Negative Impact of Fdi

1. NEGATIVE IMPACT

1. Exploit the workforce that is available in host country. Take undue advantage of low cost labors , unskilled labors…, make use of probation to consistently change labors without training or equipping them with experience, skill and qualification

Because FDI enterprises in Vietnam are mainly conducted labor-intensive processes such as machining and assembly. Even the leading technology companies such as Intel Inside Sam Sung that have production facilities in Vietnam mainly produced components, as inputs to the process of creating a product in another country. Besides, a number of investment projects of China, one of the major partners of Vietnam, often use Chinese labor instead of hiring workers from VN

1. There is little technology transfer and management skill transfer into Viet Nam. Even Viet Nam becomes an industrial garbage after adopting out of date technologies. Investors tend to keep their “know- how” in secret.

Channel 1:

At a conference to summarize 25 years of new FDI was organized, Deputy Minister of Planning and Investment said Dao Quang Thu, 80% FDI technology used currently in Viet Nam is average, 5 6 % used is high-tech, 14% low and backward, there are individual cases using outdated technology. Technology transfer is mainly done horizontally - between business enterprises, with little change in the level and technological capacity. Despite the fact that there would be no corporations, they now carry the No. 1 technology, latest technology investment to other countries, however, the majority of FDI projects in Vietnam only average tech show FDI mainly to take advantage of cheap labor, investment in infrastructure in the form of production assembly line, or product improvements. Consequently, Vietnam businesses create low added value, hard to participate in global production networks. There is little FDI funded projects in the field of science and technology. R & D activities in FDI enterprises in the technology only small, simple ... or research to improve adaptation in accordance with the conditions of Vietnam.

Channel 2:

Foreign enterprises hold the highest labor intensive and make more jobs than other firms. In 2007, according to UNDP’s report, FDI companies hired illiterate employers and opened many illiteracy erasing classes to ensure the staff can read through all safety notice and basic guideline. These firms always exploit thoroughly the “cheap” human resources and ignore skill training for workers.

In terms of absorbing advanced technology, it is the big worry that FDI is only contributed to low technology areas. Although capitalization plays an important role in Vietnam, in domestic industries development aspects,considering foreign firms’ appearance is a chance for improving the national industrial development. Until now, the technology used in Vietnam is only higher than the technology in the same areas and the same products of domestic economy. A majority of this is imported from Asia (69%) and South Asia (19%). European countries account for only 24%, America is 5% and G8 countries is 23,7%. Therefore, Vietnam is on the verge of outdated technology dump area of developed countries.

Regarding the technology transfer area, in the period 2004-2009, the TFP of government, private and enterprises economy which have FDI is 8,6;3,1 and -17,6 respectively. According to Nguyen Quang Thai and Bui Trinh’s research, the highest TFP proves that although the efficiency of this area is not as high as the investing capital, technology transfer is real. While the FDI area holds the minus TFP. As can be seen from a survey, in the FDI area, growth depends on other factors like cheap human resource, not technology. In fact, in many foreign capital firms, the export machines or tools when entering into Vietnam turned out to be outdated or amortized.

Additionally, a survey of Vietnam economic institute indicates that some FDI enterprises operate like “a discrete corner”, problems about technique, technology and their accounting process, Vietnamese do not know and have no connect with. Therefore, the effect of FDI on domestic industry is very small. The association between FDI enterprises and domestic enterprises shows little sign, no assistant industries are built which are linked to produce according to product supplement series. Basically, assistant industries can create about 80-95% value added for products, however, Vietnamese manufacturing firms have to import 70-80% the assistant products. Because of this drawback, the cost born in Vietnam is very low, many FDI enterprises find it hard to develop and invest deeply, so some FDI projects are moving export to other countries, or close or move to a new investment area in Vietnam.