Foreign invested enterprises scale up business

“Difficulties” was the word heard from all the surveys on the Vietnamese business community about their business performance over the last two years.

State owned enterprises have been facing big difficulties due to the bad corporate governance which has forced them to undergo a comprehensive restructuring process. 

Private enterprises have been struggling hard to survive the current difficulties, when they have to pay high for bank loans and compete with the state owned conglomerates which can enjoy preferences from the state’s policies.

Meanwhile, foreign invested enterprises have been staying safe from the input material price increases, high bank loan interest rates and low market demand – the problems which domestic enterprises have been most complaining about.

While domestic enterprises have to scale down production and try to maintain their business at a moderate level, foreign invested enterprises have increased their investment capital to expand their production.

Analysts have noted that foreign investors, taking full advantage of the simplified licensing procedures, have been increasing their investment capital in Vietnam once they can see big opportunities in long term.

In late June 2012, Japanese Nidec Group invested 40 million dollars more in the High Technology Park in HCM City, setting up Nidec Seimitsu (NSTJ) Company, raising its total investment capital in Vietnam to 246.5 million dollars.

A series of other foreign invested enterprises have also increased their registered investment capital. The Times Square Vietnam Company has registered the additional investment capital of 375.3 million dollars. The 100 percent Hong Kong invested E.B Phu Thanh Company has decided to invest 13 million dollars more, while Pizza Vietnam has increased the investment capital from 6 million dollars to 15 million dollars.

However, opinions still vary about if this should be seen as good news for the national economy. Some analysts believe that many foreign invested enterprises still can make profit in the context of the global economic crisis just because they “play tricks” to cheat taxation bodies. One of the “tricks” carried out by the enterprises is the so called “transfer pricing.”

“Transfer pricing” is understood as the implementation of the pricing policies on goods, services and assets transferred among the subsidiaries across borders, which do not follow the market prices, aiming to minimize the sums of tax that multi-national companies (MNC) have to pay around the world.

With the transfer pricing, a lot of foreign invested enterprises have been making profits, but they reported loss to evade the corporate income tax

Some foreign invested enterprises, which listed their shares on the bourse, declared their assets at the values higher than the actual values in order to set high debut prices. This allowed them to make high profits when they sold shares later for profit. In many cases, the investors sold all the shares to take back the investment capital and withdraw all the capital from Vietnam.

Vietnam strives to attract FDI

The latest report of the Ministry of Planning and Investment showed that by 2011, Vietnam had had 283 industrial zones (IZ) in 58 cities and provinces. With the investment incentives, favorable business conditions, improved infrastructure and simplified administrative procedures, the IZs and export processing zones (EPZs) have become the attractive destinations for foreign investors.

By the end of December 2011, IZs and EPZs had attracted 4113 foreign invested projects capitalized at 59.6 billion dollars in total.

Khang An