Doing Business in Vietnam

An Expert's View about Business Environment in Vietnam

Last updated: 4 Mar 2011

Market Overview

• Vietnam is a true emerging market, offering ground floor and growing opportunities for U.S. exporters and investors. Vietnam’s economic growth rate has been among the highest in the world in recent years, expanding annually at 5-8.5 percent, while industrial production has been growing at around 14-15 percent per year.

 

• Vietnam registered an impressive GDP growth rate of 5.3 percent and was one of only a handful of countries around the world to experience positive economic growth in 2009.

 

• Moving forward, inflation is broadly acknowledged as the chief risk to Vietnam’s economy, which the Government of Vietnam (GVN) is addressing by trying to balance growth targets with price stability measures. This challenge will not be easy to meet. Nevertheless, the GVN and many economists predict 2010 GDP growth of about 6.5 percent, as the GVN focuses on stabilizing macro-economic indicators in the run up to the 11th Party Congress in January 2011.

 

• The momentum and direction generated by the entry into force of the U.S.–Vietnam Bilateral Trade Agreement (BTA) in 2001 transformed the bilateral commercial relationship between the United States and Vietnam and accelerated Vietnam’s entry into the global economy with Vietnam joining the WTO in January of 2007. Since the BTA, bilateral trade has increased over five fold from $2.9 billion in 2002 to $15.4 billion in 2009.

 

• Despite the global recession in 2009, U.S. exports to Vietnam grew by an impressive 11 percent to $3.1 billion, while decreasing by double digits to most other ASEAN countries. During the same period, Vietnam’s exports to the U.S. dropped 4.7 percent to $12.3 billion resulting in a net 9 percent decline in our bilateral trade deficit with Vietnam.

 

• In 2009, U.S. exporters saw significant growth in agricultural products sectors, which accounted for roughly one-third of U.S. exports to Vietnam. Industrial inputs also continued to see steady growth as Vietnam continues to import machinery, chemicals, instrumentation and software to support its growing industrial sector. As overall foreign direct investment declined in Vietnam during the global economic slowdown, the U.S. emerged as the largest investor in Vietnam in 2009 with most U.S. funds being committed to the industrial/manufacturing, real estate/tourism and construction sectors.

 

• The bilateral trade and investment momentum has continued with the United States and Vietnam signing a Trade and Investment Framework Agreement (TIFA) in 2007. Under the TIFA the United States and Vietnam continue to address trade and investment issues with the aim of advancing the BTA and Vietnam’s WTO commitments. Further, negotiations of a Bilateral Investment Treaty continued through 2009.

 

• In March 2010, Vietnam joined the United States, Australia and Peru in expansion negotiations with Trans-Pacific Economic Partnership (TPP) signatories, signaling their intention to join this high standard regional trade agreement.

 

• In 2009, Vietnam moved forward by implementing laws and regulations in compliance with its WTO obligations. Through 2015, the GVN will implement far-reaching economic, regulatory and administrative changes that will provide an increasingly favorable environment for American businesses to enter and expand in the market.

 

• To this end, in 2009 Prime Minister Nguyen Tan Dung began implementation of “Project 30,” the government’s far reaching initiative to cut, simplify and revise all national and provincial regulations that affect businesses and citizens throughout the country. In 2010, The Ministry of Planning and Investment also plans to pilot a revised public procurement process which is expected to make infrastructure development more transparent and provide greater access to public financing through the capital markets and public-private partnerships.

 

• Vietnam’s recent convictions of political activists, arrests of lawyers and journalists, pressure on independent research organizations and tightening restrictions on the media threaten to impact negatively the growing bilateral economic relationship.

 

• On January 1, 2010 Vietnam assumed the rotating Chair of the Association of Southeast Asia Nations (ASEAN) and will host the ASEAN Summit in Hanoi in October 2010. Many are looking to Vietnam to use this opportunity to demonstrate regional leadership, particularly in the area of economic development.

 

Market Challenges

• The evolving nature of regulatory regimes and commercial law in Vietnam, combined with overlapping jurisdiction among Government ministries, often result in a lack of transparency, uniformity and consistency in Government policies and decisions on commercial projects.

 

• Corruption and administrative red tape within the Government has led to a lack of transparency and has been a vast challenge for Governmental consistency and productivity.

 

• Many firms operating in Vietnam, both foreign and domestic, find ineffective protection of intellectual property to be a significant challenge.

 

• “Tied” official development assistance, in addition to corruption, continues to be a significant challenge for U.S. firms bidding on infrastructure projects.

 

• While Vietnam has reduced tariffs on many products in line with its WTO commitments, it reversed course on tariff reductions on a number of imports in 2008 and 2009, including meat and poultry, and automobile and automobile parts, all of which had been lowered in 2007. Firms find tariff changes such as these, which are often implemented with short phase-in periods, to be disruptive to business and manufacturing planning.

 

• Investors often find poorly developed infrastructure, high start-up costs, arcane land acquisition and transfer regulations and procedures, and a shortage of skilled personnel.

 

• Vietnam’s labor laws and implementation of those laws are not well developed; international companies sometimes face difficulties with labor management issues.

 

Market Opportunities

• Continued strong economic growth, ongoing reform and a large population of 86 million—half of which are under the age of thirty—have combined to create a dynamic and quickly evolving commercial environment in Vietnam.

 

• Sales of equipment, technologies and consulting and management services associated with growth in Vietnam’s industrial and export sectors and implementation of major infrastructure projects continue to be a major source of commercial activity for U.S. firms.

 

• In 2008 and 2009 per capita GDP surpassed $1,000. With disposal income levels in major urban areas four to five times this level, significant opportunities in the consumer and services sectors are fast emerging.

 

• Telecommunications, information technology, oil and gas exploration, power generation, highway construction, environmental project management and technology, aviation and education will continue to offer the most promising opportunities for U.S. companies over the next few years as infrastructure needs continue to expand with Vietnam’s pursuit of rapid economic development.

 

• The GVN plays a significant role in the economy, with state-owned enterprises (SOEs) making up 38 percent of GDP. The GVN strategy to “equitize” (partially privatize) SOEs in all sectors of the economy is slowly moving forward. While the GVN will maintain majority ownership in the largest and most sensitive sectors of the economy, including energy, telecommunications, aviation and banking, the equitization process will nevertheless create opportunities for many U.S. companies.

 

• Key U.S. agricultural inputs to production such as hardwood lumber, cotton, hides and skins and feed ingredients also continue to play a key role in helping fuel Vietnam’s export led manufacturing strategy. Demand continues to also grow for consumption oriented products such as meat, dairy and fresh and dried fruits.

 

• A new telecommunications law and a new radio frequency law were passed by the National Assembly in November 2009, potentially opening up new opportunities for trade and investment by foreign firms in this rapidly expanding market segment.

 

• As of January 1, 2009 the GVN allows wholly owned foreign invested companies in most sectors to distribute their own products, in line with its WTO commitments.

 

Market Entry Strategy

• American companies interested in doing business in Vietnam may do so indirectly through the appointment of an agent or distributor. U.S. companies new to Vietnam should conduct sufficient due diligence on potential local agents/distributors to ensure they possess the requisite permits, facilities, manpower and capital. Firms seeking a direct presence in Vietnam should establish a commercial operation utilizing the following options: first, a representative office license; second, a branch license; or lastly, a foreign investment project license under Vietnam's revised Foreign Investment Law.

 

• From 2005 to 2009, Vietnam’s National Assembly passed a number of laws affecting the commercial environment, including new enterprise, investment and intellectual property legislation, as well as industry specific laws, such as the 2009 telecommunications law. Effective implementation, including formulation and issuance of follow-on implementing regulations and decrees continue to be important in determining the on-going impact of many of these legislative initiatives.

 

• Over $12 billion of untied ODA (Official Development Assistance) funding has been committed to VN, primarily for infrastructure development. U.S. companies doing business in transportation, telecommunications, energy, environmental/water, civil aviation, financial services and other infrastructure sectors are advised to develop core strategies and capabilities for bidding on ODA (World Bank, Asian Development Bank, USAID) projects.

 

 

Read the full market research report


Posted: 16 June 2010, last updated 4 March 2011

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