Rise and Fall of Multinational Enterprises in Vietnam: Survival Analysis Using Census Data during 2000–2011*

• Author: Tien Manh Vu,Tsunehiro Otsuki,Hiroyuki Yamada
• DOI: http://doi.org/10.1111/asej.12114
• Date: 01 March 2017
• Published date: 01 March 2017

Rise and Fall of Multinational Enterprises in

Vietnam: Survival Analysis Using Census Data

during 2000–2011*

Tien Manh Vu, Hiroyuki Yamada and Tsunehiro Otsuki

Received 03 June 2015; accepted 23 November 2016

This study examined the survival of multinational enterprises (MNE) in Vietnam

during 2000–2011 using Cox hazard models. The characteristics and ownership

structure of firms and the nationality of foreign partners are found to be associated

with the probability of firm exit, with a firm having greater capital share of foreign

partners surviving longer. An efficient local government requiring less time for

bureaucratic procedures and inspections is found to be associated with a lower

probability of MNE exiting. Meanwhile, transparency in business regulations and

predictability in implementing central government policies accelerate the survival

of highly competitive MNE.

Keywords: government performance, multinational enterprises, ownership, sur-

vival, Vietnam.

JEL classification codes: L24, L25, O02, P27.

doi: 10.1111/asej.12114

I. Introduction

The first laws on foreign investment after Doi Moi came into effect in Vietnam in

1997 and since then multinational enterprises (MNE) have become crucial stake-

holders in the Vietnamese economy.MNE accounted for 11.52 percent of employ-

ment in the Vietnamese economy in 2000, and this share increased rapidly to

22.84 percent by 2007 (GSO, 2013b). Moreover, the capital stock associated with

foreign direct investment (FDI) almost doubled from, 580 billion to 1108 billion

*Vu (corresponding author): Asian Growth Research Institute and Osaka School of International

Public Policy,Osaka University, 11-4 Otemachi, Kokura-kita, Kitakyushu, Fukuoka 803-0814, Japan.

Email: vu@agi.or.jp Yamada: Faculty of Economics, Keio University,2-15-45 Mita, Minato-ku, Tokyo

108-8345, Japan. Otsuki: Osaka School of International Public Policy, Osaka University, 1-31

Machikaneyama,Toyonaka, Osaka 560-0043, Japan. We are grateful for the insightful comments and

suggestions of an anonymous referee, the Editor of this journal, Masahiro Shoji, Yasuyuki Sawada,

Yasuyuki Todo, Takashi Kurosaki, Aya Suzuki, Yuya Kudo, Daichi Shimamoto, and the participants

in the APL Seminar held at the Institute of Developing Economies, Japan External Trade Organization,

Chiba, Japan, and the Tokyo Workshop on International Development (CIRJE) held at the University

of Tokyo,Japan, in November 2015. We acknowledge financial support (Grant numbers 22330077 and

25780163) from the Japan Society for the Promotion of Science and Kikawada Foundation.

© 2017 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2017, Vol.31 No. 1, 83–109 83

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Vietnamese dong during the same period (GSO, 2013a).

1

Despite this rapid

growth of FDI inflow in Vietnam, the census data show a high rate of MNE

exiting the Vietnamese market, a finding consistent with Ha and Kiyota (2014),

who found a high turnover (approximately 35 percent for both entry and exit rates

in 2008) of manufacturing firms in the country, including domestic firms. This is a

challenging situation for the country’s outward-oriented growth strategy and for

the continued success of MNE in Vietnam.

Thus, a need has arisen for detailed research on the behavior of MNE in Vietnam

in terms of performance for survival in business as well as for entry. Severalempir-

ical studies have investigated the turnover patterns of firms using firm-level data

(see e.g. Griliches and Regev, 1995). Most of these studies focus on the probability

of entry and exit at a particular time point, but this short-run framework is not nec-

essarily suitable to capture the complex nature of a firm’s survival (or exit) deci-

sions. Firms might consider the past, present and future economic conditions

when making survival decisions. For example, firms might not exit as soon as they

run into a deficit, but may stay in business if they expect opportunities in the future

(Dixit, 1989). Thus, focusing on how long a firm survives may be more appropriate

to explain the observed turnover patterns of firms. However, as discussed in detail

below,few empirical studies on MNE turnover focus on the survival of firms and its

determinants, especially with census data of emerging or developing countries.

Previous studies on the determinants of firm turnover patterns use firm-level

data and focus on a limited set of factors, including firm productivity, firm owner-

ship structures such as share of foreign capital, firm ownership type such as

public/private ownership, and other firm-specific characteristics such as employ-

ment size and firm age. Institutional and policy environment is also an important

factor affecting the flow and effectiveness of FDI (see e.g. Globerman and

Shapiro, 2002). However, the limited availability of spatially disaggregated insti-

tutional and policy environment data constrains the firm-level analyses incorporat-

ing such variables.

Therefore, this paper focuses on the survival duration of Vietnamese MNE by

investigating a wide range of its potential determinants and paying particular at-

tention to the ownership structure of firms and the performance of local govern-

ments. We combine the firm-level data of Vietnamese MNE for 12 consecutive

years from 2000 to 2011 and the annual survey on provincial competitiveness.

The dataset covers the period from the country’sfirst laws on foreign investment

to its WTO accession and 5 years from the accession. This firm-level MNE dataset

is virtually a census dataset and covers almost all the MNE that existed in Vietnam

during the period. This frees us from sample selection bias and enables us to

directly interpret the population of MNE and, thus, engage in very convincing

policy discussions. Because we use indices for the performance of the local

1 The amount of capital stock is converted to the 2010 value with a GDP deflator available at the

World Economic Outlook Database of the International Monetary Fund (http://www.imf.org/exter-

nal/pubs/ft/weo/2013/02/weodata/index.aspx).

ASIAN ECONOMIC JOURNAL 84

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