SOUTH KOREAN MULTINATIONAL ENTERPRISES AND VIETNAM SMEs’ PARTICIPATION IN GLOBAL PRODUCTION NETWORKS IN THE CONTEXT OF INCREASED ASEAN AND EAST ASIAN REGIONAL ECONOMIC INTEGRATION

This paper examines the influence of regional economic integration, particularly the ASEAN Economic Community and free trade agreements, on the investment decisions of South Korean Multinational Enterprises (MNEs) in Vietnam and their subsequent linkages with local Small and Medium Enterprises (SMEs). Using qualitative interviews and data analysis focused on the garment and electronics sectors, the study finds that while regional integration has significantly driven Korean FDI inflows—motivated by Vietnam's low labor costs, political stability, and government incentives—the integration of Vietnamese SMEs into global production networks remains limited. Korean MNEs often operate within "enclave" structures, relying on their own subsidiaries or global suppliers rather than local firms due to the latter's lack of capacity, capital, and ability to meet stringent technical standards. The paper concludes that merely attracting FDI does not guarantee spillover benefits for local industrial upgrading and suggests that policymakers should design specific incentives to support SMEs in overcoming barriers to entry, potentially by facilitating partnerships with smaller FDI firms as a stepping stone to global value chains.