What is an FDI enterprise? The role of FDI in Vietnam’s economy

Vietnam conducts Industrialization – Modernization with a low starting point. Economic resources are weak and small. This is one of the great obstacles to the development process. Therefore, the mobilization and use of foreign direct investment (FDI) is an extremely important step. So what is FDI? what is an FDI enterprise? Why does it bring such great value? What are the characteristics of FDI enterprises? If you also have questions like the above, Lawyer X will explain it to you in detail right in this article.

Legal grounds

Investment Law 2020

What is FDI?

FDI stands for “Foreign Direct Investment” which means foreign direct investment. This is a form of business of one economy enterprise operating in the territory of another economy in order to gain long-term benefits and take over the real management of the enterprise.

What is an FDI enterprise?

In fact, there are many different definitions and different perspectives on FDI enterprises. However, in the most general and concise way, it can be understood that: FDI enterprises are enterprises with foreign investment capital and use this capital most of their business activities.

The definition of FDI enterprises is a general definition, regardless of the percentage of capital contributed by foreign parties. There are two main types of FDI enterprises:

• Firstly, nterprises with 100% foreign capital.
• Secondly, joint venture between foreign and domestic partners.

Features of FDI

– Capable of bringing profits to large investors

– Promote countries that want to attract FDI with a clear legal corridor to promote economic development.

– According to the laws of each country, the ratio of capital pooled between investors changes to suit the profits as well as the risks encountered;

– Income of investors depends on business results of enterprises;

– Invested countries have the opportunity to receive advanced technology from investors because the investing countries will bring their technology to where they want to invest.

The investor has the right to decide on the production and business situation of the enterprise. Following that is taking responsibility as well as enjoying benefits from your decisions.

The role of FDI

Positive impact

The positive effects of FDI include:

– Because foreigners are the ones who directly manage and manage capital, they have high responsibility and good skills.

– Exploiting abundant mineral resources and labor resources. Increase the number of jobs and train high-quality workers.

– Expanding the consumption market entails a large scale of production, raising production, and reducing product costs in line with consumers’ incomes.

– Avoid trade protectionist barriers and trade fees of the host country.

– Supplementing capital for domestic socio-economic development, promoting economic growth.

– Create a large budget revenue for both parties.

Negative impact

– Faced with many burdens in the new political environment, armed conflict. Besides simply internal disputes, conflicts about differences in traditional thinking.

– If the enterprise makes investment abroad, the domestic investment capital will be lost. So it makes difficult to find capital for development, pressure to create jobs in the country, which can lead to the risk of economic recession.

– Domestic policies may be changed because when making investment requirements, investors often have measures to lobby the State in their favor.

– In the process of competition between enterprises, there will be a continuous change of capital flows, leading to the move of the economic balance.

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