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Best Market Entry Strategy For Vietnam In 2024

Every business has its own preferred market entry strategy for Vietnam, which is often influenced by various factors such as business goals, budget constraints, and desired timeline. 

However, what firms perceive as the optimal approach may not actually hold true due to the lack of local insights and comprehensive understanding of the market, often overlooking the nuances and intricacies of Vietnam’s legal system and cultural differences.

Thus, this article will highlight the key considerations and important factors to take into account when developing a market entry strategy and setting up a company in Vietnam.

 

Vietnam Market Overview

Vietnam is among the fastest-growing economies, with an impressive GDP growth rate of 5.05% in 2023, outperforming many of its regional peers, such as Singapore, Malaysia, and Thailand. 

It is also the fastest-growing digital economy in Southeast Asia, forecasted to reach US $45 billion by 2025. With the Vietnamese government proactively implementing various initiatives to accelerate national digital transformation, the country’s digital landscape is poised for even stronger growth.

Furthermore, boasting a population of 100 million, with more than half in the working-age bracket, Vietnam emerges as a promising market and a potential regional operation hub. The large pool of skilled and cost-effective labor, combined with favorable government policies and infrastructure development, positions the country as a great outsourcing destination for both domestic and international enterprises to leverage its capabilities and drive sustained growth in ASEAN.

 

Highest “FDI magnet” sectors in Vietnam

Highest “FDI magnet” sectors in Vietnam

In 2023, Vietnam experienced a remarkable influx of investments from 111 countries and territories, amounting to over US$36 billion. Notably, Singapore emerged as the primary contributor, accounting for 18.6% of the total foreign direct investment (FDI) inflows. 

Among the sectors drawing the highest FDI, Financial Services, Education and Training, Healthcare, and E-commerce stood out as the top four, showcasing the diverse and burgeoning investment landscape in Vietnam.

More insights: Top Business Opportunities In Vietnam For 2024

 

Market Entry Strategy For Vietnam

Implementing market entry strategy for Vietnam

Implementing market entry strategy for Vietnam

 

When it comes to market entry strategy for Vietnam, foreign businesses often struggle to determine the optimal approach for setting up their operations while ensuring full compliance with the country’s regulatory system. 

In other words, identifying the appropriate entry mode and business entity is a must. It serves as the bedrock upon which a successful market entry strategy is built, enabling companies to align their approach with the regulatory, cultural, and market dynamics of Vietnam.

 

Identify Market Entry Mode

Select the best-suited market entry mode for Vietnam

Select the best-suited market entry mode for Vietnam

 

Market entry mode refers to the strategy or method a company employs to enter a new market. It involves decisions regarding how a company will establish its presence, sell its products or services, and compete in a new geographical area. 

Each mode has its advantages and challenges, and the choice depends on factors such as the company’s resources, objectives, risk tolerance, and the characteristics of the target market.

 

Understand the function of each entry mode

Understand the function of each entry mode

 

Joint Ventures

A joint venture is a collaborative partnership involving two or more entities aiming to collectively pursue a specific business objective while distributing the associated risks. Thus, firms often choose this entry mode to focus on a singular project or business goal, often in the short term for rapid growth. 

It enables foreign companies to navigate regulatory complexities, access distribution channels, and establish a stronger presence in the Vietnamese market more efficiently by leveraging the combined network, resources, and expertise of the involved parties.

 

Partnership

Partnership is an agreement between two or more individuals or entities (usually with local firms) to establish a business presence or pursue a mutual goal in the Vietnamese market. 

It is a good option for those who seek long-term business activities, as the objective is often to generate more profit through various potential collaborative avenues. Moreover, this mode also excels at leveraging the existing partner network, resources, and knowledge for a smoother market entry, which is particularly effective for sectors subject to stringent government regulations and requirements, such as FinTech, EdTech, and HealthTech.

 

Wholly Foreign-Owned

A new business entity in Vietnam that is established and owned by a foreign company or investor. Thus, the firm will have complete control over its operations, decision-making, and profits. 

Another advantage of establishing a new business (Wholly Foreign-Owned) is that all profits are remitted to the foreign company or investor. As a result, it is often favored by those seeking long-term growth and profitability, with the potential establishment of a central hub for future expansion.

 

Acquisition

The foreign company acquires an existing local business or a substantial stake in it to gain immediate access to the market, with the level of control depending on the percentage of ownership obtained. 

This approach is preferred by those who want to quickly acquire a strong local presence, important assets, exclusive networks, existing customer base, and market share.

 

Non-profit-generating Activities

The model is suitable for companies aiming to conduct market research, gather local market intelligence, and establish initial contacts without directly engaging in profit-generating activities.

As a result, it also entails very low operational risk due to being subject to fewer regulatory requirements than profit-driven entities.

 

Identify Incorporate Model

Choosing an incorporation model for business operation

Choosing an incorporation model for business operation

 

After selecting a Market Entry Mode, the firm will have to consider the incorporation model to set up their business in Vietnam.

Recommended incorporate models in Vietnam for foreign organization

Recommended incorporate models in Vietnam for foreign organization

 

Joint Stock Company

A Joint Stock Company (JSC), also known as a Corporation, is a type of business entity where ownership is divided into shares of stock. These shares can be traded on a stock exchange, allowing investors to buy and sell ownership stakes in the company.

It is often selected by larger firms that require a more complex ownership structure where capital investment from multiple shareholders is required for growth and expansion.

 

Limited Liability Company (LLC)

LLCs can both trade with local and international markets to maximize their profit. Therefore, it is also the most common option for companies to set up business in Vietnam.

In a nutshell, it is a business structure that combines elements of both a corporation and a partnership (or sole proprietorship, in the case of a single-member LLC). Like a corporation, an LLC provides limited liability protection to its owners, meaning that their personal assets are typically shielded from the liabilities of the business. However, like a partnership, an LLC allows for flexibility in management and taxation. 

LLC owners are called members, and the structure can be beneficial for small to medium-sized businesses across various industries. Additionally, there are numerous types and subtypes of LLCs, but we strongly recommend that firms opt for 100% Foreign-owned LLCs to attain complete control over their business operations.

 

Branch Office

Branch offices are favored by businesses seeking to establish a strong local presence in Vietnam, especially if they are subsidiaries of multinational corporations with complex operational procedures.

This approach provides direct supervision and control from the parent company, capitalizing on its brand reputation and resources while allowing for remittance of profits overseas. On the other hand, the registration process is often lengthy and operational scope may be restricted to specific industry sectors.

 

Representative Office

If businesses choose to conduct non-profit-generating activities as the market entry mode, they will need to set up a representative office in Vietnam. It is a preferred choice for companies that are keen to evaluate the viability of doing business in Vietnam before deciding to set up a permanent establishment.

More insights: Pros and Cons of Legal Entities For Setting Up A Business In Vietnam

 

Other Key Considerations To Develop A Market Entry Strategy For Vietnam

Factors to consider when entering Vietnam’s market

Factors to consider when entering Vietnam’s market

 

Regulation Environment 

Vietnam’s proactive stance in promoting Foreign Direct Investment (FDI) is evidenced by significant efforts to enhance its regulatory framework, with the aim of fostering an environment conducive to foreign businesses operating within the country’s borders. 

However, it is worth noting that these regulations are subject to periodic updates and revisions, requiring companies to stay informed about these changes to ensure full compliance.

Key regulatory framework governing business operations in Vietnam:

  • Law on Investment
  • Business Registration Regulations
  • Intellectual Property Laws
  • Data Protection and Privacy Regulations
  • Contract Regulations
  • Consumer Protection Laws
  • Foreign Exchange Regulations
  • The Labour Code 
  • Tax Laws

Tax Compliance 

Key Tax Considerations When Crafting a Market Entry Strategy for Vietnam

Key tax considerations when crafting a market entry strategy for Vietnam

 

Businesses seeking to establish their presence in Vietnam must navigate a complex web of tax obligations. Depending on the sector businesses are trying to venture into, the Vietnamese tax system may impose stringent requirements, requiring periodic tax audits to ensure compliance with regulatory standards.

On the other hand, while the Vietnamese tax system presents challenges, the country also offers a range of investment-related business incentives aimed at facilitating market entry for foreign firms. These incentives include various tax exemptions, reductions, and preferential treatments designed to attract and support foreign investment.

Major taxes that firms need to consider when doing business in Vietnam:

  • Corporate Income Tax
  • Business Licence Tax
  • Value-Added Tax
  • Personal Income Tax
  • Foreign Contractor Withholding Tax
  • Import – Export Tax

Bank Account Setup 

Having a bank account in Vietnam is essential for businesses entering the market to effectively manage their finances, comply with regulations, build trust with stakeholders, and access necessary banking services.

While companies in Vietnam are not obligated to have a local bank account if their transactions remain below 20 million VND, most opt to establish accounts for smoother operations. 

In Vietnam, there are four main types of bank accounts:

  1. Personal bank accounts, available to individuals residing and working in Vietnam.
  2. Corporate bank accounts, compulsory for all operating companies.
  3. Non-resident bank accounts which were recently introduced.
  4. Merchant accounts, obligatory for e-commerce enterprises.

 

Business Norms and Etiquettes

Aspects of Vietnamese business culture

Aspects of Vietnamese business culture

 

When crafting a market entry strategy for Vietnam, businesses must carefully consider local business norms and etiquettes to ensure successful integration into the market. Understanding and respecting cultural customs, such as greetings, communication styles, and hierarchical structures, can foster positive relationships with local partners and customers. 

There are also other important factors to take into account. For example, the negotiation process often involves building relationships over time and adopting a collaborative approach rather than aggressive tactics. Punctuality is highly valued, and arriving on time for meetings demonstrates professionalism and respect. 

Moreover, one concept that holds significant importance in Vietnamese business culture is ‘face-saving’. This concept revolves around preserving one’s prestige and reputation and is deeply ingrained in social interactions and business dealings.

 

Conclusion 

The optimal market entry strategy for Vietnam varies for each business. Depending on the company’s structure, goals, and budget, the strategy must be finely tuned to ensure the highest chance of success. From selecting the appropriate market entry mode and incorporation model to considering other critical factors that may impede expansion into the country, the process can be daunting for companies to navigate. 

As a result, many businesses rely on trusted partners to help them overcome these challenges for a seamless market entry process into Vietnam. Datality Lab, a leading Research & Data Science Consultancy, has successfully established strategic partnerships in Vietnam with the assistance of Launch JDI. Learn more about their journey here.

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Think you’ve got what it takes for a market expansion into Vietnam but still unsure? Contact Launch JDI today for an in-depth discussion!

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