Doing business in Vietnam: Advantages and disadvantages

Since its independence from France after World War II and unification of the north and south in 1975, Vietnam has moved away from a purely agrarian economy, and its government is committed to global economic integration. Factors in Vietnam’s growth include its young population, stable political system, relatively low inflation, strong manufacturing sector, and increasing FDI inflows.

To succeed in doing business in Vietnam, U.S. companies must understand the country’s laws, rules, and regulations. In this article, we review what makes Vietnam an attractive option for business, some risks and considerations, and common FAQs.

Advantages and benefits of doing business in Vietnam

Growing economy

The enactment of the “doi moi” or “renovation” policy in 1986 kickstarted an era of modernization and competitiveness in Vietnam. The policy enabled Vietnam to transition from an agrarian to a more industrial market-based economy. This growth continues even despite the impacts of the current Covid-19 pandemic with Vietnam’s economy unexpectedly expanding in the second quarter of 2020.

Developing infrastructure

Driven by the demands of its own people and growing trade, Vietnam is experiencing a significant construction boom aimed at building up its infrastructure. An important factor in the country’s competitiveness, the construction sector receives major support from the Vietnamese government.

Manufacturing

Vietnam has made considerable investments in manufacturing, notably in electronics. The sector is one of the largest contributors to the country’s GDP (16.5% in 2019). In this highly competitive sector, Vietnam is matching established players in the region.

Ease of doing business

To attract foreign investment and encourage entrepreneurial development, the government has made significant changes to the country’s regulatory business environment. These improvements have made it much easier for businesses to operate in Vietnam. Today, The World Bank scores Vietnam as one of the most improved countries in the following areas:

• Lowering the cost of starting a business
• Expanding the accessibility of information and notifications online
• Lowering employers’ contribution to the labor fund tax
• Removing requirements to submit hard copies of VAT returns which can now be done electronically

Disadvantages and risks of doing business in Vietnam

Despite the growing advantages of doing business in Vietnam, starting and running operations can present some challenges which U.S. investors and businesses should be aware of.

Foreign ownership regulations

Vietnam’s government has strict rules on what types of businesses can be 100% foreign-owned. Those businesses with activities that do not fall under the approved types for foreign ownership will require a Vietnamese joint venture partnership. Furthermore, in the case there are no World Trade Organization (WTO) agreements or local laws regulating foreign ownership for a specific or unique line of business, ministry-level approval will be required to start that business in Vietnam.

Lengthy registration process

Registering a company in Vietnam involves many steps. The process can take anywhere between one to four months, depending on the type of business being conducted. The first step is to apply for an Investment Registration certificate which can take up to a month to receive. Next, the business will require a Business Registration certificate which adds another week to the process. Finally, the business may be required to apply for additional licenses based on the type of operation being started.

Remains a developing country

Despite the many incentives and positive outlook for foreign businesses, Vietnam is still a developing country with restrictions on infrastructure and telecommunications networks compared to neighboring countries like Thailand.
Vietnam, however, is a very promising nation and its government is making the right strategic moves to ensure the country’s competitiveness.