Challenges of Doing Business in Vietnam

Challenges of Doing Business in Vietnam

Doing business in Vietnam is challenging and complex at just about every stage. But the global money is flowing into Vietnam, there are a lot of untapped potential business opportunities. So one must weigh their options carefully to determine if the “juice is worth the squeeze”. As an international entrepreneur, it’s important to take into account the negative sides, along with the enormous opportunity – and manage both to be truly successful in Vietnam.

What are the main challenges of doing business in Vietnam?

Challenge #1. The Language and Communications Barriers

– The Vietnamese Language

Vietnamese is the national language spoken throughout the country. All official transactions at state agencies are in Vietnamese and often without an accompanying foreign language translation (such as legal documents, permits, guiding petitions, administrative decisions, official communications, and litigations).

– English is Commonly Spoken, but Almost Never Fluently

In Vietnam, English is the most popular foreign language. It is commonly used in major cities and taught in schools at all levels. The percentage of Vietnamese who know English is high. However, their English proficiency is average, not fluent enough to be used in the professional business environment. Especially, when the topics of discussion are of importance or have meaningful ramifications.

The Vietnamese Government’s officers have a good level of English, but they do not often use and practice English in their work. Therefore, it is difficult for foreign investors to directly communicate with Vietnamese Government officers.

Vietnamese personnel of large companies, banks, multinational corporations in Vietnam have average English proficiency. While the English skills of leaders and employees of Vietnamese SMEs are poor to average.

– Chinese, Korean, and Japanese languages are low popular but tend to quickly rise

Other popular languages other than English include Chinese, Korean, and Japanese. The rate of Vietnamese who are learning and using these foreign languages is low compared to English, but it is tending to quickly increase in the future. Due to the close cultural proximity, plus the strong development of Chinese, Korean and Japanese businesses in Vietnam, it offers many good career opportunities with a much higher-than-average income for applicants who know these foreign languages.

– Communication or rather Miscommunication will be the Biggest Challenge!

Far and away the most difficult challenge for any foreigner doing business in Vietnam is the remarkable miscommunication that will come from nearly every conversation one has.

Challenge #2. The Legal Framework

– The legal system is complicated, incomplete, and lacks transparency

Although the Vietnamese Government has issued a large number of regulations in the business field, amending and supplementing regulations happen constantly and very frequently. Part of the legal regulations is still confusingly written, leading to being interpreted into many different meanings. This makes it difficult for businesses to track, find documents to apply for, understand correctly and comply with the laws.

One business field might have many different and inconsistent laws governing the same topic at the same time. Businesses are easily “stunned”, “lost” and found wandering amongst the “forest of the regulatory matrix”. For example, a real estate project shall be governed by: Law on Investment, Law on Environmental Protection, Law on Construction, Law on Land, Law on Housing, Law on Real Estate Business, Law on Urban Planning, Law on Bidding, Law on Fire Prevention and Fighting…

– The administrative procedures or Bureaucracy are cumbersome, lengthy, and inconsistent

According to the Doing Business Report in 2020 of the World Bank, Vietnam is ranked 115th economy among 190 economies, ranking 6th in ASEAN on the ease of starting a business, with 08 procedures and an average duration of 16 days. In practice, businesses have to implement many procedures. There is no linkage or overlap in information between the procedures.

The positive side is that, in recent years, the Government has made great efforts in promoting the business environment, especially in relation to institutional reform. The review rounds to cut, simplify business conditions and administrative procedures have been conducted consecutively. Regulations related to the rights and obligations of enterprises are strictly controlled when promulgated, management policies on business are also more open, expressing the viewpoint on “freedom of business” of businesses, and citizens.

Challenge #3. The Human Resource Issues

Vietnamese workforce is hardworking, smart, industrious, and eager to learn. The average salary cost in Vietnam is not too high. However, the scale of trained labor and the quality of professional and technical labor in Vietnam still has a gap compared with developed countries.

The labor market has not yet met the labor requirements of high professional and technical skills of enterprises in industrial parks, export processing zones, hi-tech parks, and FDI sectors.

According to a recent study by the Vietnam Institute of Labor and Social Sciences, labor productivity and corporate governance of Vietnam are currently at a low level. 2/3 of workers are lacking in labor and technical skills; 55% of enterprises said that it is difficult to find high-quality labor sources.

Is Vietnam Still a Good Place to Start Your Business?

Yes, above all Vietnam is still a great and economical place to do business if you know how to avoid the risks and take the right approach to the market. The recent trends show that the country is a favorite destination for foreign investors with massive opportunities. The economic outlook of Vietnam is positive and holds huge untapped potential. The consistent policy of the Vietnamese Government in the coming decade is to promote FDI sectors and exports. Vietnamese-based businesses offer huge benefits from many Free Trade Agreements.

Discover Why Invest in Vietnam and unlock your opportunities here.

Why Invest in Vietnam

4 Important Notes

Note 1. Before starting to invest your money to do any kind of business in Vietnam, advising with your local lawyers to understand what you are allowed to do, what all legal requirements your business shall satisfy, etc. Another critical point is to understand what the local authority thinks about your business models. 

Note 2. Hire bilingual Vietnamese assistants, who understand both your business goals and the Vietnam business way, to support you while working with Vietnamese partners. It is impossible to achieve anything without a very talented assistant to help you every single step of the way.

Note 3. Paying attention to protecting your business’s confidential information, know-how and intellectual properties from the very early stage of business.

Note 4. Before beginning any deal, have a strict agreement/contract that shows a very specific scope of work, timeline, and responsibilities. Build in reasonable monetary repercussions if and when the task is not met. Loss of money is the only language, incentive, or encouragement that will be understood and taken seriously. Get everything in writing (email, messenger, contracts). Even written agreements will not be binding in the mind of your partner, but at least you have a tangible item to revert back to show what promises were made and agreed upon.

How to Do Business in Vietnam SMOOTHLY?

If you are planning on coming to Vietnam to do a successful business without difficulty, challenge, or confusion, you will most likely be in for a rude awakening. Sincere commitment, effective communication, and risk mitigation will be the keys to your success or the source of your setbacks. If you have the right combination of grit, determination, the following are some important notes and insider tips, before obstacles come your way. They will protect you from suffering the loss of your time, money, motivation, and mental health when doing business in Vietnam.

Learn more: How to start a company in Vietnam

Doing business in Vietnam is difficult, but completely manageable and exceedingly profitable with the right type of help. When deciding on which Vietnamese law firm to work with starting out, make sure to choose one that is willing to offer extensive guidance on how to do business in Vietnam the Vietnam Way. With inside tips, tricks, suggestions, and tested procedures – you will have an immeasurable advantage over those who work with a law firm that is only willing to provide rigid packages with no additional and practical guidance.

Ready to incorporate?

If you are interested in starting a business in Vietnam, Nova Law can help. Request a proposal now to take the next step towards your dream business.

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