Joint Ventures/Licensing in Vietnam

An Expert's View about Licensing in Vietnam

Last updated: 4 Mar 2011

Joint Ventures: A foreign joint venture, one of the most popular forms of investment by foreign companies, is understood as an economic entity with at least one foreign company partner. The 2005 Investment Law permits the establishment of 100 percent foreign-invested enterprises (or 100 percent FIE’s- see above) in many but not all sectors. Recent reforms have made this an increasingly popular option, although some foreign investors still opt to form joint ventures with a Vietnamese partner. Joint ventures, like all different types of business formations, have advantages and disadvantages. On the positive side, a Vietnamese partner, which is often a state-owned enterprise (SOE), can contribute crucial relationships with government officials and clients, local market know-how, access to qualified staff, and knowledge of land-use rights. However, there are many potential liabilities with a Vietnamese partner. Local management skills are often limited and the organizational culture may be cumbersome and bureaucratic. They also may not share the fundamental outlook and objectives of their foreign partner and may hesitate to make major strategic moves such as recapitalization or fundamental changes to the business plan. Finally, a Vietnamese partner can rarely contribute significant operating capital to the business. Joint Venture licenses are normally granted for fifty-year to seventy-year periods and can usually be easily renewed with the mutual consent of all the parties, or, alternately, dissolved.

 

At present there are approximately 3,300 SOEs out of over 100,000 registered domestic enterprises. Under the State’s restructuring plan, many SOEs are destined for equitization, sale, lease, transfer, or closure. The private sector (generally taken to mean sole proprietorships and limited liability companies) makes up most of the rest. There are also a large number of household enterprises, which, although unregistered, comprise a significant share of non-agricultural output and employment. However, SOEs are often better capitalized and enjoy support from preferential policies, allowing them to dominate manufacturing and trade activities. Therefore, many foreign investors partner with SOE's, including firms controlled by central government ministries and by municipal and provincial authorities.

 

Local private firms generally lack the financial resources and know-how to facilitate contacts with potential foreign investors, while government ministries and provincial authorities usually promote enterprises related to their own organizations. Private firms may have to contend with greater government-imposed controls than their state-run counterparts, specifically with respect to access to land, trading licenses, and entry barriers in some sectors. The state-owned sector also has preferential access to financing and foreign exchange. Technology can be transferred by outright sale, licensing, or contribution as capital. Foreign JVs often contain technology transfer provisions. The Ministry of Science and Technology has primary authority to approve technology transfer contracts. The implementing regulations of the law governing technology transfer have made such deals difficult. The key areas to note are strict requirements for precise details on the timetable for the delivery of technology; provisions requiring extensive warranties; the limited duration of contracts; and restrictions on royalty rates. The Commercial Law does provide protection for transferred technology, but some of its provisions remain to be implemented.

 

Licensing: Despite recent improvements, licensing arrangements are beset by many of the same problems as franchising: stringent regulations, long approval times and restrictions on payments, limited contract duration, weak legal frameworks and intellectual property rights (IPR) problems. Nevertheless, there is considerable licensing of trademarks, technology, and after-sales service activities from overseas companies to affiliated joint ventures in Vietnam.

 

 

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Posted: 16 June 2010, last updated 4 March 2011