IMPACT OF TRADE FACILITATION ON TRADE PERFORMANCE IN CASE OF VIETNAM, KENYA AND GERMANY

Abstract

            The paper focuses on the comparative analysis of the impact of trade facilitation measures on the export performance of countries such as Vietnam, Kenya, and Germany. The countries have been selected based on the differences on their income, development levels, and locations in various continents but common in successful application of the e-custom clearance system to reduce the trade cost. The paper employs panel data analysis to assess the impact of trade facilitation on export performance across such countries from 2007 to 2017. The parameters denoting trade facilitation adoption include time for export (time_ex), cost for export (cost_ex), the Logistic Performance Index (LPI), and the e-clearance procedure of World Bank. Results obtained through empirical analysis indicated that trade facilitation measures i.e. electronic clearance, time for exports, cost of export cause, and impact exports significantly. The study suggested that the government of each nation should focus on adapting trade simplification and facilitation measures to help further in reduction of time and cost of exports. There is a need to implement electronic data interface for promotion of exports, especially in Vietnam.

Key Words: Trade Facilitation, Exports, Panel data, Logistics

JEL Classification F14, F15, F68

1. Introduction

Trade facilitation – the simplification, modernization, and harmonization of export and import processes has emerged as a key issue for the world trading system. Trade facilitation is critical in reducing trade costs, which remain high despite the steep decline in the cost of transportation, improvements in information and communication technology, and the reduction of trade barriers in many countries. Therefore, the WTO Agreement on Trade Facilitation (TFA), the most significant trade deal since the establishment of the World Trade Organization in 1995, has entered into force on February 22^nd of 2017.

Apart from the Trade Facilitation Agreements, to help nations improve their border procedures, reduce trade costs, boost trade flows and reap greater benefits from international trade, Organization for Economic Co-operation and Development (OECD) has developed a set of Trade Facilitation Indicators (TFIs) which identify areas for action and enable the potential impact of reforms to be assessed. Estimates based on the indicators provide a basis for governments to prioritize trade facilitation actions and mobilize technical assistance and capacity-building efforts for developing countries in a more targeted way.

The theory predicts that trade costs can have a disproportionately adverse impact on small developing economies. Typically, small developing economies have large agricultural or natural resource sectors typified by constant returns to scale, and only a small manufacturing sector. In contrast, big developed economies have a large manufacturing sector operating under increasing returns to scale. In this setting, trade costs lead both to less trade and to a disproportionate relocation of manufacturing to the big developed countries (the “home market effect”). Meanwhile, small developing countries become concentrated in the agricultural or natural resource sector. The key to explaining this result lies in the tension created between the consumer’s love of variety and increasing returns to scale. With open trade and zero trade costs, consumers in the big developed country will purchase both foreign and domestic manufactured goods because of their preference for variety. All things being equal, love of variety leads to more trade. On the other hand, increasing returns to scale gives a cost advantage to manufacturing firms in the developed country because of the size of the market and the larger scale of production that could be achieved by firms there. All things being the same, consumers in the developed country will prefer to purchase lower-cost domestic varieties than higher cost foreign varieties. Inefficient trade procedures that lead to higher trade costs upset this balance by making purchases (imports) of foreign varieties costlier. As a consequence, consumers in the developed country substitute away from foreign varieties towards domestic varieties. This shift in demand towards domestic manufactured goods gives greater scope for what are already powerful scale forces to operate. The manufacturing sector in the big developed country expands even more while it shrinks in the small developing country. This analysis suggests that small developing countries that want to diversify their economies have a strong interest in lowering trade costs, as this reduces incentives for manufacturing to concentrate in the biggest markets.

Thus, it becomes important to assess the impact of trade facilitation measures on trade facilitation and promotion of exports in case of Vietnam, Kenya and Germany. The following countries have been chosen considering their location in various continents and difference in scale of development. Vietnam and Kenya are at the same developing nations; meanwhile Germany is the developed country. Although there are various aspects on location, scale of development, they are common in successful application of the e-custom clearance system to reduce the trade cost. It is the reason which three countries are chosen in this study. To the overview of trade facilitation among 3 countries, there is the supporting information including in this paper.  

This paper aims at exploring a relationship between trade facilitation indicators and trade performance of each country. A major limitation of the study was non-availability of data pertaining to time and cost of export before 2006. Logistic Performance Index has also been recently adopted and the index gives ranking once in two years. Similarly, the adoption of e-clearance measures has also been recently adopted by most of the countries. The adoption of trade facilitation measures doesn’t usually ensure smooth and timely trade among countries because the procedures for export from each nation are not standardized and also not clearly informed.

2. Literature Review

Trade facilitation means to reduce the import and export cost, moderate the tariff and non-tariff barriers, and increase the infrastructure quality also competitiveness in service suppliers (Wilson et al., 2009). In the member countries of Association of Southeast Asian Nations the import and export costs vary considerably, from very low to moderately high levels. These countries possess tariff and non-tariff barriers are generally low to moderate. Infrastructure quality and services sector competitiveness range from fair to excellent. The paper indicates that trade flows in Southeast Asia are particularly sensitive to transport infrastructure and information and communications technology. The results suggest that the region could make significant economic gains from trade facilitation reforms. These gains could be considerably larger than those from comparable tariff reforms. Trade facilitation measures can be undertaken along two dimensions: a “hard” dimension related to tangible infrastructure such as roads, ports, highways, telecommunications, as well as a “soft” dimension related to transparency, customs management, the business environment, and other institutional aspects that are intangible (Perez and Wilson 2012). Estimates shows that trade facilitation reforms do improve the export performance of developing countries. This is particularly true with investment in physical infrastructure and regulatory reform to improve the business environment. The findings provide evidence that the marginal effect of the transport efficiency and business environment improvement on exports appears to be decreasing in per capita income. In contrast, the impact of physical infrastructure and information and communications technology on exports appears increasingly important the richer a country becomes.

Trade facilitation includes five main elements as follows: (1) simplification of trade procedures and documentation, (2) harmonization of the trade practices and rules, (3) more transparent information and procedures of international flows, (4) recourse to new technologies to promote international trade, and (5) more secured means of payment for international commerce (Zaki 2014). Gains derived from trade facilitation are more significant for developing economies (especially for the Middle East and North Africa region and Sub-Saharan countries) than for developed ones, whether in terms of welfare gain (either in the short or long run) or increase in trade. Clearly, long-run welfare effects of trade facilitation are much higher than in the short run. Trade facilitation helps boost both intra-regional trade and inter-regional trade. Fourth and most interestingly, it also helps improve export diversification, leading to an expansion in those sectors that are more sensitive to time, such as food, textiles, and electronics.

There are a number of studies which specify and analyze the relationship between inefficiencies of trade facilitation measures and trade performance. A major inefficiency in trade performance is the time taken to export which if longer leads to reduction in trade volume (Nordas et al., 2006). Trade time and cost may also increase while moving consignments from manufacturing sites to ports of shipment (Djankov et al., 2006), which at times attributes to fall in trade volumes by 1 percent. Trade facilitation measures include time taken to export (Djankov et al., 2006), reduction in costs of international trade, improvement in international transport and import (Wilson et al., 2003). Other major trade facilitation indicator is the World Bank’s LPI (Hertel and Mirza 2009). Other studies have enumerated indicators of trade facilitation as port efficiency, customs regulations and use of e-commerce (Wilson et al., 2005). The relationship between trade performance and these trade indicators has been established using econometric tools like multiple regression models (Felipe and Kumar, 2012) or single regression techniques (Hertel and Mirza, 2009; Puertas et al., 2013).

Country specific studies for Mexico (Soloaga et al., 2006) and Africa (Iwanow and Kirkpatrick 2009) have also indicated that adoption of trade facilitation measures enhances trade performance.

Other measures of trade performance can be the economy’s financial structure, interest rates, trade openness and growth (Sehrawat and Giri 2017). Human Development i.e. education also plays a major role in determining the trade performance of a country (Jawaid and Waheed 2017). Apart from parameters like time and cost of export and the LPI, such parameters are also useful in estimating the relationship between trade performance and trade facilitation.

3. Methodology

The present study is an attempt to examine the causal relationship between trade performance and trade facilitation in the case of Vietnam, Kenya and Germany at the national level. Time series data over 2007-2017 has been taken into consideration. The data has been extracted from Trade map and World Bank. Trade stands for export and import. The export performance is measured by the percentage of export in trade. The economic indicators include domestic credit (cr) and inflation (inf).

Trade facilitation is defined in terms of time for export (time_ex), cost for export (cost_ex), the Logistic Performance Index (LPI) and the e-clearance procedure as extracted from Doing Business Reports, World Bank.  The study uses the methodology of Doing Business 2014 and calculates time for export in number of days rather than hours.

The model has been modified to suit the present scenario of the Economies of Vietnam, Kenya and Germany based on the literature review. To Ahmed and Ismail, 2015, the relationship between trade performance and trade facilitation along with other variables for panel estimation is expressed as:

Ln (ex_tr) _it = β₀+β₁ln (time_ex) _it+β₂ln (cost_ex) _it +β₃lncr _it +β₄LPI_it +β₅ECL _it +β₆lninf _it + ε _{it ---} (1)
for t=1, 2, N and i=0, 1

Where LPI and ECL are dummy variables; they will be 0 if there is no application in the Logistic Performance Index or E clearance declaration. They will be 1 if there is an application in the Logistic Performance Index or E clearance declaration.

All the variables have been transformed into natural logs in order to overcome the problem of hetereoscedaticity.

In this present study, availability of data is limited and it has been suggested by econometricians to use panel estimates in such cases. It is expected that panel estimates handle issues of measurement bias and limited degrees of freedom efficiently. The current data series consists of 51 cross section spread over 17 years with 3 countries (Vietnam, Kenya and Germany). Thus, panel estimation method is suitable in our case.

Test for non-stationary

It is important to understand that in case of a non-stationary series, the results and inferences from regression are spurious and hence meaningless. Thus, the data series are checked for stationary through panel root tests. Four panel root tests have been applied to check the robustness. The Levin, Lin and Chu test, a panel based version of the ADF test will be applied in this case. It is represented by equation 2 below

∆Xit = αi +β Xi, t −1+ ∑ j=1θij ∆Xi, t − j + εi, t  (2)

Where, Δ is the first difference operator, X_it is the variable being tested and ε_it is the white noise disturbance at time t in this test, β is identical across sectors and hence restrictive. It tests the null hypothesis β=0 and acceptance of null hypothesis implies non-stationarity (World Bank, 2010).

In case of Im, Pesaran and Shin test, β varies across all sectors relaxing the assumption of Levin, Li and Chu test of identical first-order autoregressive coefficients. This test is based on mean group approach and can be represented as equation (3) below

                                                                             (3)

Where, _βi,  and   are the mean and variance of t _βi.

In this test, the null hypothesis which is tested is β₁=β₂=… =0. The other two tests applied are ADF and Phillips Peron Chi square tests. In both these tests, the null hypothesis is same as the IM, Pesaran test but individual roots are tested by them.

Panel co-integration tests

In practice, non-stationary series are transformed by differencing into stationary series for empirically analyzing the series. In economic theory, questions are raised about the model after differencing. Engel and Granger are of the view that to analyze non stationary series at level, all the data series are integrated at same order and co-integrated. As per their study, in case of co-integrated series, long run equilibrium relationship may exist even in case of non-stationary data. Thus, panel co-integration tests are applied to the data series.                       

Kao test for assessing panel co-integration is applied to the data series. As per Kao test, the null hypothesis indicates that the residual series should be non-stationary if no co-integration exists. Kao’s test is based on panel regression model and uses DF and ADF test statistic.

Granger causality test

Granger causality test for panel data is carried out to examine the causal relationship between Logistics performance and trade. The granger causality test is carried out by running bivariate regression in the panel data as per equation 4 and 5 although FE and RE is the best choice to evaluate effect of the parameters.  This study expects the causality more than the fixed effect and random effect.

y_i,t = α_0,i+α_1,iy_i,t−1+… +αl,iyi,t−1+β1,ixi,t−1+… +βl,ixi,t−1+∈i,t (4)

xi,t = α0,i+α1,ixi,t−1+… +αl,ixi,t−1+β1,iyi,t−1+… +βl,iyi,t−1+∈i,t      (5)

Where t is the time period and I are the cross sections.

Panel Granger causality test has been performed by treating the panel data as a large stacked set and then performing Granger causality test with the exception of limiting the entry of data from one cross section into lagged values of data from the next cross section. It is assumed in this case that all the coefficients are same across all cross sections and is represented in equation 6.

(6)

The details have been summarized in the section on empirical analysis

4. Findings  

In this part we present the analysis and result of the panel data across the 3 countries which include Vietnam, Kenya and Germany. In order to assess the basic feature of the data, descriptive statistics are calculated. The descriptive statistics are depicted in Table-1.

The table 1 shows that the variables chosen are normally distributed. The mean to the median ratio of each variable is approximately one.

Table 1

Descriptive Statistics

The standard deviation is also low compared to the mean, showing a small coefficient of variation. The range of variation between minimum and maximum is also reasonable. The coefficient of skewness of each variable is small and is mildly negative skewed. The figure for kurtosis in each variable is under 3 which illustrates near normality. The Jarque-Bera statistics also accept the null hypothesis of normal distribution in each variable with changing probabilities. Therefore, the normal distribution is completely true.

In empirical analysis, if the panel data series are non-stationary there is a risk of obtaining spurious results. Thus, the present study checks the stationary of the data through individual, trend and common test. In this view, the stationary properties of panel data are examined and transformation of non-stationary series in to stationary series in undertaken. The log transformed data for export as a percentage of trade (EX_TR), time required for exports (TIME_EX), cost of export (COST_EX), e-clearance from customs (ECL), availability of domestic credit (CR), inflation (INF) and Logistics Performance Index (LPI) were tested for stationary. The results indicated in table-2 suggest that all the above stated variables have unit root at level and are non-stationary. While at the first difference level, none of the variables have a unit root and hence are stationary.

Table 2

Summary of panel root test

* Significant at 10%, ** Significant at 5% and *** Significant at 1%

In the Kao test for co-integration it can be seen that the null hypothesis is accepted as the probability is < 0.05 and hence there is the co-integration existed in the data set. Table-3 implies that exports as a percentage of trade and trade facilitation have a long run equilibrium relationship. Thus, now it is advised to use regression model in equation 1 for estimating the relationship exports and trade facilitation.

Table 3

Kao residual Co- integration Test

The results of regression model for estimating the impact of trade facilitation on trade performance specifically exports are presented in Table-4.

Table 4

Result of regression model for impact of Trade facilitation on Export

*** Significant at 10%, ** Significant at 5% and * Significant at 1%

The results indicate that cost for export, time for export and e-clearance procedure have significant impact on export performance. Time has a positive impact on export performance; meanwhile cost for export has a negative impact on exports. Credit available in each of these countries and inflation prevalent too has a significant impact on exports.

Apart from analyzing the impact of trade facilitation on export performance and vice versa, it is also important to examine causality amongst the variables. As per table-5 results, it can be inferred that cost of doing exports causes export performance.

Table 5

Panel Ganger Causality Test

***Significant at 1% level of significance

**Significant at 5% level of significance

*Significant at 10% level of significance

Automation of clearance procedures and Logistics Performance Index also causes cost of exports. Automation of clearance procedures also causes time of exports. It is also seen that in order to enhance the position of the nation in the Logistics Performance Index, automation of customs clearance is usually adopted.

Considering the empirical studies and theoretical framework for trade facilitation, it is seen that trade facilitation parameters like time to export, cost of export, logistics performance, adoption of e-clearance mechanisms and other parameters like inflation, availability of credit enhance trade performance of the countries. It can be inferred from the empirical analysis of the current paper that time to export, cost of export, adoption of e clearance measures, availability of credit and inflation have a significant relationship with enhancing exports from Vietnam, Kenya and Germany. Ease of doing business which is a culmination of various trade facilitation indicators leads to trade promotion under Hoekman and Nicita  (2011), Weerahewa (2009), Lee and Kim (2016), Perez and Wilson (2012), Behar and Venables (2001) along with reduction of cost. As it can be assessed from the results of the current study, adoption of online clearance procedures, less inflation and availability of credit along with reduction in time and cost of exports leads to increase in exports of a country. Although there are differences in economic scale and various locations on continents, three nations have

It can be thus concluded that each nation should focus on adoption of trade facilitation parameters in order to increase its trade performance.

5. Conclusions

It is widely believed and has been validated theoretically and empirically that trade facilitation (e-clearance; cost for export and time for export) has a significant impact on export performance. In the present study an attempt has been made to examine the cause and impact of trade facilitation on trade performance. The results obtained through empirical analysis indicate only time has positive impact on export while two elements of cost for export and e-clearance have the negative effects on trade performance.

The study suggests that three nations including developed (Germany) and developing countries (Vietnam and Kenya) should focus on reduction of cost for export; improve the e-clearance system and simultaneously consider the time for export.  In term of cost for export, Vietnam and Kenya has a declining cost for export during 2007 to 2016, but Germany has the opposite trend. The time for export in Germany did not change significantly. This clearly explains the positive significant of time required for export clearance on export performance. The present study also suggests that the nation would promote the export performance if they have the efficient trade policies in place. These trade policies should mainly be directed to understand global requirements of trade harmonization and standardization and thus adoption of trade facilitation measures.

References

1. Ahmed, S., Ismail, S. (2015), Economic growth and military expenditure linkages: A panel data analysis, International Economic Policy, 23, 48-72.
2. Duval Y. (2007), Trade Facilitation Beyond the Doha Round of Negotiations, Bangkok: Asia-Pacific Research and Training Network on Trade (ARTNeT), Working Paper Series No.50
3. Nordås, H, E Pinali & M Geloso Grosso (2006), ‘Logistics and Time as a Trade Barrier’, OECD Trade Policy Working Papers 35
4. Perez A. P., Wilson J. (2012), Export Performance and Trade Facilitation Reform: Hard and Soft Infrastructure, World Development, 40 (7), 1295-1307
5. Persson M.(2013), Trade Facilitation and the Extensive Margin, The Journal of International Trade & Economic Development, 22(5), 658-693
6. Puertas, R., Marti, L. and García, L. (2013) Logistics performance and export competitiveness: European experience, Empirica Journal of European Economics, on line, DOI 10.1007/s10663-013-9241-z
7. Sehrawat, M. and Giri, A.K. (2017), Financial Structure, Interest Rate, Trade Openness and Growth: Time Series Analysis of Indian Economy, Global Business Review, 18 (5), 1278-1290
8. Wilson, J (2003), ‘Trade Facilitation: New Issues in a Development Context’, Trade Note No 12 World Bank, Washington DC
9. World Trade Report (2015), The theory and measurement of trade facilitation, https://www.wto.org/english/res_e/booksp_e/world_trade_report15_e.pdf
10. Zaki C. (2014), An Empirical Assessment of the Trade Facilitation Initiative: Econometric Evidence and Global Economic Effects, World Trade Review 13(1), 103-130

Supporting Information

S1. Detail Information of trade facilitations among 3 countries

In order to assess the macroeconomic indicators across Vietnam, Kenya and Germany, it is important to analyze the trends and patterns in exports, ranking in trading across borders, the time and cost of exports and adoption of trade facilitation measures.

Export performance of Vietnam, Kenya and Germany from 2001- 2016

From figure-1 it can be seen that Vietnam’s export has gradually increased, Germany indicates fluctuating patterns in exports while that of Kenya has been stable during the last 15 years. Vietnam in 2007, on becoming the 130th member of WTO recorded exports worth 48000 million US$. Ten years after joining WTO, Vietnam has now become the emerging economy in Asia region. The highest volume of exports is over 175000 million US$ in 2016 for Vietnam. With unstable political conditions Kenya’s export remains stable over 5000 million US$ per year. Meanwhile, Germany’s export indicated high growth rates and the export performance reached its peak in 2008 with about 1500000 million US$.

Figure 1.

Export performance of Vietnam, Kenya and Germany from 2001- 2016

                                                                              Source: Trade Map

The reason for high export performance may be attributed to Germany’s association with OECD and is also a high-income country as per World Bank. Germany marked the lowest volume of export performance at 600000 million US$ in 2001. This number is 3.5 times higher than that of Vietnam export and 120 times of Kenya’s export in 2016. Though the initial exports from Germany were quite high as compared to Kenya and Vietnam, it cannot be concluded that the reason was absence of trade facilitation measures.

Ranking Trading Across Border

The significant measures of trade facilitation which have emerged in recent years include the doing business indicators and its significant sub category of trading across borders along with the Logistics Performance Index by World Bank. As cost and time are the trade facilitators to promote international commerce activities among countries. To World Bank, Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a ship­ment of goods. In case of Doing Business Rankings of trading across borders for Germany, Vietnam and Kenya, it is seen that at the beginning of the ranking period i.e. 2009, Germany ranked 11 while by 2018, it dropped to 39 rank facing declines mainly from 2015 as depicted in Figure-2.

Figure 2

Ranking Trading Across Border (2009-2018)

Source: Doing Business Reports 2009-2018

The reason for this decline can be attributed to other countries focusing on facilitating trade and reducing the regulatory procedures. In case of Kenya, its ranking in trading across borders is lowest but the pace of increase in ranks is highest. This indicates that Kenya has taken major steps in simplification of trade and thus facilitating it. In case of Vietnam, the rank of Vietnam is fluctuated around 70 during the initial six years but declined to 90s after that.

Time and cost of export

In order to assess the time and cost of export, doing business indicators are again observed. It is seen that there are a few differences in the methodology between Doing Business 2014 and 2016. Doing Business 2106 includes time in terms of hours for documentary and border compliance; the cost in terms of US dollar. Figure-3 and Figure-4 depict the time and cost of trading across borders specifically for exports. A number of hours taken for export are converted into days. It is seen that the time and cost to export in 2006 was highest for Kenya and lowest for Germany. Over the 10 year time period it is observed that in case of Germany the time to export decreased from 8-9 days to 5. In case of Kenya, the reduction has been phenomenal from 45 days to just 5 days equivalent to Germany despite being a low-income country. While in case of Vietnam the time to export decreased from 24 days to 13 days. In case of Vietnam it is seen that the decrease has not been as rapid as that of Kenya as depicted in Figure -3.

Figure 3

Time of export (in Days 2006-2018)

Source: Doing Business Reports 2006-2018

Figure 4

Cost of export (in US$ 2006-18)

Source: Doing Business Reports 2006-2018

On assessing the cost of export from 2006-2018 across Germany, Kenya and Vietnam, it is observed that all three nations focused on cost reduction but Kenya again emerged in terms of remarkable initiatives in cost reduction for exports and by 2016 was less than Germany. In case of Vietnam, the reduction in cost was observed but it still remains higher than Kenya and Germany.

Logistic Performance Index (LPI)

Logistic Performance Index is an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance. The Logistics Performance Index overall score reflects assessments of a country's logistics based on efficiency of the customs clearance process, quality of trade- and transport-related infrastructure, ease of arranging competitively priced shipments, quality of logistics services, ability to track and trace consignments, and frequency with which shipments reach the consignee within the scheduled time.

As it can be seen from Figure-5, Germany was amongst the top four since 2007 and ranked number one since 2014. Kenya has showed tremendous performance by reaching forty second positions from 122 while Vietnam was stagnant at around 50-60.

Figure 5

Logistic Performance Index 2016

Source: World Bank Logistic Performance Indicators 2007-2018

The Logistics Performance Index is formulated by measuring various indicators like infrastructure, timeliness, shipments, logistics competence and tracking. From Figure-6, it can be seen that in case of Germany all the parameters rank quite high thus assisting Germany to be a top ranker. In case of Kenya, the main laggard is timeliness and shipments though they too fare well on the ranking list.

While in case of Vietnam, infrastructure and tracking are major laggards and thus reduce the ease of doing business in Vietnam.  This can be attributed to the fact that a number of roads, bridges, and ports have been initiated by the Ministry of Transport, Vietnam but there is no well laid down master plan for logistics centers, LCDs, seaports and river ports. The management is overlapped and does not facilitate goods flows[1]

Figure 6

Indicators of Logistic Performance Index 2016

Source: World Bank Logistic Performance Indicators 2007-2018

Custom electronic data interchange

Customs electronic data interchange plays the important role in the custom management and administration of any nation. All the three countries have adopted e-clearance procures from customs of their respective countries. In case of Germany there is an Automatic Rate and Local Customs Clearance System, for Kenya a platform has been created by Kenya Revenue Authority and for Vietnam an Automated Cargo Clearance System. In 2015 almost all countries have applied EDI after the Kyoto Convention[2]. The advantage of Information and Communication Technology (ICT) has contributed to the successful establishment of Single Window in Germany and Kenya. The barriers of ICT with restrictions on infrastructure, technical matters, the mechanism of legal documents, and professional custom providers have caused delay in operationalizing single window clearance in Vietnam. With the trade plan of 2020, Vietnam will complete the National Single Window and aims to connect with ASEAN Single Window[3].

S2. More references

1. Djankov, S, C Freund & C Pham (2006), ‘Trading on Time’, World Bank Policy Research Working Paper
2. Doing Business Reports by World Bank, http://www.doingbusiness.org/reports/global-reports/doing-business-2018
3. Ease of Doing Business report 2016, http://www.doingbusiness.org/rankings
4. Germany Customs website, http://www.zoll.de/DE/Home/home_node.html
5. Grainger A. (2011), Trade Facilitation: A Conceptual Review, Journal of World Trade 45(1), 36-62
6. Hertel T. and and Mirza, T... (2009), "The Role of Trade Facilitation in South Asian Economic Integration." Study on Intraregional Trade and Investment in South Asia. ADB, Mandaluyong City.
7. Iwanow, T. and Kirkpatrick C. (2009) Trade Facilitation and Manufactured Exports: Is Africa Different?, World Development, 37, 1039-1050
8. Jawaid, S.T. and Waheed, A. (2017), Contribution of International Trade in Human Development of Pakistan, Global Business Review, 18 (5), 1155-1177
9. Kenya Customs website, https://www.kentrade.go.ke/
10. Limão, Nuno and A. J. Venables. 2001. "Infrastructure, Geographical Disadvantage, Transport Costs, and Trade." The World Bank Economic Review 15(3):451–479.
11. Logistics Performance Indicators by World Bank, https://lpi.worldbank.org/
12. Overall Trade Facilitation Index, https://www.oecd.org/
13. Shepherd B., Wilson J. (2009), Trade facilitation in ASEAN member countries: Measuring progress and assessing priorities, Journal of Asian Economics, 20(4), 367–383
14. Siddiqui A. A., Ahmed S. (2017), Impact of Foreign Direct Investment on Sectoral Growth of Indian Economy, International Journal of Economics and Financial Issues, 7(3), 477-488
15. Soloaga, I., Wilson, J.S. and Mejía, A. (2006) Trade facilitation reform and Mexican competitiveness. World Bank Policy Research Working Paper 3953, June.
16. Vietnam Economy Overview, http://www.vlr.vn/en/news/news/economy-overview/2826/vietnam-logistics-2016-goes-down-.vlr
17. Vietnam News, http://vietnamnews.vn/economy/420928/viet-nam-to-connect-to-asean-single-window.html#lt5EDS21E2rc9EXv.97
18. Wilson, J.S., Mann C. and Otsuki, T. (2005) Assessing the Benefits of Trade Facilitation: A Global Perspective, the World Economy, 28, 841-871.
19. Trade Map https://www.trademap.org/

[1] http://www.vlr.vn/en/news/news/economy-overview/2826/vietnam-logistics-2016-goes-down-.vlr

[2] DAKOSY Datenkommunikations system; Germany: http://www.zoll.de/DE/Home/home_node.html

Kenya Trade Net System: https://www.kentrade.go.ke/

Vietnam National Single Window: link not available

[3] http://vietnamnews.vn/economy/420928/viet-nam-to-connect-to-asean-single-window.html#lt5EDS21E2rc9EXv.97

Managers’ risk and time preferences in economic behavior: Review from the experiments[1]

Kim Huong Trang[2]

Quang Nguyen[3]

Abstract:

            This survey reviews the recent developments in experimental studies on managers’ preferences, with a focus on issues of experimental design. We concentrate our attention on studies that measure risk and time preferences. We review a number of models of risk and time preferences that have been estimated or otherwise studied using experimental methods, and highlight some issues associated with such models. We then survey thoroughly the theoretical and empirical studies to date in this area outside and in Vietnam. We conclude by discussing some potential research avenues in the future.  

Key words: risk preferences, time preferences, experiments, behavioral economics, review

JEL: C51, D11, D81, D82, G22        

1- Introduction

In the extant literature, the reasons why firms behave in the ways they do are not well understood. Traditionally, economic and financial theories suggest that in order to maximize shareholder wealth firms should simply pursue positive net present value projects. Nonetheless, it seems that even firms in the same country, in the same industry, of similar size and facing similar investment opportunities behave differently, which leads to speculation that heterogeneous objective functions are being maximized (see e.g., Allen, 2005).  Being aware of these facts, some scholars wonder whether managerial behavior affects corporate policies (Akerlof, 2005). Given the business risk arising from volatile input and output prices and weak enforcement of contracts in emerging economies (Fafchamps, 2003), it would be of great interest to study manager’s preferences.

Understanding individual decision-making under risk and time dimensions plays a key role in economic analysis (Vieider et al., 2019). Markowitz (1952) in his seminal paper proposes the earliest definition of risk preference. According to his definition, risk preference is a kind of individual preferences when an individual faces the expected gains or losses. Then, more people know the risk preference thanks to psychology development and the joining of more researchers in this area. Roll (1986) is one of the first scholars proposing and investigating managers’ risk preference; Perrino, Poteshman and Weisbach (2005) show that risk-averse managers favored low-risk projects more than risk- loving managers. Hong, Yanxi, Rui and Jingjing (2006) evidence that risk-loving policy- makers are more partial to inflate corporate profits. In short, risk preferences are constituted by the extent to which people are willing to take the possible risks to achieve a particular goal. Different individuals’ decision-making, motivation and behaviors depend on their different attitudes to risk.

Time preferences, on the other hand, describe how individuals make intertemporal choice supposing rational decision- making, so understanding and estimating time preferences is obviously of great importance to economists, researchers, and policy makers. Bohm-Bawerk (1891) and Fisher (1930) identify time preference with the marginal rate of exchange between current and future consumption. Their idea of time preference combines two separate effects as follows: (1). the relative value set on present versus future consumption is contingent on the relative consumption levels; (2). the present and future consumption does not need to be evaluated equally, even along a conforming consumption pathway

Risk and time preferences are integral to modern economics. They are the main focus of literature on decision- making, and a central driver in models of financial economics (Barsegyan et al., 2018). In the fact that, experiments, whether in laboratory or field settings, generate many insights about time and risk preferences. Laboratory experiments show large heterogeneity in risk preferences and significant deviations from expected utility theory. They also provide natural and attractive frameworks to study time discounting. On the contrary, field settings provide environments in which individuals’ real-world behaviors are observed, so they reduce limitations commonly related to laboratory experiments. There has been much effort to estimate the coefficient of risk aversion and the rate of time preference in the current literature. Prelec and Loewenstein (1991) claim that the discounted utility model – one of time preference models- and the expected utility model – one of risk preference models - have similar structures in terms of their known anomalies. However, many researchers, for example Rachlin and Siegel (1994), Ida and Goto (2009), argue that the nature of the individual-level relationship between time and risk preferences remains contentious.  

In this paper, we thoroughly review the emerging and growing body of work in risk and time preferences, with a focus on experimental designs, in particular the measurement of time and risk preferences. We recognize that while behavioral economics has played a key role in providing policy makers with behavioral insights to improve wellbeing of individuals in many countries in the world, literature on behavioral economics in Vietnam is relatively young and the number of empirical studies is scarce. Furthermore, even though experiment method is considered a gold standard in identifying causal relationship, it has been rarely conducted in Vietnam. By combining review of experimental designs in theoretical studies and survey on empirical evidence in experimental studies, our paper aims to encourage the application of behavioral economics and experiments in Vietnam.

The rest of the paper is organized as follows. We first review studies on theoretical models. Then we turn to the focus of our survey: experimental design, and risk and time preferences measurement. The aim of this review is to reveal the underlying assumptions and logic of each design. Finally, we review some empirical studies to support those experimental designs.

2. Models of risk preferences

An essential assumption in standard economic theory is that agents are fully rational, self-interested, maximisers of expected utility. Yet, researchers have been ever more realizing that the psychological biases of managers and investors might have influence on decision-making and outcomes in firms and in financial markets. Consequently, a new area of research, behavioral economics, has come forth as a challenge to the traditional economics. The first works in behavioral economics came out as a reaction to empirically observed anomalies in financial markets, which were incompatible with the standard economic theories. Behavioral economics is an approach consolidating traditional economics, psychology and sociology in an effort to explain these anomalies (Fairchild, 2010). In this section, we review in details some risk preferences models. We begin with expected utility (EU) theory. We then review some alternative models including rank-dependent expected utility theory, and prospect theory.

2.1. Expected utility theory

Early empirical studies on risk preferences rely on the expected utility theory and often use data from laboratory experiments (e.g., Yaari, 1965; Preston and Baratta, 1948). Barsegyan et al. (2018) show that in the expected utility theory, there are two sources of changes in risk attitudes. First, individuals may differ in their degrees of reducing marginal utility for wealth- i.e., their utility curvature. Second, individuals might be different from their subjective beliefs.

In particular, the expected utility (EU) theory states that a person will choose the option X Î X which maximizes:

EU(X) =

where:

        X (x₁, m₁; x₂, m_2;...; x_N, m_N): a choice set that is a lottery yielding outcome x_n with probability m_n, where

        u: utility function which depicts final wealth in the real line

         is the individual initial endowment  (wealth)

According to EU theory, individuals’ risk attitude is captured by their utility function u. If u  is concave, a person will be risk averse. If u is convex, a person is risk loving. If u is linear, a person is neutral. Thus, the main objective when estimating an EU model is to estimate the utility function u. In most cases, researchers often assume a specific parametric functional form for u including the constant absolute risk aversion, the constant relative risk aversion, and the hyperbolic absolute risk aversion families.

In terms of the constant absolute risk aversion form, researchers estimate the coefficient of absolute risk aversion- the parameter r, in which higher r means more risk averse. From the econometrician’s viewpoint, the advantage of the constant absolute risk aversion is that it indicates an individual’s previous wealth w is irrelevant to his choices. However, from the viewpoint of economic theorists, this is disadvantageous because they believe that individuals show decreasing absolute risk aversion.

An important family of utility functions focuses on constant relative risk aversion. The constant relative risk aversion family implies that people exhibit decreasing relative risk aversion- i.e., when one becomes wealthier, he becomes more risk averse. It is the advantage of this form. However, the limitation of this form is that it considers previous wealth w as an input. Therefore, scholars usually either postulate some reasonable values for previous wealth or proxy for wealth using some aspect of the data, if they use this form and do not observe previous wealth. Researchers (e.g., Chaigneau, 2013) also make a great use of the hyperbolic absolute risk aversion families. These parameters altogether determine the degree of absolute risk aversion. One of the characteristics of the hyperbolic absolute risk aversion form is that it uses the constant absolute risk aversion and the constant relative risk aversion as special cases.

2.2. Rank-dependent expected utility theory

     Kahneman and Tversky (1979), Quiggin (1982) propose a rank-dependent expected utility theory. This theory relaxes the feature of EU theory in which outcomes are weighted by their probabilities.

     Under this theory, let X = (x₁, m₁; x₂, m_2;...; x_N, m_N) denote a lottery which generates outcome x_n with probability m_n where and outcomes are ordered in the way that x₁ < x₂ <…. < x_N. When one evaluates a lottery X, he first ranks from the best outcomes to the worst outcomes, then the weight on outcome n will be:

                     for nÎ{1,…,N}

Where:  p is a probability weighting function.

     When one uses this theory, the implications will rely on the probability weighting function p. Many studies based on experimental methods highlight the inverse S-shape of the function. In case of small m, the function is concave, while it is convex if m is large.

     On the other hand, in the extant literature, besides the general inverse-S shape, there are a number of parameterized functional forms (e.g., Karmarkar, 1978; Tversky and Kahneman, 1992; Lattimore, Baker and Witte, 1992; Prelec, 1998). These functions have two features: (1). they are not symmetric, but often cross the 45 degree line; (2). They show excess steepness near m= 0 and m = 1.  However, Barseghyan et al (2018) indicate that evidence of the excess steepness of probability weighting function is ambiguous because in studies using experiments, it is necessary to investigate whether and how event with low probability are encompassed into an individual’s decision assessment.

2.3. Prospect Theory

Kahneman and Tversky (1979) develop the prospect theory, which is an empirical theory that describes how people actually make decisions. Prospect theory assumes that people try to maximize outcomes, but they are unable to do so in systematic and predictable ways. The theory predicts that people generally make risk-averse decisions when choosing between options that appear to be gains and risk-seeking decisions when choosing between options that appear to be losses. In other words, people are often willing to take risks to avoid losses but are unwilling to take risks to accumulate gains.

Tversky and Kahneman (1992) extend the theory and labeled “cumulative prospect theory”.. To illustrate the theory, let’s consider a lottery X = (x₁, m₁; x₂, m_2;...; x_N, m_N) and a reference point s, and given that . According to the theory, the lottery is assessed as follows

The value function V is defined over differences from a reference point r rather than over the overall wealth. The formulation of w (the weight on outcome the outcome x_n) is as follows:

where, the decision-maker transforms the probabilities with a probability weighting function p^- and p⁺, which are applied to the loss and gain events, respectively.

The functional form of the prospect theory is as below

In this functional form, a and b create diminishing sensitivity that is concave over gains and convex over losses; l >1 indicates loss aversion. Tversky and Kahneman (1992) base on their experimental data and estimate that the value function is slightly concave (convex) over gains (losses) with a loss aversion coefficient of 2.25 (l= 2.2.5). When applying the prospect theory, ones must specify a reference point r. In field experiments, researchers often argue that the reference point should be zero or natural reference point given the setting (e.g, Rees-Jones, 2018)

DellaVigna (2009) show that the features of the prospect theory capture the evidence on risk-taking, consisting of risk-aversion over gains, risk-seeking over losses. In behavioral finance, Statman and Caldwell (1987) investigate the effect of managerial biases in a conceptual framework combined prospect theory. They consider the following example. A manager has already lost $2000 when he participates in a project, and he is a risk-averse. What should he do? Given that now he faces two options: (1). he will terminate the project to make a gain of $2000; (2). he will continue the project to get the risky prospect of an equal probability of gaining $2000 or zero. On the basis of economic accounting, which ignores the sunk cost, the manager should terminate the project. However, if taking sunk cost into account, the manager now copes with the choice between curtailing the project and get a loss of $1000 or carrying on the project with the prospect of probability of making a loss of $2000 or zero. 

On the other hand, scholars have been increasingly recognizing that the psychological biases that beset investors may also be widespread amongst firm managers. Shefrin (2007) identifies three categories of psychological phenomenon; biases, heuristics, and framing effects. As outlined by Shefrin (2007), a bias is a predisposition towards error. A heuristic is a mental shortcut or rule of thumb, which facilitates decision-making. Framing refers to the way in which “a person’s decisions are influenced by the manner in which the setting for the decision is described.”

Gervais et al. (2003) employ a real-options framework in order to consider the combined effects of managerial risk-aversion and overconfidence on the decision to invest immediately in a project, or delay investment. Risk-aversion may induce a manager to delay investment sub-optimally, reducing shareholder value.

Hackbarth (2004) employs a real options framework, combined with an earnings- based capital structure model, in order to analyze the relationship between managerial overconfidence, investment and debt. Specifically, he focuses on the conflict between shareholders and bondholders, embodied in Myers’ (1977) underinvestment problem. Debt induces an inefficient delay in investment, and mild overconfidence increases this problem. Hackbarth further demonstrates that an increase in risk-shifting opportunities exacerbates underinvestment, and that leverage is inversely related to the value of investment opportunities.

Hackbarth (2002) models the effect of managerial overconfidence in a trade-off model of capital structure. First, he considers the case where the manager attempts to maximise firm value, trading-off the tax shield benefit of debt and the bankruptcy cost of debt. Second, he considers the case where an agency conflict exists between the manager and investors over managerial diversion of discretionary resources. In both cases, Hackbarth finds a positive relationship between overconfidence and debt.

Fairchild (2005) develops the work of Heaton (2002) and Hackbarth (2004) by presenting two models of managerial overconfidence and capital structure. His first model considers the combined effects of managerial overconfidence and asymmetric information. His second model considers the combined effects of managerial overconfidence and moral hazard.

In short, when scholars apply the expected utility theory (EUT), they estimate the utility of all possible outcomes and choose the highest weighted average, in which the weights (p) are simple probabilities. In stead of weighting values by probabilities as in EUT, even though scholars applying the prospect theory also choose the option that give the best possible outcome, they use transformed probability which depends on the distance from impossibility and certainty (Tversky and Kahneman, 1992).

3. Models of time preferences

In this section, we explore a key insight from behavioral economics: present bias preference. Researchers in behavioral economics and psychology (e.g., Ainslie, 1993; Thaler, 1981; Ahlbrecht and Webber, 1997) have long found that individuals frequently act in ways that violate standard economic assumptions of rationality in decision-making. One of the key insights is that individuals display inconsistency in impatience levels over time. Specifically, an individual might be impatient in the short-run, but less impatient in the long-run.

First, we consider the stylized version of the standard model, which is modified from Rabin (2002). Under the model, let consider an individual i maximizes expected utility subject to a probability distribution p(s) of the states of the world s Î S at time t=0 as follows

Where, : utility function

             : payoff of individual i

The future utility is discounted with the discount factor

The standard model assumes that a discount factor between any two different time points is independent, implying time consistency. Time consistency means an individual has the same preferences about future plans at different histories. In other word, if a plan is optimal to implement today, it will be considered optimal to fulfill tomorrow and in the future.

However, large experimental evidence on intertemporal choice support representation of time preferences is the hyperbolic time weighting function (e.g., Thaler, 1981; Frederick, Loewenstein and O’Donoghue, 2002). In particular, hyperbolic discounting refers to strong discounting of payment in short term, but weaker discounting of payments in the longer term (Schreiber and Weber, 2016).

To illustrate this insight, we consider the study of Thaler (1981) who asked individuals to choose between getting money now versus getting more money later in two different scenarios.

Scenario 1: What amount ($X) makes you indifferent between getting $15 today and $X  in 1 month?

In the typical response, X = 20. This implies a discount rate of 345% per year, reflecting a very high impatience level.

Scenario 2: What amount ($X) makes you indifferent between getting $15 today and  $X in ten years?

In the typical response, X = 100, which implies a discount rate of 19% per year -  indicating a much lower impatience level as opposed to scenario 1.

It is worth noting a much higher level of impatience in the first scenario, in which the time horizon is much shorter. In other words, individuals are inconsistent in their impatience. This finding contradicts a standard assumption in economics stating that individual’s impatience is consistent and independent of time horizon  - i.e., which is also known as exponential discounting.  Inconsistence in patience level has been confirmed in numerous studies with individuals from various background (see for example Tanaka at el., 2010 which focuses on Vietnam population). Scholars in behavioral economics refer to this phenomenon as present bias preference. McClure et al. (2004) explain the present bias preference as the intertemporal decisions involving payoffs in the present than the decisions involving only payoffs in future periods.

According the present bias preference model (e.g., Laibson, 1997; O’Donoghue and Rabin, 1999), the lifetime utility U_t at the time t is as follows:

Where: u_t : utility for each time period t

            : is discount factor at any time period t                 

While in the standard model the  captures the discount factor, in the present bias preference model besides , the parameter  captures the present bias problem (). If <1, the discounting between the present and the future is higher than between any periods in the future. If  = 1, the present bias preference model becomes the standard model.

4. Review of empirical literature

To our knowledge so far, there is no study investigating impact of managers’ risk and time preference on firm performance, however, our study is related to a growing literature that documents the effects of risk preference and time preference on various aspects of economic activities. In this section, we will review empirical studies on this area outside Vietnam, and studies in Vietnam.

4.1. International evidence on risk and time preferences

Researchers have long paid attention to measure and investigate risk and time preferences. A study of Tanaka, Camerer, and Nguyen (2010) is unique in the way it measures risk and time preferences by conducting experiments with villagers. The study investigates how wealth, political history, and economic circumstances are related to rate of risk preferences and present biased preferences. They find that people in villages with higher mean income are less loss-averse and more patient. Household income has a relationship with patience but not with risk.

Nguyen (2011) develops a theoretical framework to investigate the relationship between environment and preferences. Using a structural model approach, he incorporates prospect theory and hyperbolic time discounting into a single framework, to simultaneously estimate the rate risk preferences and coefficients of time preferences. To empirically test the model’s prediction, combining field experiment and household survey data, the author examines whether involvement is risky and has long-run targeted benefits, thereby causing fishermen to exhibit different risk and time preferences. This study finds that fishermen those who less risk-averse and more patient than workers in other occupations, which is in line with the theoretical prediction about the influence of the working environment on preferences.

Tanaka, Camerer, and Nguyen (2006) conduct field experiments to scrutinize how wealth, political history, occupation are correlated with risk, time discounting and trust in Vietnam. They demonstrate that risk and time preferences are contingent on the degrees of economic development. People in wealthier villages are less loss-averse and more patient. Their study also shows that people who participate in rotating credit associations (ROSCAs) are more patient than non-participant. However, bidding ROSCAs participants are less patient, and more risk averse than fixed ROSCAs participants. Carlsson, Johansson, and Pham (2014) find that pro-social preferences are stable over long periods of time. To arrive at this finding, they elicit pro-social behavior using experiments at four different points in time. They note a significant positive correlation between behaviors across time.

Our study is also close to a related strand of literature that investigates the link between risk and/or time preferences, and business activities or corporate policies.  Graham, Harvey, and Puri (2012) find that companies implement more mergers and acquisitions (M&A) when their CEO is more risk tolerant. They also evidence that it is more likely that firms with high historical or future growth rates are run by risk-tolerant CEOs. It is also more likely that risk- averse CEOs prefer to be compensated by salary than performance related packages. They further find that CEOs who are impatient (i.e., have a high rate of time preference) have higher propensity to be paid proportionately more in salary.

Investigating CEO compensation package when they are risk-averse, Dittmann et at (2010) show that the incentive effect prevails the risk-tolerance effect so that the compensation package is optimal if it should only involve stocks. De Meza and Webb (2007), Herweg et al. (2010) find the consistent evidence that compensation contracts including bonuses are likely to be optimal in the case that CEO is loss-averse. Recently, Corgnet, Gomez-Minambres and Hernan-Gonzalez (2018) propose a principal-agent model with risk preferences to investigate the case in which agents are loss-averse in the non-monetary incentives rather than in monetary incentives. They show that the use of wage-irrelevant goals in workplace can explain why firms depend on unexpected weak monetary incentives.

Hirose, Kato, and Bremer (2009) evidence a significant cross-sectional relationship between margin buying and stock returns at both market- and firm- level.  Their study indicates that margin-buying traders have herding behavior. The information on outstanding margin buying shares predicts future stock returns, especially for small-firm stocks. The theoretical prediction remains even when they control for liquidity and firm size.

Testing the link between CEO risk preferences and payout policy, Caliskan and Doukas (2015) find that risk-averse CEOs are more likely to pay dividends than risk-loving CEOs do. Specifically, CEOs may give up investment opportunities and pay out more dividends when they suffer higher exposure to inside debt. When the authors examine the case of CEOs with less convex compensation packages, this pattern also happens. Their findings suggest that debt-like compensation could prevent risk-averse CEOs from taking risk, and could increase dividend payouts.

In terms of time preferences, Chen, Li, and Zeng (2014) study the optimal dividend strategies of an insurance company when the manager has present biased preferences. They analytically derive the optimal dividend strategies when investigating a naive manager and a sophisticated manager, and claiming sizes follow an exponential distribution. Their findings show that manager with present biased preferences tends to pay out dividends earlier than time-consistent manager. They also find that the sophisticated manager is more likely to pay out more dividends than the naive manager. Likewise, Chunxiang, Li, and Wang (2016) find that the sophisticated fund manager has present-biased preferences. The more the fund manager is present-biased, the more funding is invested in risky asset.

4.2. Empirical studies in Vietnam

To our best knowledge, in Vietnam, there is no study investigating the link between managers’ preferences including risk and time preferences. Nevertheless, there are some studies on behavioral economics, even though the research on this area is still relatively young and the number of empirical studies is scarce.

Nguyen (2015) examines the effect of managerial overconfidence on investment sensitivity to cash-flow in non-financial firms listed in the Vietnam stock market over the period of 2008-2012. They find that managerial overconfidence increases dependency of investment on internal cash-flow. The interaction effect reducing investment sensitivity to cash-flow is evidence of benefits when financial conditions improve or financial markets develop, enabling Vietnamese firms to access to external capital. They also document that there is difference in managerial overconfidence regarding firm size. They are unable to find any evidence of overconfidence, financial conditions, or financial development in big firms, while those effects are strong in small firms.

Some studies investigate behaviors of investors in the Vietnam stock market. In particular, Nguyen (2012) uses questionnaires to 500 individual investors in the Vietnam stock market and trading results of 2300 accounts of individual investors with over 100,000 orders to analyze and investigate behaviors of individual investors. He develops a model to measure investor behaviors with five groups of psychological factors and 19 attributes, namely overoptimism, herding, overconfidence, risk aversion, and pessimism. His study finds that individual investors in the Vietnam stock market are irrational and have behavioral biases such as extra position bias, disposition effect, herding bias, etc. Thus, traditional theories are unable to explain investor behaviors. Some other studies examine herding (e.g., Tran, 2010; Nguyen, 2009); or apply behavioral finance to explain some anomalies in the Vietnam stock market (e.g., Tran and Ho, 2007; Le, 2007; Vu, 2011). However, those studies do not thoroughly examine investor behaviors according to behavioral economics theories. Further, they do not provide any comprehensive studies on the link between investment returns or benefits and investor behaviors.

On the other hand, while behavioral economics has played a key role in providing policy makers with behavioral insights to improve wellbeing of individuals in numerous countries, it has been paid much less attention in Vietnam. Only few interesting behavioral economics based studies have been done in Vietnam. Likewise, experiments, especially the randomized controlled trial (RCT) method, have been rarely conducted in Vietnam, though it is considered a gold standard in identifying causal relationship. To our knowledge, the most close-to RCT study done in Vietnam is by Malesky, Nguyen, and Tran (2014). Specifically, these authors use quasi-experiment to test the core hypotheses of recentralization on public services. Their research design offers an overtime (diff-in-diff) analysis of real institutional change (not an artificial intervention) with a clearly identified counterfactual performed at scale within one country.

Recently, a study by Nguyen and Kim (2019) conduct RCT to investigate whether and how government information intervention affects a firm’s manager perception and adoption of quality management practices, output quality, and firm performance. The study finds that information intervention improves manager perception of benefits from quality management practices, which stimulates managers to adopt quality management, and ultimately improves quality and firm performance.

5. Conclusion and discussion about future research

The literature on estimating and measuring risk preferences and/or time preferences using experiments has been blossomed a lot over the years in numerous countries in the world, but it is still young and has been paid much less attention in Vietnam. Also, in Vietnam, experimental methods have been rarely implemented.  Thus, in the fact that the experiment method is considered a gold standard in identifying causal relationship, and thanks to increasingly available experimental data, we do expect that the literature will develop more and more in the future, we also do hope that our paper can encourage the application of behavioral economics and experiments in Vietnam.

In this paper, we have summarized models of risk preferences and models of time preferences; we also have highlighted the important dimensions of those models, which scholars should focus on and pay attention to when they do research. We then review how market forces respond to the features of those models by discussing empirical studies in this area.  

Regarding models of risk preferences, in the future, whether in EU model or non-EU model, it is necessary to think about a model that has both a domain-general and a context-specific component. In terms of models of time preferences, the review shows that deviations from the standard model are not restricted to experimental decisions. Most of phenomena, which are important in experimental settings, also affect decisions in many economic settings. Therefore, we expect that researchers will more and more take behavioral phenomena into consideration in their analysis. It is possible that new and more parsimonious models will emerge in the future to address some open questions, for example, can models of risk preferences predict choice in different decisions for fixed parameters (b, d).

On the other hand, we expect that future research continue using most of methods presented in this survey including laboratory experiments, natural experiments and field experiments. However, we think that to address the question of consistency across behavioral contexts, researchers can combine laboratory experiments and data from field settings. It is because laboratory experiments provide a rich set of survey questions, while field settings provide environments in which, real-world behaviors applications are observed.

Finally, although the traditional economic and financial theories provide comprehensive insights into the determinants of corporate finance and performance, there are still many events and issues that are unable to be explained by the tools and visions of the traditional theories. For example, traditional theories do not take into consideration some aspects of firm managers’ behaviors such as personality traits and competencies. Consequently, it is time to call for an alternative theoretical underpinning. Additionally, we recognize that while the research in behavioral economics is well-developed, relatively few studies, instead, have tackled firm managers’ preferences in developing countries. We suggest investigating the effect of managerial biases such as present bias problems, risk aversion, regret, overconfidence, and loss aversion on firms’ asset pricing and allocation.  Future research is also likely to explore the probably most under-researched area such as market linkage, judgmental biases of politicians, and political decisions. We think that our suggestions propose an interesting avenue for future behavioral research.

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[1] This research is funded by Vietnam National Foundation for Science and Technology Development (NAFOSTED) under grant number 502.99-2018.04

[2] Foreign Trade University, Vietnam, Email: Địa chỉ email này đang được bảo vệ từ spam bots. Bạn cần bật JavaScript để xem nó.

[3] Middlesex University, London, UK, Email: Địa chỉ email này đang được bảo vệ từ spam bots. Bạn cần bật JavaScript để xem nó.

Does trade facilitation challenge the domestic logistics enterprises in Vietnam?

Phan Thi Thu Hien[1]

Abstract

This study comes from the theme of World Customs Organization “Trade facilitation initiatives and intergovernmental schemes of customs community have been providing logistics enterprises with many opportunities to join effectively and profitably in the integrated supply chains all over the world” (World Customs Organization, 2016). Authorized Economic Operator (AEO) and AEO Mutual Recognition Agreements (AEO MRAs) are the security and trade facilitation initiatives aiming to enhance global trade security and foster business competitiveness in many countries. In principle, this initiative helps well-regulated enterprises to gain priorities in trade and supply chain operations provided that they adequately meet the criteria of the AEO program. However, the Vietnamese logistics companies cannot gain benefits from the AEO program due to specific requirements of doing international trade transactions like very high exports and imports turnover as well as big volume of customs declarations. That is why there is no Vietnamese logistics company who has been granted AEO status by the end of 2018 (GDVC, 2018). This study aims to figure out the reality that the Vietnam’s current AEO program is highly challenging the Vietnamese logistics companies.

Key words: authorized operator, logistics, trade facilitation, standards.

1. Introduction

Developing an AEO program and concluding mutual recognition arrangements/agreements (MRAs) with partner countries having similar and comparable program provide favorable instruments for globalizing the operations of logistics enterprises due to many benefits accruing to authorized traders and their trade partners in the authorized supply chains (World Customs Organization, 2016).

The pilot implementation of Vietnam’s AEO program took place on May 13, 2011 and was followed by an official launching on June 27, 2013. This program is significantly contributing to the higher levels of competitiveness of Vietnamese AEOs through many privileges granted to them in cross-border goods movements, such as the 24/7 customs clearance, short release time, low documentary and data submission requirements and the extremely low rate of physical inspection (General Department of Vietnam Customs, 2018). There are many technical reports of the General Department of Vietnam Customs summarizing the benefits and positive impacts on the Vietnamese AEOs’ performance but no study about logistics firms in connection to the AEO implementation. Furthermore, Phan Thi Thu Hien (2017) also analyzes the differences between the Vietnam’s AEO program and the internationally standardized AEO initiative that are limiting the advantages of this program like very small number of Vietnam-certified AEOs. According to the General Department of Vietnam Customs, at the end of 2018, there were Vietnamese 65 AEO enterprises, mainly large firms with high exports and imports turnover. Therefore, nearly 1,300 Vietnamese logistics service providers cannot be part of the Vietnam’s AEO program and its AEO Mutual Recognition Agreements^[2] (AEO MRA) with other countries in future (General Department of Vietnam Customs, 2018). In other words, many logistics enterprises in Vietnam fail to take advantage of this trade facilitation program due to the requirement of at least 20,000 customs declarations to be a Vietnam-qualified AEO. This study aims to analyze the participation and performance of the domestic logistics companies in the Vietnam’s AEO program from the viewpoints of the AEO-certified and logistics companies. There are two main study questions, that are: (1) Is the Vietnam’s AEO scheme unfair to numerous domestic logistics service providers that no firm gains AEO status? and (2) Are the domestic logistics service providers less competitive to be partners and logistics service providers for the Vietnam’s AEO enterprises in global supply chains than the foreign competitors?

Following the introduction and literature review, the paper provides an overview about the Vietnam’s AEO program and logistics industry. After the methodology, the next section presents the results of the survey about Vietnamese logistics companies’ performance in connection to the current AEO program in Vietnam. Finally, it is wrapped up with conclusions and recommendations for enhancing the participation of the Vietnamese logistics firms in the Vietnam’s AEO program.

2. Literature review

There are many studies about trade facilitation from theoretical framework to practices at global, regional and country level which mainly focus on the core pillars, roles and impacts of the WTO’s trade facilitation agreement (TFA) with forth a series of measures for expeditiously moving goods across borders inspired by the best practices from around the world. In brief, World Trade Organization (2015) states that the Trade Facilitation Agreement is the first multilateral trade agreement to be concluded since the WTO was established 20 years ago. Once it enters into force, the Agreement is expected to reduce total trade costs by more than 14 per cent for low-income countries. The WTO also describes the commitments of developing and least-developed countries in connection to their capacity to implement the TFA. In Vietnam, introduction about the TFA as well as its opportunities and challenges also are analyzed fully in Trinh Thi Thu Huong, and Phan Thi Thu Hien (2015). As one of the trade facilitation initiative, Authorized Economic Operator (AEO) and AEO Mutual Recognition Agreement is stipulated in laws and regulations on trade and customs of many countries in the world. Annually, the World Customs Organization publishes a comprehensive package about implementation of the WCO SAFE Framework of Standards to Secure and Facilitate Global Trade (SAFE Framework) with the WCO’s flagship Customs-Business partnership program and the Authorized Economic Operators (AEO) Program. The World Customs Organization (2018) asserts that the AEO program is an international instrument endeavors to usher a safer world trade regime and also heralds a new approach to working methods and partnership for both Customs and business towards a common goal based on trust. In Vietnam, General Department of Vietnam Customs (2016) reports the AEO implementation that indicating the outcomes and limitations by reviewing all the differences between the Vietnam AEO regulations and the TFA’s initiatives and global practices. Phan Thi Thu Hien (2017) also analyzes the potential AEO mutual recognition agreement of Vietnam with the EU as an important trade partner. The World Bank highly contributes to the global trade facilitation with two annual publications of Logistic Performance Index (LPI) and Doing Business that measure trade facilitation indicators of time and costs for cross-border movement of goods nationally and internationally (World Bank). Trinh Thi Thu Huong and Phan Thi Thu Hien (2016) provides a reality of Vietnam’s trade facilitation performance with a study about LPI, Trading across borders and Time Release Study. Further, Phan Thi Thu Hien (2017) suggests recommendations to standardize the Vietnam’s AEO program and promote AEO MRA with the top trade partners like the USA, EU, Korea from aspects of policy making and technical operation.

2. Overview of the Vietnam’s AEO program and logistics industry

The Vietnam’s AEO program initially was launched in 2011 under the Decree No.63/2011/TT-BTC of the Ministry of Finance and first approved of 13 AEO certified firms. This program was officially implemented in 2013 under the Decree of 86/2013/TT-BTC of Ministry of Finance. To some extent, Vietnam’s AEO program complies with Article 7.7 of WTO Trade Facilitation Agreement (Trade Facilitation Measures for Authorized Operators), which mainly focuses on trade compliance although the security measures were added to fulfill the standards required by the WCO SAFE Frame of Standards.

From the very beginning, the Vietnam’s AEO program provided a wide range of benefits to exporters and importers who substantially met the requirements of high trade performance with legal compliance profile. In 2015, AEO as an important trade facilitation measure was fully stipulated in Vietnam 2014 Customs Laws and Decree No.72/2015/TT-BTC of Ministry of Finance dated 12/5/2015, further expanding the program to customs agents who make at least 20,000 customs declarations in their owned name per year. Nevertheless, in 2016, all 55 of the Vietnamese AEOs are top exporters and importers that significantly contribute to the national economy and trade development. Inherently, trade-focus criteria of the Vietnam AEO program is seen as a big challenge for domestic logistics service providers. As a result of this no AEO MRA has been signed by Vietnam thus far.

The Vietnamese logistics industry has contributed significantly to the growth of the Vietnamese economy with a total value estimated around US$ 60 billion and annual growth rate of 2%. The Vietnam’s logistics industry represented about 25% GDP of Vietnam that was created by 1,300 logistics service providers (Blancas et al. 2014). According to the Vietnam Logistics Association (VLA) there are 10 state-owned enterprises operating as domestic logistics providers, with the remaining being mostly SME enterprises with limited resources and operating capacity. They are able to provide “first party logistics - 1PL” and/or “second party logistics - 2PL” service. Especially, Vietnam logistics market is dominated by 25 multinational logistic corporations that account for 70% - 80% of the market share (Do Xuan Quang, 2015).

The Vietnamese domestic logistics enterprises except state-owned enterprises are mainly operating as subcontractors or freight agencies for foreign 3PL and 4PL logistics providers. There are many factors that affect the capacity and competitiveness of domestic logistics providers, namely: (1) Vietnam transportation infrastructure is poor and underdeveloped, especially lacking local transport network connecting different modes of transport like road, air, sea and inland waterway. Therefore, it is costly and beyond capacity to organize a multimodal logistics service for small domestic enterprises. It is estimated that this will be problematic in the near future when Vietnam extensively opens up its domestic logistics market within a wide range of services like warehouse, freight forwarding, inland transportation, marine terminal service, and so forth; (2) Inadequate quality of human resource leads to limited competence in standardization and modernization, technological innovations and Research and Development; (3)  Although Vietnam’s international merchandise trade is rapidly growing in both trading value and volume, the market share is very narrow for domestic enterprises to operate as a whole logistics network or “third party logistics - 3PL” or “fourth party logistics - 4PL” providers (Do Xuan Quang, 2015).

Other factors of weakness and disadvantages of the Vietnamese logistics companies come from the Vietnamese traders and are described as follows:

First, connectivity between the domestic logistics providers and merchandise traders (Vietnamese exporters and importers) is weak and is not mutually beneficial. That is why most of Vietnamese traders’ shipments are operated by foreign enterprises or transnational corporations with larger networks, logistics competence as well as global market experience. In other words, Vietnam’s domestic logistics companies are facing an intensive competition both in the local and international logistics markets (Ly Huy Tuan, 2010).

Second, Vietnam’s traders usually conclude contract sales of goods under FOB and CIF respectively for export and import as business customs as well as limited negotiation capacity. This makes the Vietnam transport providers and logistics enterprises more difficult to enter the supply chains operated by the foreign traders. As a result, Vietnam’s logistics providers only find business opportunities by low added value and manual activities like freight subcontracting, customs clearance, and inland transport or warehouse service. Thus efforts should be stepped up to improve business relations between Vietnamese traders and logistics enterprises because it is high time for Vietnam’s commitments of opening logistics market under WTO rules as well as implementing FTAs (Phan Thi Thu Hien, 2016).

Annual report of the World Bank of Logistics Performance Index of around 160 countries in the world is an efficient tool to evaluate international competitiveness of national logistics industries that are composed of a six determinants including customs, infrastructure, international shipments, logistics competence, tracking and tracing and timeliness. Vietnam had been making consistent efforts and successfully improved its LPI score and rank from 2.89 points and 53/160 in 2007 to 3.27 points and 39/160 respectively in 2018, and especially logistics competence moved remarkably from the position of 62/160 in 2016 to 33/160 in 2018 (as indicated in the Table 1).

Table 1. Vietnam LPI score and ranking from 2007 to 2018

Source: World Bank, 2018

Customs is still the most problematic and bureaucratic factor that hinders the logistics competitiveness of Vietnam. This, together with inadequate infrastructure and lengthy customs procedures has resulted in a nationwide logistics cost-to-GDP ratio of nearly 20.8% which is much higher than that of regional peers (World Bank, 2014)

3. Survey description

This study presents the relation between the current AEO implementation and performance of the domestic logistics companies as non-AEOs in the international supply chains.

Data on Vietnam’s AEO implementation and the performance of Vietnamese logistics companies have been collected through two surveys of Vietnamese AEOs and logistics companies. It is indicated that a few logistics companies, which are around 8% of the companies surveyed, fully understand AEO as a trade facilitation measure for improving security and efficiency of the supply chain. It seems that Vietnam’s AEO program is preventing the domestic logistics providers from partnering with the AEOs in global supply chains.

AEO enterprise survey: The survey of the Vietnamese AEOs’ logistics operation in the international trade transaction has been conducted through an on-line questionnaire since 2015. The questionnaire was consulted with a senior customs officer who has in-depth knowledge of AEO enterprises and their contact points in Vietnam. Emails were sent briefly introducing the study and a link to the web survey. 43 AEO enterprises were requested to participate in the survey, which accounts for nearly 78% of the total 55 Vietnamese AEOs as indicated in the Annex 1. Finally, 26 responses were received with a response rate of 60% including state-owned enterprises, 100% capital from domestic investor, 100% capital from foreign investors and FDI enterprises. The Vietnamese AEO responses are the biggest business operators in various economic sectors and industries in Vietnam, also strongly connecting with a lots of logistics providers in international supply chains and global market.

Logistics company survey: This survey also was conducted in the same manner as the AEO survey. It was more difficult to attract attention of logistics companies because they did not see the relevance of the AEO program to their business in Vietnam presently. The questionnaires were sent to the logistics providers in Vietnam via shipping agents, trading companies as well as Vietnam Logistics Association (VLA). However, there were only 24 responses for Vietnam logistics company survey, mainly representing Vietnam logistics industry including 100% capital from domestic investor (10 firms), 100% capital from foreign investor (07 firms) and FDI enterprises (04 firms) and others (03 firms). Significantly, the responses are providing a wide range of logistics services in Vietnam such as doing import/export customs procedure, warehousing services, freight forwarding, terminal services, consolidation, domestics transport international transport and terminal operation with the proportions of the total responses that are 79.17%, 54.17%, 83.33%, 62.5%, 66.67%, 83.33% and 12.5% respectively.

4. Survey results analysis
   • Weak connectivity between Vietnamese AEO enterprise and logistics

According to representatives from a wide range of logistics operations, the Vietnamese logistics companies are joining international supply chains and being logistics providers for local and foreign partners with a very high percentage of the total responses as the Figure 1. However, the responses are mainly the 1PL or 2PL providers and subcontracting with foreign logistics providers of 3PL and 4PL as Do Xuan Quang (2015).

Figure 1: Business partners of Vietnamese logistics firms in international merchandise trade

Source: the author

Indicating the weakness and competitiveness of Vietnamese logistics companies in the international logistics market, 88.46% of the Vietnamese AEOs agreed that low professional capability is the biggest concern, followed by poor facilities and equipment and weak legal competence with 53.85% and 46.15% respectively as seen in Figure 2. These are also the major reasons why they are not able to serve as logistics service providers in the global supply chains of AEOs.

Figure 2: Competency of Vietnam logistics companies in the international supply chains

Source: the author

In details, Vietnam logistics companies are mainly local providers characterized by manual and low-technical services like gaining approvals on imports/exports permission, customs declaration, warehouse, domestic transport and packing. Nonetheless, the Vietnamese logistics companies are unlikely to be the logistics providers for the AEO enterprises with the above logistics service as the Figure 3, Since the AEO program provides the AEO firms with more advantages of trade facilitations than other stakeholders in the international supply chains such as the 24/7 customs clearance, short release time, low documentary and data submission requirements, and the extremely low rate of physical inspection (General Department of Vietnam Customs, 2016).

Figure 3: Partners providing logistics services of Vietnamese AEOs in domestic market

Source: the author

In the international stages of the global value chain, it is very hard for Vietnamese logistics companies to join as the leading firms and compete with the foreign companies who are mainly supply chain partners of Vietnamese AEOs. The survey results show that sea and multimodal transportation are the most common modes of international transport, which accounted for 42.31% and 46.15% of the AEOs’ responses respectively. This clearly explains the fact that the Vietnamese logistics companies are missing local and international market shares as nearly 80% of Vietnam’s international merchandise trade volume are transported by global logistics corporations, who are dominating Vietnam’s logistics market with 80% market share and only 20% for Vietnamese logistics enterprises (Do Xuan Quang, 2015).

Figure 5: Partners providing abroad logistics services to Vietnamese AEOs

Source: the author

In general, the Vietnamese logistics companies are positioned quite low in the global value chain of the AEOs. Most of Vietnam’s AEO enterprises are appointing foreign logistics service providers in their supply chains or transferring these responsibilities to their contracting partners, especially international transport and contract carriage. When Vietnam enhances the AEO program by successfully concluding AEO MRAs with important trade partners in the regional and global scope, it is estimated that Vietnamese logistics companies will be facing a fiercer competition with competitors who are AEO-certified enterprises supply chains.

Figure 6: Effects of AEO program on performance of Vietnamese logistics companies

Source: the author

From view of points of Vietnamese AEOs, expanding the current AEO program to include Vietnamese logistics service providers and signing of AEO MRAs will further increase the benefits of trade facilitation as indicated in the Figure 7. In line with the reality of the Vietnam’s logistics performance, reducing time and cost of doing exports and imports is the top concern of the Vietnamese AEOs.

Figure 7: AEOs’ expected benefits for logistics companies when Vietnam signs AEO MRAs

Source: the author

According to the Vietnamese AEOs, expanding the current AEO program with participation of Vietnamese logistics service providers and signing of AEO MRAs will increase the utilization of this trade facilitation measure. Specially, the high rate of responses for enhancing supply chain security strongly demonstrates the gap between the Vietnam’s AEO program and international standards and practices like the WCO SAFE. Although these criteria are stipulated in the Vietnam Customs Laws 2014, they need more time to come into effect. 

• The AEO program prevents participation of Vietnamese logistics companies by hard requirements

Findings on the level of AEO and AEO MRA knowledge of Vietnamese logistics companies, it is surprising that “totally not” and “a little” to know about the AEO program account for the same level of 29.17%, in comparison with 4.17%, a very low rate of “much” and “very much”. However, it is marginally better than AEO MRA perception and understanding which is 0% of “very much” and “much” to know while “totally not” and “a little” are 33.33% and 45.83% respectively (as illustrated in Figure 8 and 9).

Figure 8: Awareness about the AEO program of Vietnamese logistics companies

Source: the author

Figure 9: Awareness of Vietnamese logistics companies about the Mutual Recognition Agreement/Arrangement on AEO (AEO MRA)

Source: the author

Also, the survey indicates that one-third (nearly 33.33%) of the logistics companies do not know about AEO status of their partner in the international supply chains as Figure 10 shows.

Figure 10: AEO status of the Vietnamese logistics companies’ partners

Source: The author

Although, the Vietnamese logistics companies recognize that the AEO program will create a significant gap in competitiveness between an authorized logistics company and non-AEO, 33.33% and 45.83% of the responses respectively indicated “totally impossible” and “slightly possible” to be an authorized enterprise in 2016 or 2017 in comparison to 0% of “very possible” and “extremely possible” (as indicated in Figure 11)

Figure 11: Possibility of Logistics Company in getting an AEO status in years

Source: the author

To some extent, the survey results indicate that the current trader-focused AEO program poses big barriers for the logistics companies and is preventing the Vietnamese logistics companies from participating in the supply chains of AEOs in Vietnam and across the globe. It will become more difficult if Vietnam signs the AEO MRA without including Vietnam’s logistics companies in its AEO program.

However, more opportunities to move up in the authorized supply chains will certainly increase logistics competitiveness of Vietnamese logistics companies in the international freight market, according to experts from the Vietnamese AEOs as illustrated in Figure 7.

Figure 12: Expectation about benefits of the domestic logistics companies about Vietnam’s AEO MRAs

Source: the author

Last but not least, experts from a number of logistics companies agreed that there is a remote possibility for them to become AEOs in the near future; they expect AEO MRAs to improve logistics competency in the international market through trade facilitation schemes in Vietnam and its signatory partners.

• Potential Vietnam’ AEO MRA signatory countries are major trader partners of Vietnam in the world

The survey indicates that expectations of the signatory countries of Vietnam’s AEO MRAs that gained the highest rate of responses (United States of America, followed by Japan and Korea) from the survey results in the below Figure.13. Certainly, here are the top trade partners of Vietnam in recent years (General Department of Vietnam Customs, 2018).

Figure 13. Suggestion of the logistics firms about Vietnam’s AEO MRA signatory countries in future

Source: the author

In summary, this study fully explains the actual phenomenon of Vietnam’s logistics performance based on a hypothesis that a trader-focused AEO implementation is challenging the participation and competitiveness of Vietnamese logistics companies.

5. Conclusion

The study analyzes the existing gap between Vietnam’s trade-focused AEO program and international standards and practices that is one of the main limiting factor why Vietnamese logistics companies cannot be qualified as AEO status in Vietnam. It further weakens connectivity between the Vietnamese AEOs and logistics companies due to their low international logistic competency. In conclusion, the Vietnam’s AEO scheme is very hard to numerous domestic logistics service providers to participate, and makes the Vietnamese logistics service providers less competitive than the foreign competitors who are trusted partners of the Vietnam’s AEO enterprises in global supply chains.

This study gives a good indication that Vietnamese logistics companies need to be included in the national AEO program in alignment to the WCO’s AEO standards. As choices of the responses both logistics and AEO firms, Vietnam should foster AEO MRA negotiations with the Vietnam’s major trade partners as United States of America, Japan, Korea that enhances advantages of trade facilitation for the Vietnamese AEOs and their foreign partners in the international supply chains. As well, the AEO MRAs certainly promote bilateral trade flows between Vietnam and these trade partners, then provide the Vietnam’s domestic logistics companies with many business opportunities in the international supply chains.

REFERENCES

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[1] Foreign Trade University, Vietnam, Email: Địa chỉ email này đang được bảo vệ từ spam bots. Bạn cần bật JavaScript để xem nó.

[2] Mutual recognition is a broad concept whereby an action or decision taken or an authorization that has been properly granted by one Customs administration is recognized and accepted by another Customs administration (World Customs Organization)

Corporate Social Responsibility Regarding Education of Foreign Direct Investment Companies in Vietnam

Pham Thu Huong[1]

Pham Huong Quynh[2]

Abstract

Foreign Direct Investment (FDI) has been growing rapidly in Vietnam despite globally complicated and unpredictable fluctuations of the economy. Although it is presented in impressive numbers regarding FDI’s overall efficiency in Vietnam, the connection between FDI businesses and Vietnam’s education and training is rather feeble. This paper investigates the FDI companies’ corporate social responsibility (CSR) performance regarding education development in Vietnam. The most popular methods of performing CSR regarding education include granting scholarship, building schools and education centers, providing and improving educational facilities, developing programs for young talents, sponsoring scientific researches… CSR regarding to education of FDI companies in Vietnam has impacted on efforts in integrating CSR in their daily operation of big local businesses with mindsets of going global quickly. However, most FDI companies consider CSR regarding education as a part of PR campaigns and do not have a long-term vision for their CSR activities. Methods, targets and locations of these activities are still narrow and centralized, resulting in a restricted number of people reached. Most CSR activities to improve education conditions are available to students in big urban cities, while the real population in need is left inadequately approached. This paper proposes some recommendations for improving CSR activities regarding education of FDI companies in Vietnam.

Keywords: CSR, Education, FDI, Vietnam

1. Introduction

            According to the information announced by the Foreign Investment Agency (Ministry of Planning and Investment), as of December 20^th, 2017, 2,591 new FDI projects are granted certificates in Vietnam. Generally, in 2017, the total registered capital of foreign investors peaked to 35.88 billion USD, which is equivalent to an increase of 44.4 percent over the same period of 2016. The total registered capital was 21.27 billion USD, having increased by 42.3 percent over the same period in 2016, with a disbursed amount of 17.5 billion USD. At the same time, 1,188 projects were registered to adjust their investment capital with the total registered capital of approximately 8.41 billion USD and 5,002 capital contribution, share purchase of investors with a combined capital of 6.19 billion USD. Thus, the amount of FDI inflows into Vietnam has nearly doubled in the past four years, from 20 billion USD in 2014 to nearly 36 billion USD in 2017. Currently, FDI enterprises are present in 63 provinces and cities over the country, among which Ho Chi Minh City is leading with 44 billion USD, followed by Binh Duong, Dong Nai and Hanoi.

            Yet it remains to be in question whether FDI is missing out on something. More than anything, training and education play crucial roles in the future of a nation. As humans are highly influenced by experiences in childhood, the process of guiding and nurturing young generation determines how strongly the country is to evolve. A decent education does not guarantee one’s success, but it optimizes the opportunities one is able to seize in life. Despite impressive numbers regarding FDI’s overall efficiency in Vietnam, the connection between FDI businesses and Vietnam’s education and training is rather feeble. Being regarded as the first priority of the country, however, education and training landed on the 17^th spot among 18 areas receiving FDI. In accordance with the Foreign Investment Agency (Ministry of Planning and Investment), by the end of February 2013, education and training have attracted 170 FDI projects nationwide with the total registered capital investment of 468 million USD. Average scale calculated per project is relatively low, which is around 2.8 million USD. Furthermore, most projects, which account for 93.3 percent of total registered capital, are aimed to be executed in Hanoi and Ho Chi Minh city, while rural and remoted areas are particularly short of education and training investment.    

            Every business is a component of the society, meaning they have legal rights and responsibilities to contribute to the development of society. It is not restricted to business activities or making profits alone. Corporate Social Responsibility (CSR) is the bridge connecting corporates’ benefits with requirements from the society. Under circumstances mentioned above, it is indicated that companies, especially FDI companies, need to pay more attention to CSR in training and education comparing to other areas.

In this paper, the methods, targets, locations and critical factors related to CSR activities regarding education are investigated. The findings are the background for proposing recommendations to improvement of CSR regarding education as well as FDI companies’ awareness of full responsibilities upon Vietnam’s education development.

2. Literature Review
   • Corporate Social Responsibility (CSR)

           Despite controversial viewpoints upon the origin of CSR all around the world, its emergence in ancient Greek society is well established (Visser & Tolhurst, 2010). When civilization started to build up, people believed that it would be reasonable for the upper class to share portions of their wealth with other less fortunate citizens. This rooted from a mutual understanding that the minority would not be able to achieve prosperity without the work of population majority, which resulted in the state passed particular laws to support the belief. These laws were called the liturgies, which shared quite many similarities with modern community’s taxation systems; however, they rather served as one of wealthy people’s privileges back in the days (Avlonas, n.d). An ongoing debate involving the issue of Corporate Social Responsibility has been active since the second half of the 20^th century (Garriga and Melé, 2004). Nowadays, CSR remains a controversial term without a globally unified definition. The term “Corporate Social Responsibility” first emerged in Rowen’s (1953) book titled “Social Responsibilities of the Businessman”. Asset managers were encouraged not to violate others’ rights and benefits, as well as motivated benevolence to make up for damages done to the society by businesses. Ever since, CSR has been interpreted into different meanings. Others claim that “CSR encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time” (Carroll, 1999). Afterwards, studies have mutually reached a relatively complete definition which better clarifies the nature of CSR as “the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life” (World Business Council for Sustainable Development, 1998). In accordance with this definition, so as to achieve sustainable development, businesses are always expected to follow local and international standards of environment conservation, gender equality, labor safety, labor rights, payment equity, personnel training and development as well as community development. In other words, CSR requires businesses to pursue the determination of balancing between their economic performances and their positive impacts on the society.

• CSR factors models

Three of the most remarkable CSR models are Carroll’s (1991) CSR Pyramid, Visser’s (2011) CSR model version 2.0 and Claydon’s (2011) Consumer – driven CSR model. CSR Pyramid in Carroll (1991) was created with a view to explaining how essential it is for business entities to fulfill every aspect in the social world: economic, legal, ethical and philanthropic. The foundational level demonstrates economic responsibilities, clarifying that profit making and stakeholders’ satisfaction financially are the earliest and most essential steps. Legal responsibilities are next in line. Corporations are expected to have accurate awareness, respect and obedience towards laws and regulations set up by authorities to serve the purpose of managing and making sure businesses operate following their conscience. Ethical responsibilities remind companies that they have the obligation to implement fair and rightful treatment on their stakeholders, with no acceptance of damaging intentions. On the top is philanthropic responsibilities – responsibilities to function as a helpful member of the society and facilitate the community with resources of necessity. The main idea of this model is that, unless economic responsibilities are fulfilled, there is almost no way to accomplish the remaining three (Carroll, 1999).

Visser’s (2011) inspiration comes from the four bases of Deoxyribonucleic acid (DNA): A-G-T-C (Adenine, Guanine, Thymine and Cytosine). Accordingly, CSR 2.0 Model in Visser (2011) consists of four responsibility bases: value creation, good governance, societal contribution and environmental integrity. Beyond mere economic responsibilities or financial profitability, value dreation is meant as building and enriching an economically effective environment where jobs are created, facilities are invested in, skills training and development are promoted. In other words, this base factor indicates how the organization is operating to reasonably share economic benefits between various interest groups, rather than bland financial indicators. Good governance is mostly about the reality of a company’s operation ethics. Through indexes regarding “leadership”, “transparency”, “ethical conduct”, etc., effectiveness of the business’ governance would be measure. The fact that an organization conducts ambiguous actions in operating procedures would never be covered and made up for by any positive contribution or intention towards its surrounding society. Societal contribution is considered a broader awareness of “philanthropic responsibilities” in Carroll (1991) CSR Pyramid. With the first priority being stakeholders’ orientation, it encourages businesses to pay more attention to philanthropy, volunteerism and solving urgent problems of child labor and common labor inequity. Environmental integrity goes beyond minimizing damages done to the planet due to economic purposes. As the goal set to be sustainable ecosystems, it is vital that all business entities thrive to achieve renewable resources discovery and zero-waste production (Visser, 2011).

Economic development comes with certain damages towards the environment and the society. These damages are harming the planet both by environmental problems as climate change and civil problems as corporate greed. People expect companies worldwide to take responsibility for drawbacks from huge leap of economic revolutions and innovations (Frederick, 2006). On that background, Claydon (2011) ideas of the consumer-driven CSR emerged as suggestions for businesses to become profitable and socially responsible at the same time. The model proposes understanding CSR application in the form of a cycle, by first realizing that customers’ demand for social responsibility is a way to increase consumption power and profits itself. The business would not only be making more dimes but also take part in activities proving its responsible attitude towards social and environmental issues caused by its or others’ operation process. Remarkable outcomes are to be expected: reputation accelerated, customer base expanded, etc. More customers mean higher demand for CSR, which encourages the business to implement more CSR applications. In the end, it comes back to the first stage of the cycle. Effective deployment of CDCR model creates a win-win scenario for the company: economic, social and environmental responsibilities are fulfilled while customers are satisfied. This model is among the most recent ones about CSR. Yet it has somewhat proved its efficiency and competitiveness compared to older models. It suggests the essence of renovation, upgrade and comprehension in terms of CSR strategies to meet evolving demands of customers (Claydon, 2011).

• ISO 26000 as guidance for FDI companies

Set up with a view to clarifying confusion, ISO 26000:2010 presents guidance to businesses rather than requirements. Therefore, technically, it is not able to be certified, unlike other types of ISO standards. Its main function is to assist businesses and organizations to identify the most suitable definition of CSR for themselves, which later on is translated into practical and impactful actions. It is designed for every type of organizations in terms of activities, size and location to help globally spread best practices of social responsibility. The implementation is possible to be put as followed: performing social responsibility activities accordingly to its policies, organizational culture, strategies and operations; forming the social responsibility’s competency from within; initiate communication regarding social responsibility both internally and externally; and revising actions frequently. There are seven core subjects defined regarding social responsibility in the standard:  organizational governance; human rights; labor practices; environment; fair operating practices; consumer issues; and community involvement and development. It is a mutual understanding nowadays that there is an inevitable connection between organizations and the communities that they operate in. Community involvement, which would lead to community development, should be one of the foundational factors of this connection.

The core subject of community involvement and development includes seven component issues: community involvement, education and culture, employment creation and skills development, technology development and access, wealth and income creation, heath, and social investment. Sustainable development consists of essential parts which include community involvement and community development. Rather than purely recognizing and engaging stakeholders actively in activities’ impacts of an organization, community involvement should also comprise contribution to and connecting with the surrounding community. An organization should be aware of the fact that it is one of the surrounding community’s stakeholders, meaning community improvements are much likely to be accompanied by organization’s benefits. Community involvement and development’s areas of priority depend on the community’s characteristics and which benefits are to be contributed by each organization. An organization might take some actions clearly so as to make contribution to community development, while implement others for organizational purposes but boosting general development in an indirect way.

It is believed that education and culture play foundational roles in developing the community’s society, economy and also a part of its identity. Preserving and promoting culture alongside with renovating education in a human-rights-dedicated direction enhance social connectivity and development. Related actions and expectations under this issue encourage organizations to: boost and assist the growth of education regardless of levels; help make education quality and access availability better, strengthen local knowledge and eliminate illiteracy; implement focused support to open up education opportunities for vulnerable and discriminated groups; promote children’s participation in proper education and make efforts to eradicate barriers preventing them from education obtaining; develop suitable cultural activities, acknowledge and treasure local cultures and traditions in a way that support human rights; contribute to activities of culture which justify disadvantaged groups in history as a method of battling against discrimination; consider assist the progress of supporting human rights awareness education BS ISO 26000:2010 ISO 26000:2010(E) 65; take part in preserving and securing cultural heritage, particularly where the organization’s activities have an impact on; expand usage of traditional knowledge and indigenous communities’ technologies in an appropriate way.

CSR activities might increase expenses. Nevertheless, if the management board has a broad vision, CSR is bound to assure much more impressive advantages. Innovation to come up with positive methods to improve the society would help the business obtain a more advantageous market as well as better conditions for sustainable development. Businesses might gain from executing corporate social responsibility include: brand value increase and sustainable values creation; revenue growth, expenses cutback; employees’ confidence and loyalty improvement - talents attraction; and international competitive advantage boost and new markets approaching opportunities.

3. Methodology

Quantitative and qualitative methods are both adopted to assure a high level of measurement precision and statistical power as well as a great depth of information about the nature of CSR in the research setting. Qualitative approach is the main approach covering the study. Primary data were collected by conducting online surveys and generating results from both internal and external perspectives of FDI companies’ CSR in education implementation in Vietnam.

• Compiling the Questionnaire

To gather two-way opinions about CSR activities regarding education of FDI companies in Vietnam, two questionnaires were built based on the discussed framework. These questionnaires were available in both Vietnamese and English. The first questionnaire was created with a view to understanding how FDI companies’ personnel perceive CSR activities regarding education internally. There are ten questions in accordance with three main parts: acknowledgement of CSR’s importance to business successes; the organization’s current operations of CSR activities in education; and recommendations for improvement of CSR activities in education. The second questionnaire was expected to explore external perception of FDI companies’ CSR activities regarding education in Vietnam. Thirteen questions are divided into two parts: Personal Information and Evaluation of FDI Companies’ Education Developing Activities in Vietnam. Questions in both questionnaires are mostly multiple-choice, and responses are mostly text and descriptive.

• Sampling Selection

The questionnaire surveying internal perception targeting senior and executive managers of big FDI companies operating in Vietnam as of 2018. Eighteen questionnaires were sent out directly to these companies. Ten responses by senior and executive managers in charge of CSR activities from different companies were received. For the questionnaire surveying external perception, a convenience sample of Foreign Trade University students and some of their family members were recruited. Participants were invited to complete the questionnaire through social media by researchers and were encouraged to ask their family members and friends to participate in the study. Those who agreed to participate simply completed the questionnaire digitally and submitted and 103 responses were recorded for this questionnaire.

4. Findings
   • Internal perception questionnaire

Out of 10 managers, six were from Human Resources Department, three were from Public Relations Department and one was from Sales Department. Seven participants chose education to be the most important sector in CSR performance of their companies, while the remaining three answered it was in top 3. About 80 percent of the participants determined their companies’ focused targets of education developing CSR activities are universities and colleges, 10 percent chose high schools and 10 percent chose elementary schools. All 10 participants responded that big urban cities like Hanoi, Ho Chi Minh city and Da Nang were the centralized locations of their CSR activities regarding education development in Vietnam. Among six given options, only four were checked by the participants, with scholarships granting being the most popular method of education related CSR activities implementation. The others were: building education centers; providing and upgrading education facilities; and developing programs for young talents (Figure 3.1). Half of the participants chose “Budget” as the most important factors affecting CSR activities implementations regarding education. 3 participants chose “The company’s awareness of business ethics” and the other 2 chose “Community orientation about education of the company”.

Figure 4.1. Popular method of education related to CSR activities

Source: from the survey

• External perception questionnaire

Regarding methods of implementing education developing CSR activities, granting scholarships is the most popular with a 64.4 percent vote. The remaining methods do not have remarkable result distance (Figure 4.2). The most effective communication channel seems to be social network. The remaining order is as followed: electronic paper – education entities’ websites – television – printed newspaper and magazine – family, friends and acquaintances – company’s website – announcements from governmental departments (Figure 4.3). 69.5 percent of the participants claimed that big cities like Hanoi, Ho Chi Minh city and Da Nang are the centralized location of CSR activities investing in education development. About 15.3 percent chose poor rural areas; 6.8 percent went with mountainous and remote areas; 5.1 percent believed it was industrial zones; and the rest voted for others (Figure 4.4).

Figure 4.2. Most popular methods of performing CSR regarding education

Source: from the survey

Figure 4.3. Popularity of methods to promote CSR activities regarding education

Source: from the survey

Figure 4.4. Participants’ perception of centralized location for FDI companies’ CSR activities regarding education

                                                      Source: from the survey

5. Discussion

5.1. Achievements

            Vietnam is listed among developing nations, therefore, CSR application in this market follows the Visser’s (2011) rather than the more American – suited original version from Carroll (1999). Developing countries tend to prioritize the economic aspects of the CSR pyramids in order to fill in the economic deficit compared to the more developed parts of the world and the philanthropic aspect of CSR due to some dated habits. Due to the high priority placed on philanthropic responsibilities by the Vietnamese community, CSR in Vietnam is perceived by many to solely serve the charitable purpose characterized by donations, voluntary activities and more. Additionally, many enterprises see CSR as a means to polish their reputation a form of brand protection and believe that this is the sole intention for practicing CSR. With the participation of Vietnam into WTO in 2008, along with being a young market with a cheap and available labor force, Vietnam has been welcoming various multinational corporation outsourcing and setting up their official branches, choosing the Vietnamese to be one of their strategic market. Some notable names include Honda Corp, Unilever Corp, KPMG Corp and many others. These international giants have been playing an enormous role in setting up the example for big Vietnamese corporation as well as SMEs by adopting their code of conduct into the Vietnamese market. Additionally, the work of various international NGOs on raising awareness of businesses on 31 social and environmental issues has improved the perception of Vietnamese companies on the matter of sustainability. This development trend accompanied by many serious environmental issues in 2016 have forced the Vietnamese government and the local community to focus and demand businesses to adhere to social responsibilities and operation transparency more, which will undoubtedly lead to a better and more thorough understanding of CSR in the future.

            Many experts in CSR have affirmed that the CSR developing progress in Vietnam was initiated and is currently largely maintained by International economic players. The concept of CSR at first was introduced into this market via the investments of multinational corporations, who brought and enforced their code of conducts on Vietnamese facilities and branches to ensure global coherence among their organizations. Witnessing the profound impacts these strategies and initiatives have had on the brand and the society as a whole, together with Vietnam’s participation into the WTO, big local businesses with mindsets of going global quickly learned from these international players and started putting efforts in integrating CSR in their daily operation. Along with this realization comes better financial results, in 2008, the Institute of Labor Science and Social Affairs conducted a survey on 24 enterprises in the field of leather footwear and textile, which retracted results showing that thanks to CSR implementation, these businesses have witnessed increase in revenues, labor capacity and even better exporting rate. As from the governmental point of view, the topic of CSR is drawing more and more concerns due to the increasing number of environmental and social violations and the pressure coming from the society regarding the protection of the environment. This leads to many decisions regarding the prevention of environmental violations as well as setting up economic initiatives to facilitate sustainable social development. One of such decisions is Decision No. 192/QD-TTg in 2017 that gave approval to the plan of developing the environmental industry until 2025; or Decree No. 61 155/2016/NĐ-CP that provided a punishment framework for violation of the environment, applied for many units including businesses. At the moment, the most active governmental institution in terms of CSR is the Vietnam Chamber of Commerce and Industry (VCCI for short) with various topic-related initiatives from the 2005 inauguration of the “CSR towards sustainable development” award alongside other governmental bodies such as the Ministry of Labor, Ministry of Industry and Trade to name a few, to the launching of the Global Compact Network Vietnam as the cooperation between VCCI and the United Nations. Another governmental body that is relatively active in CSR reformation in Vietnam is the Vietnam General Confederation of Labor (VCGL for short) whose branches are cooperating with more and more union of Western countries to strengthen rights in Vietnam.

5.2. Shortcomings

            FDI companies in Vietnam are paying greate attention to performing CSR, especially the education sector of their CSR activities. Nevertheless, most companies have not made their best efforts in professionalizing CSR. Proofs are most companies do not have a separate division to be responsible for developing and implementing CSR activities. Decisions are made by top managers then passed down to Department of Sales, Public Relations and/or Human Resources to implement. This limits the part of Researching and Developing. Most of their CSR activities have not been planned for a long-term vision, but only planned when there are demands and conditions occurring. Methods, targets and locations of these activities are still narrow and centralized, resulting in restricted number of people reached.

           Performing methods are monotonic, lacking creativity and serious efforts. Most CSR activities to develop education conditions are available to students in big urban cities, while the real population in need is left inadequately approached. Communications and promotions for these activities are still underestimated. Currently, most businesses have not truly set up an impactful orientation for education developing CSR activities in Vietnam. Organizing location is limited to big cities and urban areas, while poor rural areas or mountainous and remote areas are more in need of support. Furthermore, implementing methods are effortless and not creative. The method of granting scholarship is not meaningful enough and has little effect to long-term development of national education. Companies are abusing the method since it takes least time and effort to complete.

           Business ethics reflect aspiration and expectations from within. CSR reflects aspiration and expectations from the outside. An important aspect of business ethics to companies and company evaluation is CSR. CSR was born after business ethics and currently is a priority concern of organizations. CSR is an expression of business ethics which actualizes standards and regulations into realistic actions, minimizing negative impacts. A company’s awareness regarding business ethics plays a stimulating and commanding role in individuals’ and organizational decision making, especially with highly self-conscious issues as education development for the community.

6. Recommendations and conclusion

6.1. Determining long-term orientation and vision regarding education developing CSR activities

           Innovation in corporate governance is an effective way to enhance social responsibility for the development of community. Refreshing the philosophy of enterprises, realizing the charter of enterprises as a guarantee for more responsible behavior of enterprises; enhancing customer-oriented management methods, with particular emphasis on two-way flow of information and customer feedback; implementing risk management through hands-on training for all employees. Build trust and support not only of customers, the public but also with all employees working in businesses, suppliers and distributors, investors, financial institutions and credit and government agencies. Social responsibility in general and education developing responsibility in particular, whether effective or not, starts from managers. If managers do not believe in the importance of social responsibility, community responsibility, proactive leadership, or support for CSR activities at grassroots level, if they do not show integrity and honesty in business as well as in personal life, CSR of that business would not likely to be successful.

6.2. Renovating and implementing codes of conduct

           Vision, business strategy, and the application of principles and codes of conduct to the management of education CSR activities are clearly useful in business. Developing a code of conduct for the environment as a commitment of corporate management to the law and as a reference for enterprise behavior towards the community, showing compliance and more implies the willingness to take responsibility and fulfill obligations when problems arise. These codes must respect and comply with the laws of Vietnam, including clear principles and standards committed throughout all processes. The entire business, whether they are leaders or employees, working together in compliance with these rules ensures that corporate behavior is ethical and responsible to the society.

6.3. Spreading inspiration to employees

           Awareness raising is not limited to the management level. Creating and maintaining internal information channels to disseminate knowledge to each employee in the enterprise is vital. The education activities, propaganda for employees, help them to understand the role of the impact of CSR on enterprises as well as the development of the community, while encouraging employees to change positively. Encourage employees to speak out in the implementation of CSR activities, contribute ideas that are relevant and useful to businesses. The awards, incentives and incentives of the local enterprises as well as within the enterprise for individuals would become the springboard pushing the real activity. Competitions are usually effective. Enterprises that want to develop sustainably and achieve economic success should have a more corporate social responsibility orientation.

           The above are just suggestions for some measures for businesses to improve the implementation of CSR for community development, especially education. The combination of measures together seriously would create good effects for businesses. Contributing to education development is the responsibility of not only any individual but the whole social community, by the unity of action of the government, from the central level, ministries, departments to localities, enterprises, organizations, social workers and customers. Education developing investment in particular, community involvement and development in general, is a way of sustainable development, building a living environment and a stable, favorable and healthy business environment.

           During nearly 30 years since the Law on Foreign Investment was promulgated, Vietnam has achieved impressive results in attracting FDI. Together with the rapid growth of GDP in both the economy and the FDI sector, the share of FDI in the GDP has been increasing. However, due to the rush of economic growth, so far, the contribution and attention to community involvement and development, particularly education, are stagnated. Following the current development trend, in parallel with the production and service provision of products and services, foreign enterprises operating in Vietnam have the responsibility to facilitate education conditions as well as contribute to sustainable development for the community and the environment of Vietnam. In order to create maximum conditions for FDI enterprises as well as to develop a sustainable future for the country, the Vietnamese Government should strive to continuously innovate approaches in the formulation of foreign investment policies. For the next period, effective measures should be applied to attract large multinational companies with diverse potentials, to improve and enhance the effectiveness and enforcement of law and CSR management with rigorous, deterrent and coercive sanctions.

6.4. Conclusion

Awareness of reputation impulsion by implementing corporate social responsibility regarding education, FDI companies in Vietnam have pay more attention to CSR methods as well as communication to society especially in higher education institution and general education schools. In order to improve efficiency and effectiveness, FDI companies should determine long-term orientation and vision regarding education developing CSR activities, renovate and implement codes of conduct, spread inspiration to employees.

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