The Pros and Cons of Doing Business in Vietnam

Vietnam is an enticing destination for global business expansion, thanks to its thriving economy and ongoing political reforms. The nation offers unique opportunities for entrepreneurs, boasting top-tier infrastructure with top-notch facilities at the economic hotspots.

With this blog post, On Digitals will provide a comprehensive overview of doing business in Vietnam, covering its advantages, disadvantages, and essential business customs in this dynamic marketplace.

Overview of Vietnam’s Economy – The key of doing business in Vietnam

Why does doing business in Vietnam become such an appealing initiative? Vietnam’s economic reforms since 1986, combined with global trends, have transformed it from extreme poverty to a middle-income nation in one generation. Vietnam ranks 73rd in the global rankings, one of the top positions within the ASEAN region.

This achievement is primarily attributed to Vietnam’s dedicated efforts in implementing reforms, resulting in a decrease in bureaucratic processes and the overall expenses associated with conducting business.

In the future, Vietnam is anticipated to become the second-largest economy in Southeast Asia by 2036. There is no time better than now to begin your journey into this soon-to-be highly profitable market.

The general status of Vietnam’s economy

Advantages and opportunities of doing business in Vietnam

Vietnam’s business environment is highly appealing to entrepreneurs due to its simplicity and streamlined regulations for company formation. Additionally, foreign investors are further enticed by government incentives like tax exemptions, startup capital support, and reduced labor costs. As the cherry on top, Vietnam’s strategic geographic location makes it an ideal hub for various business activities.

Low Operation Cost

One of the standout features of doing business in Vietnam is the relatively low cost of operation compared to other countries. This cost-effectiveness encompasses various aspects of business operations, making it an attractive proposition for entrepreneurs and investors.

The cost of living in Vietnam is also considerably more affordable than in many other nations. Moreover, conducting business in Vietnam provides enterprises with the chance to benefit from a substantial and cost-effective labor pool.

The Growing Vietnamese Economy

The most prominent reason to consider Vietnam for future business ventures is its rapidly developing economy. Over the past few decades, Vietnam has transitioned from an agrarian economy to an industrial and services-driven one. With a consistent GDP growth rate, it offers a stable market for both domestic and foreign businesses.

Abundant but Affordable Labor

The vast talent pool in the country is also an appeal of doing business in Vietnam. It boasts a young and dynamic workforce with a large population of over 96 million, including a substantial number of well-educated and skilled professionals.

Numerous well-educated and skilled professionals

With a literate working-age population of 97%, a substantial tech talent pool of 400,000 engineers, and an annual production of 50,000 IT graduates, the country is brimming with potential. Something worth noticing in Vietnam is that the low operating cost is a result of the abundant but not as skilled labor force compared to other countries in the region.

For example, building an offshore IT team in Vietnam is notably more cost-efficient, with savings ranging from 15% to 50% compared to Thailand or Malaysia. Yet, Vietnamese developers are widely considered professional, with strong technical abilities and respectable English proficiency.

However, this trend is nearing its end as the young workforce is making great strides by participating in international programs and competitions, constantly enhancing their knowledge and expertise, and earning tremendous experience while still in school thanks to the improving curriculum across the education system.

Expanding Middle Class

Vietnam’s socio-economic landscape has witnessed a significant transformation, and one of the most prominent indicators is the rapid growth of its middle class. This expansion holds immense promise and opportunity for businesses operating within the country.

The expanding middle class presents a compelling market for businesses seeking growth opportunities. With increasing purchasing power and changing consumption patterns, this demographic is a driving force behind the country’s economic development. Entrepreneurs that adapt to the evolving preferences of the middle class stand to benefit significantly in this dynamic market.

Government Support

The Vietnamese government offers various incentives to attract foreign investments. These policies are designed to stimulate economic growth, enhance competitiveness, and foster a healthy business environment.

Key aspects of investment incentives include tax breaks, import/export privileges, and preferential treatment for specific industries. These incentives can significantly reduce the cost of doing business in Vietnam.

Government offers various incentives to attract foreign investments

Export Opportunities

Vietnam’s strategic location, trade agreements, and evolving economy allows businesses to capitalize on promising export opportunities. The country’s participation in international trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union-Vietnam Free Trade Agreement (EVFTA), can facilitate the exporting process for businesses.

Vietnam’s geographical location in Southeast Asia places it at the crossroads of key trade routes. Additionally, the country serves as a gateway to reach neighboring markets such as China, Thailand, and Cambodia.

Disadvantages and Risks of Doing business in Vietnam

Vietnam’s burgeoning economy and numerous opportunities come with their fair share of disadvantages and risks for businesses. It is essential to be aware of these challenges to make informed decisions while doing business in Vietnam. Here are some of the key disadvantages and risks:

Regulatory Complexity

There is no other way around this particular issue when doing business in Vietnam. Companies are obligated to adhere to Vietnam’s rules and regulations, which are what keeping the economy in a healthy state. Navigating Vietnam’s regulatory is a learning curve as most new businesses in the market struggle with this common problem in the early stages.

To avoid making mistakes and costing you valuable time, research the rules and regulatory in advance and find out what you need to prepare so you can get things done timely and effectively.  Two major areas worth noticing are:

Complex Legal Framework: Vietnam’s regulatory environment can be intricate, with frequent changes and variations across sectors. Navigating these regulations can be time-consuming and challenging so you will have to either allocate time to research them or hire a legal counsellor. Either way, you will be able to master the legal framework of the country in due time.

Bureaucracy: Administrative processes can be bothersome due to bureaucratic procedures, potentially leading to delays in approvals and permits. This is why you always need to allow yourself some wiggle room by having a checklist.

Most of the time, when you hand in the documents, the department will give you an expected date, but it is always a good idea to have some time to spare. Therefore, prepare the necessary documents and apply them to the relevant departments about two weeks to one month before you need the approvals. 

Cultural and Language Barriers

Another unavoidable barrier that foreign businesses will face in Vietnam is language and culture. Fortunately, language does not pose as big of a challenge as it was a decade ago thanks to the increased proficiency in English, Chinese, Japanese, etc. of the young workforce.

The enhanced fluency in both daily and specialized languages is the result of a transformation in the education system. Universities are now implementing curriculum in collaboration with credible foreign universities, enabling their students to learn more about other nations and develop cultural sensitivity.

Communication: Language barriers can pose challenges in effective communication with local partners, employees, and authorities, especially in rural areas where English proficiency may be limited. The government is doing a tremendous job in providing the entire country with quality education and is currently making great progress.

Currently, Vietnam is in a peculiar spot. The majority of the workforce has experience but somewhat poor language skills while the younger demographic has the required language fluency and cultural knowledge but lacks experience.

This will correct itself in due course, as the young workforce accumulate experience. For the time being, however, businesses are required to invest in language training in order to expand effectively and remain competitive.

Differentiation in language and culture may be a hassle for foreigners

Cultural Nuances: Understanding and respecting Vietnamese culture is crucial for building strong relationships and doing business in Vietnam successfully. Failure to do so can lead to misunderstandings or strained partnerships, but that is the worst case scenario.

Nuances can be difficult to pick up after initial interactions. This does not mean you cannot anticipate certain common patterns. Vietnamese people are known to actively avoid conflicts and confrontations, preferring to express their opinions in a subtle manner. They also hold themselves to a high standard in both their work quality and ethics, as shown by their punctuality, discipline, and respect while conducting business.

Intellectual Property Rights (IPR) Protection

Protecting intellectual property rights can be challenging, with reports of trademark and copyright infringements. Businesses must take proactive measures to safeguard their innovations such as data encryption, filing trademarks, access management, updating antivirus and anti-malware programs, regular backups, network security, and employee training.

Most importantly, however, businesses need to stay vigilant at all times, keeping watch on the latest market developments and identify potential threats. To assist businesses with this issue, the government has implemented laws related copyright, providing assurance for enterprises doing business in Vietnam.

Foreign ownership regulations

The Vietnamese government imposes stringent regulations regarding the eligibility of 100% foreign-owned businesses. If a business activity does not fall within the categories permitted for full foreign ownership, a joint partnership with a Vietnamese entity is required.

Additionally, in cases where there are no existing World Trade Organization (WTO) agreements or local laws governing foreign ownership for a particular line of business, enterprises will have to apply for approval from authorities.

Read more: What does doing business in Vietnam as a foreign investor involve?

Final thoughts

Doing business in Vietnam presents a world of opportunities amid a vibrant and evolving market. With its strategic location, trade agreements, and burgeoning customer demographics, Vietnam offers an attractive landscape for both domestic and foreign investors.

To thrive in the Vietnamese market, businesses must embrace adaptability, market research, and strategic planning. By doing so, they can harness the advantages, mitigate the risks, and seize the abundant opportunities that Vietnam has to offer. With the right approach and dedication, success in doing business in Vietnam is indeed within reach.

Count on On Digitals as your ultimate companion in your quest to discover the Vietnamese market. With a proven history of fruitful partnerships, both locally and globally, we excel in tailoring personalized marketing strategies that align with your business goals. Contact us today to delve deeper into our offerings encompassing SEO, social media, and KOL marketing solutions.