10 Challenges of Doing Business in Vietnam
Vietnam is an ideal place in Southeast Asia to expand business thanks to stable politics, favorable economic conditions, a young population and an increasing middle class. Vietnam is a country with a strong Vietnamese entrepreneurial spirit from boys and hotel luggage workers to businesses. These are very positive signs and we believe that this Vietnamese entrepreneurial spirit will spread to other countries in Asia.
Vietnam has changed dramatically and attracted many foreign investors when many multinational corporations began to set up offices. In the past decade, despite the difficulties, Vietnam has achieved positive economic indicators, especially after 2009, when the economy developed strongly and by 2015, the economic growth rate was 6.7%.
Vietnam has a stable economy, positive political conditions and low competitive tax rates. Besides, the Government of Vietnam always pays great attention to reforming administrative procedures to create conditions for domestic and foreign businesses to operate smoothly. Vietnam persistently attracts green and sustainable development investment with high levels of grey matter. It encourages investments in manufacturing technology projects and investments in high technology, biotechnology, health and education.
However, in doing business in Vietnam, there will be many obstacles,therefore to help domestic and foreign businesses, we will list the Top 10 challenges of doing business in Vietnam so that companies can avoid unnecessary risks and problems
Here are the Top 10 challenges of doing business in Vietnam
1. Legal considerations
As a result of entering into numerous international free trade agreements, Vietnam has reformed its domestic legislation, although there are still inconsistencies in some areas.
2. Intellectual Property Rights (IPR)
Vietnam has regulations in place to protect IPR, but the enforcement is weak. You must take the necessary measures to protect your IP before exporting. If faced with infringement, you must work with the relevant inspectorates in various ministries.
IPR abuse remains a problem in Vietnam and can be a deterrent to UK companies wanting to do business in the country. However, Vietnam is taking steps to address the problem by enacting legislation that protects intellectual property rights, including copyright, industrial property and plant varieties. The National Office of Industrial Property of Vietnam (NoIP) is the authority responsible for registering intellectual property. Foreign firms that wish to register their intellectual ownership need to file an application via an authorised agent who can transfer their application to NoIP.
3. Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Corrupt practices are widespread in Vietnam, which has ranked consistently low in Transparency International’s Corruption Perceptions Index for several years (112th out of 168 countries in 2015). Corruption remains an issue in Vietnam. Anyone doing business in the country is likely to encounter, or hear of corruption in one form or another. Practices such as facilitation payments, bribes and giving and receiving expensive gifts in order to develop business relationships are still a problem in certain places.
The Government has proclaimed its commitment to anti-corruption and taken a range of concrete actions, including adopting and improving anti-corruption laws, developing anti-corruption strategies, strengthening relevant institutions and ratifying the UN Convention against Corruption (UNCAC), but it has been difficult to translate these policies into effective practice. Prevention and enforcement activity has been weak. Against this, analytical tools such as the UN’s Public Administration Performance Index shows significant variations in perceived levels of corruption.
The Advice to companies encountering corruption is simple – do not get involved. Not only are there issues of business integrity to bear in mind, but of course it is also illegal. Invariably, corruption is related to the lack of professionalism and control, all of which are damaging to long-term business. A number of foreign companies have managed to do business successfully in Vietnam while staying clean – this often involves making clear from the outset that they have zero tolerance for corruption.
4. Paying Taxes
There are a massive 32 corporate tax payments to be made each year which takes an average of 872 company hours to complete. Compared to the OECD norm of 176 and the East Asia and Pacific average of 209, taxation is one of the most burdensome processes of doing business in Vietnam.
5. Trading Across Borders
Given its strong manufacturing base and reliance on interconnectivity, trading across borders is a cheap endeavor. However, that isn’t to say the process is not complicated, and the stream of documentation required for both importing and exporting highlights that cross-border trade can be difficult at the best of times.
6. Enforcing Contracts and Resolving Insolvency
Enforcing contracts takes 400 days to complete and 34 procedures. Resolving insolvency is a far more laborious process, taking five years on average to complete and with a low recovery rate.
The Vietnamese believe in the teachings of the early Chinese philosopher Confucius which emphasise the importance of relationships, responsibility and obligation. Vietnam is also a collectivist country and community concerns will almost always come before business or individual needs. We have the local knowledge to help you navigate these minefields.
8. Bureaucracy and Transparency
Vietnam is a country in flux, one moving into a more globalised outlook. As such, you’ll likely still encounter a lot of bureaucracy and lack of transparency as regulations move into the modern age. Vietnam’s regulatory regimes and commercial law, and the overlapping jurisdictions of some government ministries, can result in a lack of consistency in government policies. There’s also poor corporate disclosure standards and a lack of financial transparency, which can add to challenges for due diligence and KYC.
9. Reporting and Filing (in Vietnamese)
All paperwork must be written in the Vietnamese language, and all foreign paperwork must have certified Vietnamese translations – they should be notarized or certified by courts in the home country, and then authenticated by a Vietnamese embassy. Licenses are also issued in Vietnamese.
The Vietnamese dong is closely connected to the US dollar through a crawling peg, which provides exchange rate stability between trading partners. Considered one of the most stable Asian currencies, the dong has aided foreign direct investment. It’s worth noting that the government heavily regulates transactions in relation to foreign currencies, with rules on inflow generally more relaxed than those on outflow.