Page 151 - Ebook HTKH 2024

stage, paving the way for comprehensive and sustainable growth in the coming
decades.
4.5.2. Current key driver of MNCs to invest in Vietnam and the role of institution

Foreign Direct Investment (FDI) has become a cornerstone of Vietnam’s
economic strategy, playing a critical role in capital accumulation, technological
advancement, and skill development. Since the Law on Foreign Investment was
introduced in 1987, Vietnam has proactively attracted FDI to drive economic growth
and improve living standards (Le, 2002; UHY, 2008). The significant inflow of FDI,
particularly in the manufacturing and services sectors, reflects Vietnam's increasing
integration into the global economy and its ability to position itself as a key destination

for multinational corporations (MNCs).
Market-Seeking Motives: Vietnam offers easy access to major regional markets,
making it an attractive destination for MNCs looking to grow their market base. Studies
have shown that the size and growth potential of a market are pivotal in FDI decisions
(Cheng & Kwan, 2000; Meyer & Nguyen, 2005). Vietnam’s impressive economic
growth, combined with its increasing regional integration through trade agreements like

the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
and Regional Comprehensive Economic Partnership (RCEP), continues to attract
foreign investors keen on capitalizing on these opportunities (Nguyen & Le, 2021).
Government Policies and Institutional Support: The Vietnamese government has
continuously improved its institutional framework to attract foreign investment. This
includes enhancing legal protections for intellectual property, improving contract
enforcement, and streamlining business procedures, which has helped create a stable,
predictable environment for investors (WTO, 2006). Vietnam’s ongoing efforts to

reduce corruption and increase transparency have further bolstered investor confidence,
contributing to the country’s growing appeal as an investment destination (Blonigen &
Piger, 2011).
Efficiency-Seeking Motives: Vietnam’s relatively low labour costs, coupled with
increasing productivity, make it a prime location for MNCs looking to optimise
resources and reduce operational costs. This is particularly true for the manufacturing

sector, where Vietnam has become a hub for labour-intensive industries such as
electronics and textiles. While efficiency-seeking motives remain prominent in
manufacturing, service sectors tend to be more driven by market potential and
institutional support rather than purely cost-based considerations (Du et al., 2008; Gast
& Herrmann, 2008).
Cultural and Business Networks: Cultural alignment between Vietnam and major
Asian economies like China, Japan, and South Korea has also facilitated FDI inflows.

Shared cultural values and business practices, such as long-term orientation and

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