What foreign businesses need to know when starting a business in Vietnam
Whether large or small, having a strong global brand or not, when starting a business in Vietnam, it is mandatory for foreign businesses to have a profound understanding of the challenges and business opportunities that lie ahead
For sustainable development and positive impact on the brand image, businesses when entering Vietnam should cultivate an appropriate entry strategy to better understand the host country's culture and customs, product-market fit, as well as current and future business opportunities there.
The open, attractive market for foreign investors
With a market of more than 95 million people, Vietnam is considered by many experts as a potential market for foreign businesses to invest and tap into. Business opportunities in Vietnam are abundant, especially amongst the technological and innovative industries, mainly due to its young and vibrant population, high internet penetration rate, and the increased willingness to new initiatives. With the right strategy in place, foreign businesses will quickly gain a foothold in the market, expand the production and distribution channels thanks to Vietnam's growing affluence and abundant workforce.
In particular, despite the global economic downturn caused by the Covid-19 pandemic, Vietnam is amongst the countries recording the highest economic growth rate in 2020. Owing to timely pandemic control policies and foreign investors' confidence, the country has shown a remarkable economic recovery, and is expected to be the only ASEAN country to maintain positive growth.
On the other hand, the Vietnam - EU Free Trade Agreement (EVFTA) takes effect to remove a string of tariff barriers, opening up many opportunities for EU countries to invest in Vietnam. What's more, Vietnam has a favorable geographical position for trade, an abundant workforce with competitive productivity compared with other countries in the region, making it an attractive destination in foreign investors' eyes. The wave of FDI investment will also create a domino effect in the near future.
Having said that, there are a multitude of reasons why Vietnam has become a destination of choice for foreign investors, especially in these turbulent times.
Challenges for foreign businesses in Vietnam
However, doing business in Vietnam doesn't come without potential challenges, notably the language barrier. Although English is widely used in Vietnam's business environment, Vietnamese is still the primary language of communication, especially when working with administrative agencies and blue-collar workers. Legal documents, taxes, work permits, etc., must be written in the Vietnamese language, quickly becoming an obstacle when the business does not have a specialized support department.
The cultural differences are another factor that makes it difficult for foreign businesses to operate in Vietnam, especially in human resources management, leading to reduced productivity and business performance. Limited cultural understanding also affects a manager's vision and negatively impacts the company's long-term development.
Moreover, taxation is one of Vietnam's most cumbersome business processes as it requires substantial time and money from foreign investors. The tax system in Vietnam consists of more than 10 different types, from value-added tax (VAT) to corporate income tax, personal income tax, etc. Each tax has a different method of calculation based on various cases and procedures. Such complexity can be a massive problem for many foreign businesses, especially in periodic review reports. As such, it is of paramount importance for businesses to partner with a professional tax processing service provider who clearly understands the law, because just a small error can lead to undue risk.
In order to focus on the aspects of investment and operations and mitigate the aforementioned challenges, foreign investors are urged to partner with a long-standing and professional local service provider to help ease the burden, resolve issues that arise with the government or caused by language or culture differences.
It's advisable to choose a business partner with abundant experiences working with international businesses because they will understand major problems foreign companies often face. An experienced consulting partner like Talentnet with a team of consultants who are professional, highly specialized and knowledgeable about Vietnam's most up-to-date laws and tariffs will help give useful advice and facilitate businesses to develop human resource strategies appropriate to local culture.