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Last updated: Thursday, December 13, 2018


30-year FDI Attraction: Missing Technology Transfer Goal

Posted: Friday, December 15, 2017

One of main purposes of attracting foreign direct investment (FDI) is the expectation of receiving technologies transferred from FDI investors. However, according to the World Economic Forum 2016 (WEF 2016), technology transfer from FDI companies in Vietnam is surprisingly low and tends to be pushed far apart from other countries in the region.

Technology transfer is almost the primary goal of developing countries when they look for foreign partners. For Vietnam, FDI is expected to blow a gust of vitality called new technology to uplift Vietnam’s technological development level. However, in the past 30 years, we have not acquired much technology transfer.

Many local companies are still using old technologies. A new report released by Central Institute for Economic Management (CIEM) showed that, in 2015, only 14 per cent of respondents had technologies used less than three years backward while 53 per cent utilised technologies from more than 6 years backward. At present, up to 75 per cent of processing and manufacturing companies surveyed in Hanoi said that their energy consumption is larger than the world average as they mainly use old technologies.

Despite being very attractive to foreign investors, the pace of technology transfer from the FDI sector to the domestic economic sector is very low and tends to be slowed down. According to the above-mentioned WEF Report 2016, the efficiency of technology transfer from FDI companies in Vietnam ranked 57th globally in 2009 but it plunged to 103rd place in 2014, a drop of 46 places in five years. Vietnam stood far behind other countries in the region like Malaysia (13th), Thailand (36th), Indonesia (39th) and Cambodia (44th).

Technology transfer data to 2015 in Vietnam showed that the rate of technology transfer contracts signed by FDI projects was only 4.28 per cent. High growth was seen in only high-tech sector, which contributed 12.2 per cent of value added to electronics, computers and optical products. However, Vietnam only assembles - a stage having no technological factor. Meanwhile, 49 per cent of industrial value was contributed by three low-tech industries - processing, garment and textile, and contributions - and two medium-tech industries - mining and steel. The result also showed the pace of labour productivity growth, which was only 2.4 per cent a year in 2006 - 2015, lower than the economic growth by 3.9 per cent.

Lack of technology transfer regulations
According to an official from the Ministry of Science and Technology, FDI companies investing in Vietnam aim to make a profit from their operations. They capitalise on natural resources, cheap labour and vast consumption market to increase revenues rather than transfer technology to local partners. Most FDI firms are wholly foreign-owned, not partially owned with local partners. As a result, they are not obliged to transfer technology to Vietnamese partners.

Although the Law on Foreign Investment promulgated in 1987 and other related laws like revised Law on Investment encourage foreign organisations and individuals to invest capital and technology in Vietnam, their regulations and related policies are not attractive enough and obligations are not strong enough. Regulations on localisation ratio to new products are applied to some sectors.

Besides, the decentralisation of investment licensing power to localities has sparked competition in attracting foreign funds. They vie each other to build industrial zones and apply more appealing investment attraction policies to catch the interest of foreign investors. For that reason, a project is disqualified in some localities but they are still qualified for investment in others.

Distant expectations
Technology transfer is a long journey. A technology transfer cycle is considered complete when the transferee owns the technology and develops further itself from that foundation. Most countries with more backward technologies will import new technologies via FDI channels, which will then transfer technologies to host countries that will continue to research, develop, utilise, master and renovate those technologies.

South Korea spent about 40 years completing this phase to catch up with the general development. This country started to import technologies via FDI. In the 1990s, it switched to the original design manufacturer (ODM) in some fields.

Thailand needed a much shorter time, from 1986 to 1995, to complete this cycle. At this period, capital, technology and governance development of Thai domestic companies grew very rapidly, accounting for 72 per cent of capital in the economy while the FDI sector held only 28 per cent. Although FDI companies in Thailand still held a leading role in technology and capital, they had to cooperate closely with local companies in many stages and processes of production.

What about Vietnam after 30 years of attracting FDI? Deputy Minister of Science and Technology Tran Van Tung said the Law on Technology Transfer 2017, effective from July 1, 2018, will help manage technologies in order not to turn Vietnam into a dump site of technological waste but facilitate technology transfer from foreign countries into Vietnam.

Nguyen Thanh

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