Why would anyone wish to open a business in Vietnam? It is a simple answer: Why wouldn’t you? A geographically advantageous jurisdiction, a growing economy, and the regulation and rulebooks constantly being ripped up and revamped make it easier to enter into the business arena in Vietnam. However, there are still areas that need working on in order to facilitate the ease of setting up a business in Vietnam.
Vietnam is currently halfway down the “World Banks’ list of 189 economies for ease of doing business.” The factors attributing to this middle ranking are workforce and labor skills, a young infrastructure, higher levels of bureaucratic processes, juvenile laws that don’t cover gray areas, a lack of intellectual property rights, enforcement and language barriers.
As an example, if you intend to do business in Vietnam you will quickly have to come to terms with the “Red Chop,” which is a company seal and an example of a bureaucratic process. It can prove to be a cumbersome process to get any documentation legally authorized but by no means unmanageable. Recently, the Deputy Director of General Economics Department, under the Central Economic Committee, said “Vietnam must improve labor productivity of workers and employees.”
The Prime Minister asked the Ministry of Finance to hasten administrative reforms and improve transparency to create favorable conditions for business development. The Prime Minister also spoke earlier this year at a conference about the required changes that needed to be implemented in 2019 to ensure “the stability of policies, simplify tax and customs procedures, and reduce informal charges.” These are all signs that there is a conscientious move to ensure Vietnam can compete on the global stage and how the government can assist. The underlying fear is that Vietnam gets stuck in the middle class trap. It will take years to fully achieve these goals but everything has been set in motion to manage this process successfully.
Further evidence comes from the deliberate move away from a centrally planned economy to a market driven economy, such as a meteoric rise in certain areas like manufacturing has occurred. At a quarter of Vietnam’s GDP coming just from electronics manufacturing through giants such as Samsung and Panasonic, it truly does underline the willingness to adapt and grow.
The services industry alone makes up about 40% of the GDP, which is great news for those wishing to visit Vietnam. According to TripAdvisor, Vietnam has become the most favorable tourist destination in Southeast Asia and with it an expanding opportunity for the wouldbe entrepreneur and in turn, higher employment.
So, what should foreign investors do if looking to set up in Vietnam? Firstly, get into bed with a local company that fully understands the landscape and processes. By doing so, you will save yourself a massive headache, time and energy rather than trying to navigate this minefield on your own. They won’t be able to necessarily help with market studies, but once you have concluded your market due diligence and decided to pull the trigger and enter into business in Vietnam, they will almost certainly become invaluable.
Any new business coming into Vietnam should also consider how attractive they wish to be to their employees. Salaries may be relatively low currently, but that will change over time with increasing employee awareness. With that awareness comes employee expectation. Staff retention is always a major problem with businesses, especially juvenile businesses. Employee benefits are becoming more of a factor and should be considered seriously. You don’t wish to invest in training staff and immediately lose them to a competitor because they offer a slightly better package. Better health insurance plans, pension plans or even company share schemes for staff should all be put on the table to make sure your business is competitive and in line with current market expectations.
Nothing is impossible in Vietnam. Learn the rules and consider the cultural differences as a foreign investor. Nothing is ever done the same way as we might be accustomed to in our home countries. Those that adapt and learn this from the outset will always fair better in the long run. I look around every day and am constantly staggered by the pace that enterprises seem to pop up overnight— both domestic and foreign owned.
It seems almost every day businesses such as coffee shops seem to open up closer and closer to my home. I am almost certain that one day I will step out of my front door and before taking two steps be pounced upon by some genius entrepreneur who hands me a bagel and a latte as they have recognized that gap in the market. Not commercially cost effective, but wouldn’t it be nice.
Lawrence Young (FCSI) is the Senior Associate for Holborn Asset Management Group (HCMC office). Originally from the UK, Lawrence has been a finance professional for 30 years having worked across Europe and Asia as a stockbroker, Eurobond trader and interbank money broker. His areas of expertise lie in offshore tax efficient saving structures, higher education fee planning, inheritance tax planning, pension planning, life and health insurance, global investment property, offshore company formation and offshore banking. Email [email protected] if you would like him to answer your questions on these topics.