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Common Business Challenges in Vietnam For Foreign Investors and Solutions

Social Outreach

15/05/2024

29

Vietnam is considered one of the countries with a vibrant market, a growing economy, competitiveness, and good development potential. This helps attract more and more foreign businesses to invest capital directly in the Vietnamese market.

Nevetheless, for foreign investors investing in Vietnam, they still encounter challenges and difficulties.

Bureaucracy and Regulatory Restrictions: Major business challenges in Vietnam

Arguably one of the most common business challenges in Vietnam, bureaucracy can be intricate and time-consuming to comprehend. Businesses often encounter several key challenges, and at the top of the list lies the paperwork procedures. The necessary permits for different business activities can be complex, with multiple steps and documentation required.

Vietnam frequently updates its regulations to adapt to its rapidly evolving economy and align with international standards. In turn, staying compliant with these changes can be a constant challenge.

While some regulations are consistent at the national level, local authorities may impose additional rules and requirements, leading to inconsistencies.

potential setbacks for businesses in vietnam

Examine some of Vietnam’s major challenges

Foreign companies can enlist the help of local lawyers or consultants, who are familiar with Vietnamese legal requirements. Additionally, establishing positive working relationships with relevant government officials can help streamline the process.

Skilled Labor Shortage

One persistent challenge for both domestic and foreign companies is the shortage of skilled and experienced labor, particularly in specialized industries.

Rapid economic development has created a strong demand for skilled workers in various sectors, including technology, engineering, and manufacturing. However, the talent supply has not kept pace with this demand.

Educational establishments still have many training gaps, hindering the integration of new human resources into various industries.

This problem can be solved by investing in workforce development and specialized training programs. Collaborate with local educational institutions to build a talent pipeline or outsource certain tasks to compensate for labor shortages.

lack of experienced labor

The major challenge is a lack of skilled and experienced labor

Infrastructure Development

Transportation, logistics, and overall infrastructure challenges can have a detrimental impact on goods and materials distribution. While Vietnam’s road and rail networks are improving, there are still bottlenecks, poor maintenance, and traffic congestion in many areas. These issues can cause transportation delays, subsequently disrupting supply chains.

Due to high cargo volumes, major ports in Vietnam, including Ho Chi Minh City and Hai Phong, are experiencing congestion. Furthermore, while urban areas have seen infrastructure improvements, rural areas still lack adequate connectivity, making these markets difficult to access and capitalize on.

In recent years, Vietnam has done a tremendous job bridging the gap between regions and ensuring seamless transportation, trading, and operation of all industries.

poor maintenance of infrastructure

Poor maintenance of the infrastructure overall

While the government will be primarily in charge of rectifying the infrastructure problem, businesses can also play a role in building a better foundation for the Vietnamese economy.

To handle this problem, businesses should collaborate with logistics experts to optimize distribution. Additionally, keep up with infrastructure development projects and potential collaboration opportunities to become a frontrunner in this sector and facilitate your business activities in multiple regions, overcoming business challenges in Vietnam relating to infrastructure.

Intellectual Property Protection

In a rapidly evolving business landscape, intellectual property (IP) plays a pivotal role in innovation. However, businesses in Vietnam are getting more aware of weak IP rights enforcement and the risk of counterfeiting and infringement. Despite efforts to strengthen IP laws, the rules are still inconsistent, resulting in difficulties in protecting patents, trademarks, copyrights, and trade secrets.

Additionally, counterfeit products and pirated content remain prevalent in some sectors, which can harm the reputation and revenue of businesses with valuable IP assets. It can be difficult for businesses to comprehend and navigate Vietnam’s legal system, particularly those unfamiliar with local regulations.

intellectual property security

Enforcement can be inconsistent, hindering the protection of intellectual property

To deal with this problem, prioritize learning about intellectual property when doing business in Vietnam. Before announcing a new work or product, make sure to register trademarks and patents as soon as possible. In case you require assistance, seek legal counsel to safeguard your intellectual property, and be ready to take action.

Additionally, it is worth noticing that cybersecurity is a major point of concern for many businesses nowadays. As the world is shifting towards digitalized materials, businesses need to invest in robust cyber security measures such as firewall, antivirus software, and data encryption as well as raise awareness and educate employees about the importance of data security. Prevention is always the better answer when it comes to these business challenges in Vietnam.

Cultural Differences

One of the significant aspects that help foreign businesses find business challenges in Vietnam is the culture.  Building fruitful relationships and successfully conducting business in the country requires an understanding and respect for regional customs, etiquette, and business practices.

Understanding the subtleties of language and tone is essential for effective communication. Vietnamese communication styles frequently lean toward indirectness and politeness, so reading between the lines is an essential communication skill here.

understanding and respecting customs

Vietnam requires understanding and respecting regional customs

Respect and hierarchy hold significant values in Vietnamese culture, especially through interpersonal dynamics and decision-making processes. Additionally, developing relationships before talking about business is common during negotiations in Vietnam. The key is to be patient and willing to put in the time to cultivate relationships and understand your potential business partners.

For human resources, cross-cultural training has evolved into a necessity. These programs can make a huge difference for a business looking to establish themselves as a household name in Vietnam.

Building strong relationships with local partners and clients should not be a problem if businesses and entrepreneurs are patient and take their time to learn about the culture.

Read more: Top B2C digital marketing trends for businesses to leverage.

Paying Taxes

At the end of 2017, the government’s Ministry of Finance issued a policy to apply electronic tax declarations to improve tax reporting efficiency. In addition, amend reasonable procedures for VAT payment and corporate income tax (CIT) payment. Support to ease the compliance process of foreign companies operating in Vietnam.

However, the laws have not changed significantly and still leave barriers, such as businesses having to make 32 corporate tax payments per year.

It takes an average of 872 company hours to implement, compared to the OECD (Organization for Economic Cooperation and Development) standard of 176 hours, and in East Asia and the Pacific, a total of 173 hours.

challenge in paying taxes

Challenge in paying taxes in Vietnam

Vietnam Currency (VND)

The next business challenge in Vietnam is dealing with Vietnamese dong (VND) in international transactions. Although it is considered the most stable currency in Asia, it ensures exchange rate stability for trading partners.

But the obstacle is that the government strictly manages transactions related to foreign currency.

vietnam currency in ineternational transaction

Vietnam currency in international transaction

To address these issues, businesses often seek the expertise of financial advisors and utilize advanced financial tools to manage currency risk effectively, ensuring smoother and more predictable international transactions.

In order to minimize currency risk and ensure smoother and more predictable foreign transactions, firms frequently turn to financial consultants for guidance and employ sophisticated financial technologies.

Corruption in Vietnam

Despite ongoing efforts by the government to combat it, corruption remains a pervasive issue that can impact both local and foreign businesses. According to the Corruption Perceptions Index by Transparency International, Vietnam is ranked 83th out of 180 countries.

Therefore, companies often need to implement robust internal controls and training programs to ensure compliance and maintain integrity in their operations.

Required Vietnamese in Reporting and Filing

It is necessary for all foreign records, paperwork, and documents to have Vietnamese translations. There must be authentication, or notarization, and it must be authenticated by the Vietnamese embassy.

Getting Credit

Even though Vietnam’s banking industry has improved recently, getting credit can still be a difficult and drawn-out procedure. Particularly foreign investors could encounter more difficulties as a result of things like a short credit history and ignorance of regional banking customs.

getting credit

The obstacle in getting credit in Vietnam

Furthermore, banks’ strict lending standards and hefty collateral requirements may make it harder for businesses, particularly small and medium-sized ones (SMEs), to obtain financing. This lack of funding can impede plans for business expansion and growth, as well as restrict the amount of money that can be invested in innovative or capital-intensive initiatives.

Businesses frequently look into alternative financing methods like venture capital, peer-to-peer lending, or strategic alliances with financial institutions in order to overcome this difficulty.

Final thoughts

Business challenges in Vietnam present many setbacks for both local businesses and foreign companies. By recognizing and proactively addressing these challenges, enterprises can thrive and contribute to Vietnam’s dynamic economy. Success in this diverse and rapidly changing market necessitates adaptability, persistence, and a commitment to developing strong relationships with local partners and stakeholders.

On Digitals hopes that this list has provided you with all of the necessary information about business challenges in Vietnam. If you need assistance with digital marketing, contact us and visit our blog for additional useful information. We look forward to collaborating with you on our SEO, social media marketing, and website design projects.


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