1
ACKNOWLEDGMENT
The author would like to express his sincere gratitude to the supervisor Assoc. Prof.
Dr. Bui Anh Tuan for this precious guidance, fully supported and valuable suggestions
throughout the research study.
Thanks are due to and advisor: H.E. Hiem Phommachanh, Dr. Thansamay
Kommasith, Assoc. Prof. Dr. Lai Phi Hung, Assoc. Prof. Dr. Hong Van Cuong, Assoc.
Prof. Khampheuy Phommachanh, Mrs. Phonephet Miphenglavanh MBA, Mrs.
Khamkieng Phothirath, Mr. Phakavanh Phothirath, Mr. Ketsavanh Phothirath,
Mr.Bounsaleumxay Khennavong MBA, Mr. Oudasack Lasoukanh MSc, Mr. Somlith
Phouthonsy, Mr. Snith Xaphakdy MSc, Mr. Hoang Quoc Khanh, Mr. Phung Huy Tam, Mr.
Doan Hieu, Miss. Phuong Tran Linh for their valuable contribution in serving as
committee members, as well as for precious suggestions and comments on the research
study.
Thanks are also extended to committee council of the national level as: Prof. Dr.
Tran Tho Dat, Assoc. Prof. Dr. Ta Van Loi, Prof. Dr. Nguyen Thi Thanh Minh, Assoc.
Prof. Dr. Bui Huy Nhuong, Dr. Nguyen Thi Nguyet, Assoc. Prof. Dr. Le Quoc Hoi.
Thanks General Director and Deputy Director of The National University of Laos
are also extended to professors and General Director and Deputy Director of The National
Economics University of Vietnam, and are also due General Director and Deputy Director
of Telecommunications in Laos and Vietnam.
Special thanks are expressed to the Minister of Education and Training of SR
Vietnam and Minister of Education and sports of Lao PDR for providing access to
different departments and different companies to support and collect data.
Lastly, the grateful the Laos and Vietnam Government, for giving cooperation
program to upgrade our knowledge furthermore and to obtain a prestigious Ph.D. degree
from two Universities as the National Economics University of Vietnam, Hanoi, Vietnam
SR and the National University of Lao, Vientiane capital, Lao PDR.
2
ABBREVIATIONS


LTC Enterprise of Joint Venture of Lao Telecommunications
LDC Least developed country
LBF Lao Business Forum
3
LNCCI Lao National Chamber of Commerce and Industry
MPT Ministry of Posts and Telecommunications
MST Ministry of Science and Technology
MOT Ministry of Trade
MPI Ministry of Planning and Investment
MDGs Millennium Development Goals
MNE Micro and Nano Engineering
MAI Multilateral Agreement on Investment
MoES Ministry of Education and Sports
MoIC Ministry of Industry and Commerce
NGPES National Growth and Poverty Eradication Strategy
NSEDP National Socio-Economic Development Plan
NUoL National University of Laos
NIPTS National Institute of Post and Telecommunications Strategy
NPEP National Poverty Eradication Programme
NICTA National ICT Association
OoG Office of Government
OSP On-line service provider
OECD Organization for Economic Co-operation and Development
SME Small and medium sized enterprises
SOE State owned enterprise
SMEPDO The National Small and Medium-Sized Enterprise Promotion and
Development Office
PPP Provincial Public-Private
TRIMS Trade Related Investment Measures
TFP Total Factor Productivity

Table 2.8: Telecommunications sector Revenue Summary year 2014 to 2020 110

Table 2.9: The Company’s establish of FDI 120 LISTS OF FIGURE
Figure 1.1: Porter’s National Competitive Advantage Theory 13

Figure 2.2: The international connection point 79

Figure 2.3: Fixed lines in service, 1995 – 2014 82

Figure 2.4: Fixed-line subscribers and market share in 2013 83

Figure 2.5: Mobile subscriber’s growth, 2014 85

Figure 2.6: Mobile subscribers and market share, 2014 86

Figure 2.7: Internet users, 1998 – 2014 89

Figure 2.8: Overview of the ICT Development Index 95

Figure 2.9: FDI’s Telecommunications sector by partner, up to 2013 101

Figure 2.10: The companies’ share of FDI 114

Figure 2.11: Telecommunications sector facility 122

areas. The session proceeded as the entire Party, army and society are focusing on
formulating action plans to realize the Resolution of the 9
th
Party Congress and the Seventh
(7) Socio-Economic development plans for 2011-2015 and all these efforts can lay the
foundation for Lao PDR to rise above least developed country status in year 2020 [14].
Foreign Direct Investment (FDI) has played a very important role in the development
of the Lao’s telecommunication sector in Lao PDR. The Government has formulated
policies to attract FDI to this sector. But FDI inflow to Lao’s telecommunications sector is
not enough as expected. This issue has affected the development of the sector as well as
the economic development of the country. The results, starting from an extremely low
base, were striking - growth averaged 6% per year from 1988-2008 except during the
short-lived drop caused by the Asian financial crisis that began in 1997. Laos' growth
exceeded 7% per year during 2008-13. Despite this high growth rate, Lao PDR remains a
country with an underdeveloped infrastructure, particularly in rural areas. It has a basic, but
improving, telecommunications system, and limited external and internal land-line
telecommunications. Laos' economy is heavily dependent on capital-intensive natural
6
resource exports. The economy also has benefited from high-profile foreign direct
investment in telecommunications, logging, and construction though some projects in these
industries have drawn criticism for their environmental impacts. Lao PDR is in the process
of implementing a value-added tax system. Simplified investment procedures and
expanded bank credits for small companies and small entrepreneurs will improve Laos'
economic prospects. The government appears committed to raising the country's profile
among investors, but suffered through a fiscal crisis in 2013 brought about by public sector
wage increases, fiscal mismanagement, and revenue shortfalls. The World Bank has
declared that Laos' goal of graduating from the UN Development Program's list of least-
developed countries by 2020 is achievable, and the country is preparing to enter the
ASEAN Economic Community in 2015.
This dissertation needs to be fulfilling the following tasks: to analyses the

telecom market lucid and methodical.
FDI in services responds well to openness especially when it comes to the telecoms
sector. This is quite evident looking at the recent boom in the Lao Telecoms sector. Further
liberalization of services involves potential advantages for Lao economy. Benefits can
arise from increased competition, lower prices, and better quality of services. FDI in
services like telecommunications provide key inputs to other productive activities that lead
to further investment and competitiveness of an economy. Efforts should be made towards
attracting efficiency seeking FDI through a right policy that expands operation, improve
local skills, establish linkages and upgrade technology.
However, precautions should be taken to avoid the risk of foreign investors out-
competing domestic investors especially in case of infrastructure services like
telecommunications. Services where domestic investors are not able to cater to the growing
demand, or where domestic service-providers do not have the ability or capacity to provide
the required quality of services.
To circumvent such spirals it is important for the region to have appropriate domestic
regulations or enabling environment in place, which will assure better quality of services at
affordable prices. Clear domestic regulations increase transparency in the system and
encourage FDI. To sustain the momentum of growth in services trade in the region,
conscious efforts should be made to improve the competitive advantage of the region as a
whole. Inclusion of trade in services may help attract FDI in services and lead to greater
intra-regional trade. Access to more efficient services could lead to higher growth in
productivity in other sectors, which, in turn, could improve the overall competitive strength
of the region.
8
Thus it can be concluded that the recent upward swing in the telecommunication sector
in Lao PDR is due to the introduction of FDI in this sector by the Lao Government since
1991 but at the same time we must also be careful and not get carried away by this
development and should have proper regulations in place to actually utilize this situation to
our advantage.
Laos and Vietnam will struggle strive target for a 20 percent trade growth in two-way

- To investigate the main drivers of improve FDI to the telecommunications sector in Lao
PDR in the period 2003-2013.
- To give the solutions to attract FDI to develop the telecommunications sector in Lao PDR
in the period is better of 2015 to 2020.
4. Research Questions.
- How does Lao’s telecommunications sector contribute to the development of Lao’s
economy?
- How the FDI have played in the development of the telecommunications sector in Lao
PDR in the period 2003-2013?
- What is the current situation of FDI in the telecommunications sector from 2003-
2013?
- What are factors to improve the FDI inflow into Lao’s telecommunications sector?
- What and how to improve FDI in to Lao’s telecommunications sector in the period
2015-2020?
5. Research Methodology.
Overall, the section of this paper is concerned with the social construction and
disbursement of rationality and the way in which this rationality affects the power and
political structure of organizational functioning through a variety of organizational and
sociological theories. The organizational and sociological theories utilized are referred to
as interpretive perspectives, which also draw from the organizational decision-making
perspective. Exclusively, a number of organizational and social theories including
institutional theory, resource dependency theory, political perspectives, and the sociology
of professions are looked at to examine the relevance of interpretive perspectives. In
summary, "interpretive perspectives of managerial accounting have begun to see
managerial accounting practices and information as socially constructed phenomena with
the full implications of the power and politics of social construction rather than as a
technically rational function driven by and serving the internal operations of
10
organizations." Managerial accounting is seen as being implicated in the social
construction of reality rather than as being passively reflective of the reality as depicted in

3. Chapter 2: Situation of FDI attraction into telecommunication sector in Lao P.D.R
4. Chapter 3: Solutions and recommendations in FDI attraction into telecommunication
sector in Lao P.D.R
5. Conclusion 12
CHAPTER 1

FDI THEORIES FRAMEWORK AND THE IMPORTANT OF
FDI ATTRACTION INTO TELECOMMUNICATION
SECTOR IN LAO P.D.R

with forcing US
software companies to continuously innovate, thus creating a sustainable competitive
advantage in software products and services.
3. Local suppliers and complementary industries. To remain competitive, large global
firms benefit from having strong, efficient supporting and related industries to provide
the inputs required by the industry. Certain industries cluster geographically, which
provides efficiencies and productivity.
4. Local firm characteristics. Local firm characteristics include firm strategy, industry
structure, and industry rivalry. Local strategy affects a firm’s competitiveness. A
healthy level of rivalry between local firms will spur innovation and competitiveness. Figure 1.1: Porter’s National Competitive Advantage Theory
Source: Theory of International Trade and Investment. International Business, the
challenge of global competition, twelfth edition. Dolnald A.Ball, J.Michael S.Minor,
Jeanne M.McNett
14
In addition to the four determinants of the diamond, Porter also noted that government
and chance play a part in the national competitiveness of industries. Governments can, by
their actions and policies, increase the competitiveness of firms and occasionally entire
industries.
Porter’s theory, along with the other modern, firm-based theories, offers an interesting
interpretation of international trade trends. Nevertheless, they remain relatively new and
minimally tested theories.
(2) Product Life Cycle Figure 1.2: Product Life Cycle Theory
Source: Wild, John J., K. L. Wild, J. C. Y Han (2000), International Business: An
Integrated Approach, Prentice–Hall, Inc., Angelo Francesco Rossi (2013).

modified to include a greater transnational dimension.
•
Decline. As the product is becoming obsolete, production essentially takes place in low
costs locations. Production and distribution economies are actively sought as profit
margins decline. Eventually, the product will be retired, an event that marks the end of
its life cycle.
Conventionally, as a product went through its life cycle the least profitable
functions were relocated to lower costs locations, notably in developing countries. This
dichotomy is being challenged since it is becoming more common, even for high
technology products, that the manufacturing of a new product immediately takes place in a
low labor cost location. Multinational corporations have global production networks that
16
enable them to efficiently allocate design, production and distribution according to global
factors of production. This also relies on outsourcing and subcontracting.
(3) Imperfect competition and price discrimination
Competition emerges when different people recognize similar opportunities and set
up firms to exploit them. The classic forum for competition is the final product market,
where producers confront consumers. Competition based on freedom of entry into industry
discourages the exploitation of consumers because any attempt by a firm to raise prices
will attract entry, increase supply, reduce prices and restore profits to their normal level.
Likewise, competition for free labor will ensure that labor is not exploited either.
It is widely held that monopoly is not only inequitable, but also inefficient. It is
argued that monopolized industries produce too little output because the price is so high
that it restricts consumer demand. Strictly speaking, however, it is only differences in the
degree of monopoly between industries that reduce efficiency. If all prices were raised in
the same proportion, then relative prices would be unchanged and consumer purchasing
decisions would not be distorted (although other decisions might be distorted instead)
(Lerner, 1944)[45]. The argument against monopoly also assumes that the monopolist must
charge the same price to all customers. This ignores the possibility of discriminatory
pricing (Phillips, 2005)[46]. If the monopolist knows the maximum amount that each

be difficult to partition local markets in this way. If licensees can export, then they can
invade each other’s territories; this threat will reduce the value of the licenses, and
ultimately reduce the technology owners’ rents. The technology owner may therefore be
obliged to use a single licensee for all markets, who will be less effective in each market
and generate fewer rents for the licensor.
Inability to discriminate can also be an issue for ordinary intermediate product
markets where production at certain stages exhibits economies of scale. Within a multi-
stage production system (a “value chain”), one stage (say the upstream stage) may exhibit
substantial economies of scale, so that industry production is in the hands of a single firm,
while the downstream stage may exhibit constant return to scale, so that many small firms
are involved. If the upstream firm sets a uniform monopoly price, then downstream
decisions will be distorted by the artificial scarcity of the intermediate input (e.g. excessive
costs will be incurred in avoiding wastage) (Warren-Boulton, 1978)[43]. On the other
hand, if the upstream firm charges all the downstream firms a two-part tariff, comprising a
lump sum payment for the right to purchase and a unit price equal to upstream marginal
costs, then distortion will be eliminated. The efficiency gain will accrue to the monopolist,
whose profits will increase as a result. However, if the downstream firms can re-sell, then
18
the system will be undermined, as they can form a buyers’ co-operative and pay the lump
sum only once. Furthermore, with a downstream buyer’s co-operative confronting an
upstream monopolist, a bilateral monopoly may develop; competition breaks down, and
exchanges of threats may ensue.
(4) Economic globalization.
Economic globalization went along with booming FDI in developing countries,
which attracted a rising share of world-wide FDI flows in the 1990s. In various developing
countries, FDI plays a more significant role than in developed countries. The good news is
that FDI is anything but a zero-sum game, in which one particular country could attract
FDI only at the expense of another country. Additional FDI is likely to take place when
new investment opportunities emerge in countries opening up to FDI. Essentially, all
developing countries have the chance to become attractive to foreign investors, not only

sharing properties, but not necessarily in all respects. The nexus between FDI and overall
investment as well as economic growth in host countries is neither self-evident nor
straightforward, but remains insufficiently explored territory.
- The theory of internalisation was long regarded as a theory of why FDI occurs
- By internalising across national boundaries, a firm becomes multinational
- Some economists have suggested that even though ownership specific advantages
and internalisation advantages are necessary for FDI to occur, it is still not a sufficient
explanation.
- Under what circumstances is it likely that a firm would want to replace the open
market and instead use an internal transaction?
- Ensure product quality (forward integration)
- Ensure stable supply of raw materials (backward integration)
- Market for knowledge?
(5) Internalization theory

Internalization theory focuses on imperfections in intermediate product markets.
Two main kinds of intermediate product are distinguished: knowledge flows linking
research and development (R&D) to production, and flows of components and raw
materials from an upstream production facility to a downstream one. Most applications of
the theory focus on knowledge flow. Proprietary knowledge is easier to appropriate when
intellectual property rights such as patents and trademarks are weak. Even with strong
protections firms protect their knowledge through secrecy. Instead of licensing their
knowledge to independent local producers, firms exploit it themselves in their own
production facilities. In effect, they internalize the market in knowledge within the firm.
20
The theory claims the internalization leads to larger, more multinational enterprises,
because knowledge is a public good. Development of a new technology is concentrated
within the firm and the knowledge then transferred to other facilities.
(6) Eclectic Market or Market power.
The eclectic paradigm is a theory in economics and is also known as the OLI-

Table 1.1: Internalization advantages
Source:
Dunning (1981)
Categories of advantages
Ownership

advantages

Internalization

advantages
Location

advantages

Form of
market entry

Licensing

Yes No No
Export Yes Yes No
FDI Yes Yes Yes

Source: Dunning (1981)

 Theory
The idea behind the Eclectic Paradigm is to merge several isolated theories of
international economics in one approach. Three basic forms of international activities of
companies can be distinguished: Export, FDI and Licensing. The so-called OLI-factors

developing countries, leads to the opposite outcomes. These conditions are similar to those
suggested by Porter's diamond model of national competitiveness.
 Application in practice
In dependence of the categories of advantage there can be chosen the form of the
international activity. If a company has ownership advantages like having knowledge
about the target market abroad, for example staff with language skills, information about
import permissions, appropriate products, contacts and so on, it can do a licensing. The
licensing is less cost-intensive than the other forms of internalization. If there are
internalization advantages, the company can invest more capital abroad. This can be
achieved by export in form of an export subsidiary. The FDI is the most capital intensive
activity that a company can choose. According to Dunning, it is considered that locational
advantages are necessary for FDI. This can be realized by factories which are either
bought or completely constructed abroad.

1.2 FDI and role of FDI
1.2.1 Definition of FDI
Investment has different meanings in finance and economics. In Finance
investment is putting money into something with the expectation of gain that upon
thorough analysis has a high degree of security for the principal amount, as well as security
of return, within an expected period of time. Investment is related to saving or deferring
consumption. Investment is involved in many areas of the economy, such as business
management and finance whether for households, firms, or governments. To avoid
speculation an investment must be either directly backed by the pledge of sufficient
23
collateral or insured by sufficient assets pledged by a third party. A thoroughly analyzed
loan of money backed by collateral with greater immediate value than the loan amount
may be considered an investment. A financial instrument that is insured by the pledge of
assets from a third party, such as a deposit in a financial institution insured by a
government agency may be considered an investment.
Investment Casting (1) Casting metal into a mold produced by surrounding, or

equal economic stature.
Advantages: 1 Causes a flow of money into the economy which stimulates
economic activity; 2 Employment will increase; 3 Long run aggregate supply will shift
outwards; 4 Aggregate demand will also shift outwards as investment is a component of
Aggregate demand.
Disadvantages: 1 Inflation may increase slightly; 2 Domestic firms may suffer if
they are relatively uncompetitive; 3 If there is a lot of FDI into one industry e.g. the
automotive industry then a country can become too dependent on it and it may turn into a
risk that is why countries like the Czech Republic are "seeking to attract high; value-added
services such as research and development (e.g.) biotechnology)" 4 Foreign
investment creates employment, and can lead to technological development through
technology transfers.
Types of Foreign Investment: When it comes to investment, many people turn to
foreign companies to invest in. People want to invest in other countries’ businesses
because of their economies. You may find that another nation’s economy is much better
than your own, and you can see a larger profit by investing in their businesses. Businesses
want foreigners to invest in their companies because it helps their business grow and
spread to other nations. If you are interested in foreign investment, you should consider the
four different types and decide which type of investment you will use. Companies such as
Great Plains Lending can help give you information and even issue loans.
Loan Investments: There are two different types of foreign loan investments,
including commercial loans and official loans. A commercial loan is a loan granted for the
use of a business, rather than for personal use. Commercial loans are generally short-term
loans issued to foreign businesses.
Foreign Direct Investment (FDI) plays an extraordinary and growing role in
global business. It can provide a firm with new markets and marketing channels, cheaper
production facilities, access to new technology, products, skills and financing. For a host
country or the foreign firm which receives the investment, it can provide a source of new
technologies, capital, processes, products, organizational technologies and management
25

processes and services in order to stay in the market. FDI enhanced the quality of products,
services and regulates a particular sector. Linkages and spillover to domestic firms-