Econ
Technology transfer through FDI: Room for Improvement
The Foreign Direct Investment (FDI) sector no doubt has significantly contributed to the development of Vietnam in recent 30 years. However, one of the great advantage from FDI, which is technology transfer, remains lower than expected.
According to statistics from the Foreign Investment Agency of the Ministry of Planning & Investment, as of September 2017, Vietnam has attracted 24,199 FDI projects from 116 countries and regions in the world, with total registered capital of 310.19 billion USD. Despite being one of an attractive destination for foreign investors, the rate of technology transfer through FDI sector to the domestic sector in Vietnam remains lower than other neighboring countries, which is decreasing in tendency.
Specifically, in 2009, Vietnam was in 57th rank in the world with regard to the efficiency of technology transfer, but in 2014, Vietnam has gone down to the 103rd place, a decrease of 46 ranks compared to 2009, which is much lower than other neighboring countries, such as Malaysia at 13rd rank, Thailand in 36th rank, Indonesia in 39th rank and Cambodia in 44th rank.
One of the reason for this worrying trend is that, almost all FDI enterprises invest in Vietnam with the purpose of production and maximizing profits. So that they take advantage of Vietnam with regard to natural resources, cheap labor forces and big consumption market to increase revenue, instead of transferring technologies to domestic enterprises. As such, technology transfer activities through FDI enterprises still remain low. Another reason for this is the majority of FDI enterprises in Vietnam are 100 funded by foreign investors, which is not under joint-venture or cooperation with domestic enterprises, so that they do not have the responsibility to transfer technologies to Vietnamese enterprises. There are also no regulations available, which regulate FDI enterprises to transfer technologies to domestic enterprises.
Admitted the limitation of technology transfer from FDI enterprises, but some experts said, in order to facilitate technology transferring from FDI enterprises, in addition for domestic enterprises to be active, there should be more support from the government and administrative agencies. As such, domestic enterprises should focus on training high qualified human resources and creating favorable conditions to attract experienced employees, who have had experiences working for FDI enterprises. This can be seen as a necessary step to receive foreign technologies. Along with this, administrative agencies need to set up supporting policies and obligations for foreign investors when investing in Vietnam. For example, FDI enterprises investing in Vietnam must have the localization rate of 60%, this will be the foundation for FDI enterprises to cooperate with domestic enterprises and facilitate technology transfer.
On the other hand, the role of enterprises associations and business community should be increased to facilitate technology transfer through FDI sector. In which, enterprises associations will be facilitators and create connection between FDI enterprises and domestic enterprises, with an aim to open new doors for domestic enterprises to increase cooperation, approaching new science- technologies and participating in the global value chain. With this being said, the new law of technology transfers 2017 will play a key role for Vietnam to avoid at the receiving end of obsolete technologies, at the same time, to create favorable conditions for the transferring technologies to Vietnamese enterprises.
Specifically, in 2009, Vietnam was in 57th rank in the world with regard to the efficiency of technology transfer, but in 2014, Vietnam has gone down to the 103rd place, a decrease of 46 ranks compared to 2009, which is much lower than other neighboring countries, such as Malaysia at 13rd rank, Thailand in 36th rank, Indonesia in 39th rank and Cambodia in 44th rank.
One of the reason for this worrying trend is that, almost all FDI enterprises invest in Vietnam with the purpose of production and maximizing profits. So that they take advantage of Vietnam with regard to natural resources, cheap labor forces and big consumption market to increase revenue, instead of transferring technologies to domestic enterprises. As such, technology transfer activities through FDI enterprises still remain low. Another reason for this is the majority of FDI enterprises in Vietnam are 100 funded by foreign investors, which is not under joint-venture or cooperation with domestic enterprises, so that they do not have the responsibility to transfer technologies to Vietnamese enterprises. There are also no regulations available, which regulate FDI enterprises to transfer technologies to domestic enterprises.
Admitted the limitation of technology transfer from FDI enterprises, but some experts said, in order to facilitate technology transferring from FDI enterprises, in addition for domestic enterprises to be active, there should be more support from the government and administrative agencies. As such, domestic enterprises should focus on training high qualified human resources and creating favorable conditions to attract experienced employees, who have had experiences working for FDI enterprises. This can be seen as a necessary step to receive foreign technologies. Along with this, administrative agencies need to set up supporting policies and obligations for foreign investors when investing in Vietnam. For example, FDI enterprises investing in Vietnam must have the localization rate of 60%, this will be the foundation for FDI enterprises to cooperate with domestic enterprises and facilitate technology transfer.
On the other hand, the role of enterprises associations and business community should be increased to facilitate technology transfer through FDI sector. In which, enterprises associations will be facilitators and create connection between FDI enterprises and domestic enterprises, with an aim to open new doors for domestic enterprises to increase cooperation, approaching new science- technologies and participating in the global value chain. With this being said, the new law of technology transfers 2017 will play a key role for Vietnam to avoid at the receiving end of obsolete technologies, at the same time, to create favorable conditions for the transferring technologies to Vietnamese enterprises.
