as an important bridge
between FDI enterprises with domestic Textile companies, technology transfer from abroad to
play Textile sector in the country.
Longitudinal Relations of the textile sector, expressed as follows:
Materials = > Spinning = > Textile and Fabric = > Print dye = >Sew
In fact, though not all the development stages of textile production systems equally, but if

you create a tight linkage between the stages will impact tremendous autonomy, improve
business performance, increase the competitiveness of textile products on the domestic and
world markets. This link shows in the following aspects: (i) links between knitting and sewing
can contribute to improving the quality of raw materials for the garment enterprises, (ii)
Strengthening the link textiles-garments facilitate reduced cost (transportation cost, packaging
materials being imported... ). This include: (1) Developing and increasing investment in fiber
industries-textiles , meet one of the key elements upstream of the garment industry, (2) issue
preferential policies investment industry particularly with fiber-weaving, creating incentives
for domestic investors and foreign participation, unlimited forms and fields of investment. The
Industrial Development and Investment should focus on weaving clusters given territory.
In addition, it is necessary to take resolute and consistent incentives for developing
Information Technology in textile. This is closely related to the development of SME. Therefore,
in addition to preferential policies and support the development of SME, needs special things to
make strong incentive to attract investors at home and abroad, creating a shift in the
development of this industry in the years immediately ahead. The specific incentives are needed:
(i) financial incentives, (ii) incentives for land and production premises, (iii) Incentives for
human resources training, (iv) incentives for developing technology science.
3.3.1.5. Attracting FDI in the textile sector, from large MNCs, technological potential and
maximize strengths in R & D of FDI enterprises operating in Vietnam
This is a breakthrough solution to create positive spillovers from FDI to domestic textile
enterprises, and promote the positive spillover effects of FDI. Because, MNCs are the main force
in the implementation of scientific and technological revolution, is the largest investment for R &
D activities The process of attracting FDI from MNCs including the following specific content:
a) To the State, to actively attract MNCs, the state should: (i) Develop a strategy to attract
MNCs in the field of Textile, (ii) Strengthening investment promotion for foreign investors ,
introducing and promoting the image Vietnam and the potential development of the textile
sector, as well as supporting industries Textile Vietnam, (iii) Actively creating and selecting
investment partners and select the appropriate form of investment, (iv) Strengthening try the
activity center R&D of the State to strengthen the capacity of the facility, including personnel
so qualified to acquire knowledge and advancement of new technology, (v) Implementation of

23

incentives investment.
b) To the business: (i) Must have partner companies in the country is strong enough
financial, technology, management. Enhance financial strength, management level of the
company and the acquisition of technology companies in South of Vietnam (iii) the need to
strengthen businesses find understand the partner MNC and consistent preparation before
joining venture and cooperation; (iv) Actively promote and enhance the image of the company
to provide information to potential partners MNCs.
3.3.1.6. Solution to capital resource
a) Creating capital for businesses Textile, particularly SME, by: (i) create favorable
conditions for SME can easily get access to loans long term; (ii) how to develop strong
financial leasing; (iii) use of ODA to support workforce training, institutional development and
legal development programs of Information Technology;
b ) Make the capital of foreign companies. The SME must link between banks and
enterprises to enhance their limited funds allocated to the sector enterprises to improve
capacity and productivity of the economy.
c ) The firms need forecasting, capital raising plan correctly and use specific forms of
capital mobilization from different companies and from outside sources
3.3.2. Solutions for limiting, preventing negative spillover effects
3.3.2.1. Improving the competitiveness of the textile enterprises
This solution is designed to overcome the effects of FDI competition. DN NLCT of higher
negative spillover effects of FDI as little chance of appearing. Meanwhile, more and more
companies take advantage Textile and effective use of the advantages due to the spillover
effect of FDI enterprises created. To improve competitiveness of Textile enterprises should
implement the following measures:
a) Firstly , improving quality textile products, through: (i) Improving product strategy of
the company, (ii) Conduct activities to upgrade machinery, equipment availability, increased

strengthen research and regularly updated information about the new production technology,
(iii) comply with the strict requirements of the ordering of materials, technologies and
manufacturing processes in accordance with samples and documentation the technical order
provides; (iv) Focus on research and development of new products towards diversification, (v)
Strengthening the application of international quality management system. At the same time,
the companies can invite experts with experience in Product Quality assessment before export
to the international market.
b) Secondly, reducing production costs, through: (i) raise the awareness of all members of
the firms in terms of decreasing producing cost, lowering product price and improving Product
Quality and (ii) Promote investment and replacement that some equipment, production
machinery obsolete, (iii) raw material cost reduction, replacing raw materials imported by
domestic supply, (v) Reduction of product price through measures such as improving higher
labor productivity, reduce management costs, reduce power consumption in energy production,
sharing marketing costs, costs of market information between companies, (v) reducing the cost
of management and reduce costs transaction documents through the application of science and
technology progress and IT.
c) Third, diversifying product range, a color enhancements by: (i) Conduct a diverse and
expanding export processed goods, (ii) Diversification of product material by relying on idea


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of the design, to avoid duplication or stamping on foreign models, (iii) diversification and
improved types of blood products, by improving existing products and developing more many
new products, (iv) Conduct training investment and operations staff in the design, (v) in
conjunction with the market research to capture changes in demand consumer demand, thereby
making the appropriate design innovative and aesthetic values meet those needs, (vi) gradually
shifted to manufacturing high-end products, reduced less pressure to compete with China's
textiles, India, etc.
d) Fourth, focus on construction, protecting and developing the brand in the market, especially

on the international market, through: (i) Branding associated with Advanced Product Quality, (ii)
Hiring of consultants, design a building strategy and brand development, (iii) Apply a variety of
methods to develop textiles brands Vietnam on the international market, (iv) Strengthening IT
applications for branding and investing in research trends franchise or brand sales also very useful
for companies to benefit from the brand, (v) Enhance credibility in the business.
3.3.2.2. Policies to "retain" employees, preventing "brain drain"
The importance of stabilizing the utilization of human resources with positive spillover effects
and limiting negative spillovers from FDI enterprises Textile is what has been confirmed.
Therefore, enterprises should: (i) There is satisfactory remuneration policy and economic leverage
to encourage employees, (ii) concern improvement of working conditions for employees, to
comply with the SA 8000 and the provisions of the environmental standard ISO 14000/2000.
Strengthening social welfare enterprises and institutions in the cultural-sports community based,
(iii) the movement organization, improve the spiritual life for employees, (iv) Construction
documents chemical companies, generating strong linkages and long-term workforce and
businesses.
3.3.2.3. Focus on developing the domestic market, as "rear" solid as "springboard" for foreign
market promotion.
Should be studied in depth local market, can make strategic links with companies that stood
for the domestic market and domestic distribution channels are quite strong to support the sales
stage. It should define the domestic market is not only a solution to deal with the global
economic downturn but also the solution to limit the negative spillover effects from FDI.
3.3.3. Recommendations to implement the solution
3.3.3.1. Recommendations for State: (1) Firstly, diversified forms of investment, encourage
investment in the form of LD to learn technology, management experience, (2) complete policy
and further improve investment environment, (3) step up investment promotion, infrastructure
upgrades, (4) Develop and master planning in the textile sector, FDI, (5) Development of upstream
textile industry garment and textile strengthening links-unfortunately, (6) support enterprise policy
on training human resources, research and technological innovation and support, especially in
finance.
3.3.3.2. Recommendations for Vietnam Textile and Apparel Association: (1) should be

developed portal for e-commerce industry, (ii) should represent members involved with the
activities organized textile industry association garment international and regional (iii)
strengthen trade promotion activities, the cultural exchange activities, (iv) Strengthening
information and economic forecasts, projections and exploit technology information, including
forecast wisely and selectively.


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CONCLUSION
Textile industry is evaluated as potential production and development to bring major
benefits to the economy as well as long term ahead. Thus, attracting FDI in the textile sector is
a necessity, and especially to take advantage of the positive spillover effects brought by FDI
requires Government agencies and ministries of the direction our country should have the
appropriate policies. The fact that over time, companies in Vietnam in general and in particular
textile companies have been strong promotion activities to attract FDI to boost export export
products to the world market. Attracting FDI in the textile mills, fiber, clothing apparel is
increasing, particularly from investors in Asia such as Hong Kong, China, Taiwan... and
investors from EU and U.S. Thus, it can be stated that the study, assess the status of the
spillover effect of FDI in the textile sector, Vietnam as well as providing solutions and
appropriate policies to eliminate the inadequacies and shortcomings in investment market,
while encouraging FDI in Textile sector is really very important and urgent, help with a more
intuitive view on this issue, since it can implement the objectives and strategies set out. Thesis
address the following issues:
1) Verify the location, the important role of the textile sector and the urgency of attracting
FDI into Vietnam Textile enterprises;
2) The system of reasoning about the spillover effects of FDI on domestic firms,
differentiate and deepen the 8-channel transmission spillover effects of FDI on domestic firms
in general and for the Textile Enterprise particular. These include: Six channels of FDI
spillover effects resulting horizontal (spillover effects of FDI in the sector) and two

transmission channels of FDI spillover effects of vertical (inter-industry spillover effects of
FDI). The thesis also shows the impact of the competitive effects of FDI on domestic firms.
3) Analyze and assess the status of the spillover effect of FDI to Vietnam Textile
enterprises. At the same time, by applying the econometric model, the two methods: (i) sale of
parameters, (ii) the estimated effect and random effect estimates, the thesis shows experimental
evidence for that have negative spillover effects of the presence of FDI firms in the sample of
firms. This is reflected in the negative coefficients and statistical significance of each variable
in the Horizontal DN. This result implies that the presence of FDI firms have reduced
productivity growth of domestic firms Textile due to competitive effects . However, for each
group of enterprises of all sizes will have different effects. Specifically: (i) For the group of
micro-scale enterprises are strongly influenced by the effect of competition; (ii) The group
companies are small and medium scale, the spillover effect is positive vertically down
dimensional and have a negative spillover effect horizontally; (iii) as for large-scale enterprise
group, there is no horizontal spillovers and no vertical spillover effects, are not affected
downsize business by FDI enterprises, can simultaneously be active materials, not to cooperate
with companies that may Textile FDI direct cooperation with overseas parent companies to
buy raw materials.
4) Specify and analyze a number of limitations and the main reason affecting the spillover
effect of FDI to Vietnam Textile enterprises.
5) Take advantage of the views of spillover effects and limit the negative spillover effects
of FDI into Vietnam Textile companies, which emphasizes the breakthrough point 3, that: (i)
must be screened FDI projects, selection, no FDI at all costs, technology factors have placed
top and requires a commitment to technology transfer relevant to each sector and projects, (ii)