Vietnam Is A Fast-Growing But Complex Business Environment

Vietnam is considered as one of the most promising emerging markets in Asia, and is often seen as a more convenient place for businesses to establish their base as compared to its neighbour China. However, it is still not an easy task for foreign investors to invest in Vietnam. The country has a lot of pluses but also also faces many minuses as well.

In 2022, the country’s GDP grew by 8.02%, the highest since 1997. Foreign direct investment, which is one of the major economic drivers for Vietnam, increased by 13.5% to $22.4bn in 2022. The manufacturing and real estate sectors received the most foreign funds, followed by electricity production. We discount real estate investment to a degree because that doesn’t necessarily reflect a good business atmosphere, just a growing market for real estate speculation.

Importantly, Vietnam is a signatory to various regional and global forums, including the ASEAN, and its Economic Community, as well as the EU-Vietnam Free Trade Agreement and the Trans-Pacific Partnership, which makes it an attractive destination for investment.

The government has put the building blocks in place to sustain a growing economy and as a result, Vietnam’s economy is projected to grow at a rate of over 6% annually in the upcoming years, driven by a young, educated, and diligent population. Notably this is the fastest-growing middle class in South Asia, which offers an expanding domestic market.

Practical Considerations

For foreign businesses looking to invest in Vietnam, there are several challenges to consider. It is advisable to conduct thorough research in the country before making a final decision. The TMF Group’s 2022 Global Business Complexity Index, ranks Vietnam 42nd for the complexity of its business environment. However, this is an improvement from its ranking of 21st in 2021 and 24th in 2020.

Starting a business in Vietnam now only requires two major steps, as opposed to seven in the past, and the timeline has been reduced to less than two months for normal business activities.

Before registering an entity, it is necessary to have a company address and a signed lease. Additionally, there are restrictions on some foreign investments, with certain industries such as drugs, chemicals, minerals, biological businesses, and firecrackers banned from foreign funding.

Changes Are Coming But Many Still Remain

Vietnam is a country that is undergoing significant changes and becoming more integrated into the global community. However, there is still a considerable amount of bureaucracy and lack of transparency in the country’s regulatory systems as they try to adapt to modern standards. The commercial laws and regulatory regimes in Vietnam are under the jurisdiction of multiple government ministries, which can result in inconsistent policies.

To conduct business in Vietnam, all documentation must be translated into Vietnamese and certified by a Vietnamese embassy after being authenticated by the home country’s courts. Licenses are also issued in Vietnamese. Although some licensing and reporting procedures can be completed online, the language and authentication requirements remain unchanged. Recently, the Vietnamese government has been attempting to simplify its complex tax system, but it is still a time-consuming and burdensome process.

You Have To Learn To Play The Game

When conducting business in Vietnam, it is crucial to understand and adhere to the business culture. This involves active participation in the cultural norms and practices that influence the local business environment.

The Vietnamese business culture is heavily influenced by Confucianism, which emphasizes the importance of social connections and relationships between business partners. In order to establish a strong connection with local suppliers, be prepared to share personal information about yourself, such as details about your family and hobbies. The way in which you meet your business contacts can also influence pricing and the success of business deals. It is important to note that seniority and hierarchy play a significant role, particularly when dealing with government or state-owned organizations.

Additionally, decisions in Vietnamese businesses are typically made through collective decision-making processes, rather than being based on the opinions of individuals. Therefore, building group connections is essential for success in the Vietnamese business world.