According to current Vietnamese regulations, unless a foreign company has an investment license permitting it to directly distribute its own goods in Vietnam, which includes invoicing in local currency, a foreign company must appoint an authorized agent or distributor.
Agents: A Vietnamese agent sells a foreign supplier’s goods in Vietnam for commission. In this case, the sale is normally transacted between the foreign supplier and a local buyer in Vietnam while the Vietnamese agent typically performs the following responsibilities: market intelligence, identifying sales leads, pursuit of sales leads, sales promotions, sales closing, product warranty and after-sales services, etc. The specific responsibilities of a Vietnamese agent depend on the agency agreement between the agent and the foreign supplier. The risk of non-payment rests with the foreign supplier. Vietnam's Trade Law recognizes the right of foreign companies to appoint agents provided that the Vietnamese agent's registered scope of business includes such activities. In some cases, a foreign supplier can appoint a sales representative (an individual) instead of an agent (a company). Despite a number of benefits, this approach is considered more risky than using an agent.
Distributors: Under a distributorship arrangement, the question of legal protection and recourse is clear. The Vietnamese distributor buys the goods from the foreign supplier for resale in Vietnam and thus is liable for the full amount of the goods purchased. In many cases, a distributor also acts as an agent for the same foreign supplier and this typically occurs when a local buyer wants to purchase directly from the foreign supplier commonly in a contract of high dollar value.
Legal and Practical Considerations: U.S. companies should conduct sufficient due diligence on potential local agents or distributors to ensure that they have the specific permits, facilities, manpower, capital, and other requirements necessary to meet their responsibilities. Commercial agreements should clearly document the rights and obligations of each party, and stipulate dispute resolution procedures. In most cases, payment by irrevocable confirmed letter of credit is recommended initially and credit terms may be considered after U.S. companies have an in-depth knowledge of their local partners.
Going to court is generally not a recommended strategy to enforce agreements or seek redress for commercial problems in Vietnam. Foreign firms that have dealt with the court system in Vietnam report it to be slow and non-transparent. Similarly, although a framework for commercial arbitration exists in Vietnam, the process is not usually considered a desirable option for foreign entities. When the need to consider such strategies arises, the advice of an international law firm operating in Vietnam should be sought.
Foreign-Invested Trading Companies in Vietnam: When seeking prospective agents or representatives in Vietnam, U.S. exporters may wish to consider not only Vietnamese firms, but also the representative offices of foreign trading companies operating in Vietnam. The latter, which include U.S. trading companies, often have distinct advantages in communication, experience in importing, expertise in product and package modification, and marketing capability. As of January 1, 2009, under Vietnam’s WTO commitments, wholly owned foreign-invested companies are permitted to engage in import trading and distribution services (i.e. wholesaling and retailing) in Vietnam. This move is expected to increase competition and service quality in the distribution sector over the next several years.
Finding a Local Partner: While wholly owned foreign invested enterprises are becoming more numerous, the majority of foreign companies operating in Vietnam choose to partner with local firms. One way to locate Vietnamese partners is to contact and network through local chambers of commerce and industry associations. The major chamber of commerce for Vietnamese enterprises is the Vietnam Chamber of Commerce and Industry (VCCI) headquartered in Hanoi with branches throughout Vietnam. VCCI members include state-owned enterprises (SOE’s), joint-stock companies, and private firms in a variety of sectors. In Ho Chi Minh City, the Investment & Trade Promotion Center (ITPC) can also make introductions to prospective partners. Another channel for finding a local partner is through the Vietnam Trade Promotion Agency (VIETTRADE) or through local industry associations, as many key industries in Vietnam have formed associations. A number of private consulting companies have also developed matching services. Depending on business objectives, the most effective means for finding a local partner (potential agent and distributor) may be to utilize the Gold Key Matching Service and/or International Partner Search of the offices of the U.S. Commercial Service in Hanoi and Ho Chi Minh City.