Ondigitals

Leading Agency
in South East Asia

Japan

China

Thailand

Taiwan

Vietnam

Philippines

Malaysia

Singapore

Indonesia

Australia

Insights

Doing business in Vietnam as a foreign investor: A comprehensive guide

Social Outreach

21/09/2023

12

Understanding the Vietnamese economy at a glance

General overview of the country’s economy

Vietnam’s transformation into an appealing economic hub from its humble beginnings is a testament to its ability to leverage global trends and implement effective economic reforms. Its current situation is what sets the stage for the rising number of individuals doing business in Vietnam as a foreign investor.

Over the years, the country has witnessed a resilient growth in its GDP, especially after the COVID-19 recovery period. It reached 5.05% in 2023, a respectable figure considering the low export demand. Nonetheless, despite not meeting the initial estimation, this stat showcases Vietnam’s ability to withstand a turbulent period of the world economy, highlighted by multiple global conflicts and the ongoing inflation.

Additionally, Vietnam has made significant strides in reducing poverty. The country’s poverty rate (measured as living on less than USD 1.90 per day) has fallen to 2.9% in 2023 from over 4% in 2022. This positive development indicates an increase in the average consumer buying power, which spells a fruitful period in the upcoming years for businesses of all scales.

Vietnam’s economy saw steady growth in 2023

In 2023, when one of the world’s largest countries, Russia, was and currently still involved in a standstill with Ukraine, the world economy has undoubtedly taken a hit. Export rates are lower due to the decreasing demands, multiple trade agreements are disrupted, and energy prices begin to rise. All these factors bring about an uncertainty in the global economy. Yet, amidst all the disruptive events, Vietnam has stood out as one of the countries worldwide to achieve positive GDP growth, displaying resilience, commitment, and readiness in economic growth.

Additionally, according to the Centre for Economics and Business Research’s World Economic League Table 2023, Vietnam is projected to become the second-largest economy in Southeast Asia by 2036. This projection is supported by several advantageous trends in the global economy that have contributed to Vietnam’s remarkable economic growth.

According to the Vietnam Investment Review (VIR), Vietnam’s government has set an objective of becoming a high-income nation by 2045. To reach this target, it has set its sights on achieving an annual per capita growth rate of about 5%. Lastly, the country’s recent five-year development plan outlines an average annual economic expansion of approximately 6.5% over the next decade.

Vietnam’s investor-friendly policies

Vietnam has launched a concerted effort to ramp up its FDI inflows since the beginning of 2021. The country has set an ambitious target to attract 50 percent of the world’s leading corporations to invest within its borders by 2030.

To realize this vision, Vietnam is committed to fostering a fair and transparent business environment. They aim to enhance economic competitiveness, invest in infrastructure development, explore untapped markets, and promote innovation to accomplish this goal. One of the policies issued in July 2023 indicates that enterprises generating over 200 million USD in trade revenue can earn customs preferential treatment, lowering the mark from 350 million USD in 2011.

Additionally, the Vietnamese government has also reduced the time needed to evaluate legal compliance of a company. The process now takes 24 months instead of 36 months, saving considerable time for businesses to step into operation.

Reasons for doing business in Vietnam as a foreign investor

There are many puzzle pieces that make up the fruitful Vietnamese market. Yet, the most appealing ones are the consumer market, profitable industries, and energetic workforce.

The astronomical growth of Vietnam’s consumer market

In addition to the beneficial policies, there are also many great opportunities that arise from the consumer market in Vietnam.

vietnamese consumers

The growth of middle-class consumers ushers the Vietnamese market into a new era

Rising Middle Class

Firstly, the Vietnamese middle class is growing rapidly, driving the consumption rate in recent years. Statistically speaking, Vietnam is already among the top 7 countries to have the fastest growing middle class in the world.

The rise of this consumer demographic offers significant opportunities for foreign investors. Increasing consumer demand and purchasing power will widen the market, while the demand for higher quality products enables higher profits. In terms of where to invest in, the potential expands to sectors like retail, real estate, education, and tourism.

While the trend offers more investment opportunities, it also requires businesses to improve their product quality and customer service to enhance their competitiveness and attract more customers in the market.

Young and Tech-Savvy Population

Secondly, the behavior of Vietnamese consumers has been greatly influenced by technological advancements. The increasing Internet penetration and widespread smartphone usage have made digital channels the primary source for information and shopping.

In addition, Vietnam has a predominantly young population, with a median age of 31.7 years. This tech-savvy demographic is highly connected and open to embracing new products and services. For investors, adapting business strategies to the preferences of this emerging segment can provide a competitive edge.

Increased profitability of many industries

As the market widens and consumer’s needs become more diverse, many industries have drawn more attention than ever before. Here are some of the industries currently in the spotlight:

vietnamese tourism

The hospitality industry is now receiving a lot of attention from Vietnamese people

Luxury Hospitality

Vietnam’s luxury hospitality sector is soaring to new heights, with over 150 high-end properties opening their doors in 2020 alone. The driving force behind this trend is the thriving tourism industry and the increasing demand for top-tier accommodations. If you are seeking investment opportunities, the luxury hotel market should be on your radar.

With that said, this industry is incredibly competitive as it is dominated by major brands like Hyatt, Marriott, Caravelle, and Vinpearl. These brands have made high-end amenities and services a benchmark and businesses will need to offer something unique in order to stand out.

By conducting marketing research and looking into consumer behaviors, hospitality enterprises can identify what tourists are looking for in their experiences and set themselves up for success.

Manufacturing and Logistics

Vietnam’s strategic location, coupled with its diverse demographics and advantageous trade agreements, makes its manufacturing and logistics sectors incredibly appealing. These industries are poised for sustained long-term growth thanks to the establishment of economic zones and industrial parks and a surge in mergers and acquisitions.

On the other hand, it is important to understand how to navigate through infrastructure issues, especially in rural areas. Vietnam is investing considerable resources in rectifying this problem and it is progressing as planned, though it cannot quite reach the same development pace as other sectors of the economy.

Domestic businesses are familiar with the regions where they do business in, so they can work their way around rather effortlessly. When doing business in Vietnam as a foreign investor, enterprises will no doubt have to make some adjustments to their plan to compensate for infrastructure, especially the transportation aspect.

The best and most effective idea is to partner up with a Vietnamese enterprise in logistics. Provided that this requires substantial monetary investment, it can also enables foreign companies to facilitate their operation.

foreign investor in vietnam

More and more Vietnamese consumers are embracing the switch to clean energy

Renewable Energy

Vietnam’s renewable energy sector, particularly solar and wind power, is on an impressive trajectory, aiming to triple its renewable power generation by 2030. Moreover, hydroelectricity and biomass also play crucial roles in Vietnam’s green energy shift.

Supportive policies and enticing feed-in tariffs are driving robust growth, especially in the solar PV segment. As Vietnam reduces its reliance on coal, renewable sources are taking center stage through Power Development Plans.

The shift to renewable energy is going to be incredibly beneficial for the entire economy in the long run. As the world is focusing on environmental efforts in light of increasing pollution, Vietnam presents itself as an appealing destination with an eye for sustainability, which can attract enterprises currently contributing to the cause.

E-commerce

E-commerce is thriving in Vietnam, largely in part due to the lingering effects of the COVID-19 lockdowns. The sector’s robust growth is propelled by progressive government policies, an ever-evolving customer base, and a burgeoning digital economy. As Shopee, Lazada, and even TikTok Shop are gaining immense traction on the market, specifically amongst young consumers, businesses are presented with multiple opportunities to enter the flourishing Vietnamese e-commerce scene.

In addition, the government’s endorsement of a national e-commerce development plan further catalyzes the sector’s digital transformation. With a master plan spanning 5 years, from 2021 to 2025, Vietnam plans to put e-commerce at the forefront of the digital economy, ultimately placing second on the Southeast Asian e-commerce ladder.

Vietnam workforce

Human resources are vital to the well-being of an enterprise anywhere in the world. Fortunately, Vietnam is home to a large, young, and resilient workforce, perfect for a competitive market.

Diverse and relevant skill set

Vietnam boasts a burgeoning labor force that is not only vast but also highly skilled. The country has invested significantly in education and vocational training, ensuring a continuous stream of well-trained professionals. Many Vietnamese workers are proficient in English, enabling effective integration into foreign-owned enterprises.

The Vietnamese education system has played a role in enhancing the language proficiency of the country’s future workforce. By cooperating with reputable foreign schools and implementing curriculums in English, schools and universities in Vietnam are equipping students with the necessary skillset for the upcoming internationalization era.

foreign investor

Vietnamese workforce has an impressive set of skills

Adaptability and versatility

Vietnamese workers are known for their adaptability and versatility. They have a strong work ethic and are quick learners, allowing them to easily adjust to various industries and job roles. Whether it is manufacturing, technology, or services, it makes no difference thanks to their ability to handle a wide range of tasks and responsibilities.

Affordability

Labor costs in Vietnam are notably lower compared to many Western countries and even some of its Southeast Asian neighbors. However, this cost-effectiveness does not compromise the quality of work. Foreign investors can take advantage of this beneficial labor cost to enhance their competitiveness in the global market.

foreign investing in vietnam

The commitment of Vietnamese workforce is one of its best qualities

Commitment to Quality

Vietnamese employees take pride in their work and are committed to delivering high-quality results. This dedication to quality is a valuable asset for foreign investors who prioritize customer satisfaction and product excellence.

Government Support

The Vietnamese government actively supports foreign investors by implementing policies that facilitate recruitment and training of local talent. This includes incentivizing businesses to engage in skill development programs, which ensures a steady stream of skilled professionals.

Navigating the country’s business registration process

Types of Business Structures

To bring a business into the Vietnamese market, it is essential to choose a suitable business structure. Fortunately, there are a few options you can choose from, each having its own pros and cons.

Limited Liability Company (LLC)

Firstly, the Limited Liability Company (LLC) is a business structure most popular to foreign investors. It facilitates easy management for the owners and members’ council, making it an attractive choice for those concerned about the matter. For that reason, LLC companies are the most common company type in Vietnam for foreign investors, thanks to the reduced liability and capital requirements.

Representative Offices (RO)

Alternatively, Representative Offices (ROs) serve as a means for market research and promotion, ideal for testing the waters. Yet, on the flip side, they cannot generate revenue and are typically a short-term solution. This can be a viable low-cost option for investors before committing long-term to the Vietnamese market.

If your purpose of doing business in Vietnam as a foreign investor is to only promote the brand and scout the competition, ROs should be your primary option in order to save time and monetary investment.

what to note for foreign investors in vietnam

Foreign businesses may enter the Vietnamese market seamlessly with a branch office

Branch Offices (BO)

Branch Offices (BOs) allow foreign companies to conduct direct business activities in Vietnam. They offer many advantages, but not without regulatory requirements and potential full liability for the parent company.

Joint Stock Companies (JSC)

Lastly, Joint Stock Companies (JSC) are suitable for larger enterprises, attracting investors through share issuance. However, they often involve complex setups and strict corporate governance rules.

The choice depends on your specific business goals, so consulting with experts is essential when making this decision.

Registration process

Vietnam company registration process is regarded as a complex procedure. However, it does not equal time-consuming or confusing. The procedure was meticulously laid out by Vietnamese authorities to protect and maintain the integrity of the growing economy.

Overcoming challenges as a foreign investor in Vietnam

Although as much as opportunities present themselves, there are bound to have challenges in the world of business.

Cultural Nuances

Understanding Vietnamese Culture and Etiquette

One of the initial challenges for foreign investors in Vietnam is comprehending Vietnamese culture and etiquette. This involves comprehending the nuances of social interactions, greetings, gift-giving, and hierarchical structures.

While this is important, most Vietnamese people tend to be more lenient when you inadvertently make mistakes. However, it is recommended that you observe interactions between your Vietnamese partners and try to pick out patterns in their behaviors, specifically how they converse and conduct business with foreign investors and associates.

foreign investing in vietnamese market

Build a culturally appropriate business goes a long way for foreign investors

Building Effective Business Relationships

Building strong business relationships in Vietnam often requires time and patience. It is vital for foreign investors to invest in relationship-building efforts, including attending local events, networking, and demonstrating a genuine interest in Vietnamese culture. If you want to go above and beyond, collaborating with local partners with established networks can also be beneficial. 

Flexibility and adaptability will be highly useful in this regard since each Vietnamese company and businessperson has their own preferred way to socialize. During networking events with Vietnamese representatives, do not hesitate to start with casual conversation starters or ask them about their niche as they are mostly very welcoming and friendly.

Language Barriers

Addressing Language Challenges

Language can be a significant barrier in business communication, especially if foreign language proficiency is limited. Foreign investors might encounter difficulties in negotiations, contracts, and day-to-day interactions. However, it is no longer an alarming problem because the Vietnamese workforce is getting better and better in terms of foreign language fluency.

Hiring Interpreters or Language Experts

To address language challenges, many foreign investors choose to hire interpreters or language experts who are proficient in both Vietnamese and the investor’s language. These professionals facilitate effective communication, ensuring that important details are not lost in translation.

Learn more: What can you learn about the economy through the consumer confidence index in Vietnam?

Final thoughts

As we provide you with a rough guide on doing business in Vietnam as a foreign investor, it becomes evident that the country holds immense potential. However, as with the case of any other fruitful market in the world, there will be a major learning curve waiting for entrepreneurs.

Navigating the basics of the Vietnamese market as well as tackling the challenges head-on will allow businesses a chance to rise to the top of the ladder.

At On Digitals, we take pride in being the one stop shop for everything digital marketing. We excel in crafting effective SEO strategies and managing social media campaigns as well as organizing memorable events.

So if you are looking to make a name for yourself in the Vietnamese market, On Digitals is ready to be your partner. Contact us today and see what we can do to elevate your business.


Back to list

Read more

    NEED HELP with digital growth?
    Tell us about your business challenge and let's discuss together