As one of the leading market expansion service providers, we are often asked by our clients about the pros and cons of doing business in Vietnam. The country is brimming with great economic potential, thus, attracting great interest from firms that want to leverage those opportunities.
But there is a catch. Vietnam has its own set of challenges that can easily hinder or down-right stop any attempt to venture in without a deep understanding of the market.
In this article, we will highlight what makes Vietnam a great destination for business market expansion, as well as the common challenges and barriers that you need to navigate.
Advantages Of Doing Business In Vietnam
Fast-growing Economy And Young Market
Vietnam is one of the fastest-growing countries in Asia, even worldwide. According to Trading Economics, Vietnam’s GDP grew by 5.05% in 2023, while witnessing 5.66% YoY rise in Q1 of 2024. Vietnam was also one of only a few countries to maintain economic growth through 2020 when the pandemic hit and quickly get back on track in the latter half of 2023 after facing the gloomy economic landscape.
Moreover, Vietnam is also considered a young and well-educated country. With a 96 million overall population, more than 62% of the Vietnamese population is 15 to 59 years old. This means the majority of the consumers and the workforce now are educated Gen X and Millennials in Vietnam. Furthermore, Vietnamese Gen Z is expected to contribute to 1/3 of the working-age force by 2025, indicating significant potential for robust purchasing power and productivity in the upcoming generation.
This demographic advantage, coupled with sustained economic momentum, solidifies Vietnam’s status as a highly attractive investment destination across various industries, promising sustained growth and opportunity for businesses looking to expand into the Vietnamese market.
Skilled But Affordable Labor
Another advantage of doing business in Vietnam is the country’s wide talent pool, resulting in skilled but affordable workforces, which allows companies to easily scale up their team and expand operations at a much lower budget.
Specifically, Vietnam currently has 97% of the working-age literate population and a sizable tech talent pool of 400,000 engineers while producing 50,000 IT graduates annually. The abundant talent pool in Vietnam translates into competitive salary rates. Consequently, establishing an offshore IT team in Vietnam proves to be 15-50% more cost-effective compared to similar endeavors in other Asian countries such as Thailand and Malaysia.
Vietnamese developers are also well-known for their professional attitude, great technical skills, and ability to communicate in English efficiently.
Government Support And FTAs
Thriving opportunities in Vietnam’s business landscape
The Vietnamese government has been actively engaging in global trading to attract foreign investors and encourage entrepreneurial development. These improvements provide firms with a very friendly business environment and ease up regulations and legal procedures to operate their businesses in Vietnam.
For example, the Vietnamese Government has already participated in 17 Free Trade Agreements to strengthen its trading and investment. The government also passed a revised Investment Law and a new Public Private Partnership Law in 2020 to encourage investments from foreign companies and lighten the burden for the government to support these projects.
Read more on: Top Business Opportunities In Vietnam For 2024
Disadvantages Of Doing Business In Vietnam
Tax Rate Considerations
The Vietnamese government has already implemented significant reforms in its tax system, such as electronic tax declaration and simplifying processes. However, newcomers may still face challenges due to multiple tax obligations.
There are mainly five types of tax in Vietnam now: Corporate Income Tax (CIT); Personal Income Tax (PIT); Value Added Tax (VAT); Foreign Contractor Withholding Tax (FCWT); and other taxes. Different tax rates and rules are applied according to the specific industry.
Understanding and following these obligations is essential for complying with Vietnam’s tax laws. Businesses are advised to seek guidance from a trusted third-party advisor to ensure they meet regulatory requirements effectively.
Complexed Business Setup Process
In Vietnam, the process of establishing a business involves a meticulous approach that varies depending on the specific industry and the type of business entity being formed. Companies embarking on this journey must navigate through a series of regulatory requirements, which necessitate the submission of various documents to their industry and chosen business structure.
Additionally, the Vietnamese government doesn’t set up a specific minimum capital requirement for starting a business in Vietnam. However, only those companies with “sufficient capital” will be approved to open.
From our experience, VND 230 million (US $10,000) is usually the benchmark for most businesses. However, depending on the operation, incorporation model, and industry, companies will be obligated to meet other requirements.
Cultural And Language Barriers
Understanding the pros and cons of doing business in Vietnam
One common challenge of doing business in Vietnam is the language barrier. All official documents and business paperwork must be in Vietnamese. Therefore, it is typical for foreign companies to maintain both English and Vietnamese versions of legal documents concurrently.
On the other hand, firms also need to understand the local business culture. For example, a majority of Vietnamese have the ‘Saving Face’ mindset, which means they are afraid of receiving any undesired judgments.
Hence, it’s typical for Vietnamese individuals to express agreement, even if they may not fully comprehend or concur with the discussion, to avoid causing embarrassment. Therefore, having local insights and cultural sensitivity can greatly benefit your business in Vietnam, fostering smooth collaboration and mutual understanding between local and expatriate employees, thus promoting a harmonious work environment.
Conclusion
Vietnam’s rapid economic growth, stable political landscape, supportive business environment, and skilled workforce offer abundant opportunities for foreign entrepreneurs. Yet, venturing into a foreign market entails considerable challenges, particularly for newcomers unfamiliar with local policies, markets, and culture.
For Datality Lab, a leading Research & Data Science Consultancy, their preferred strategy is to rely on a trusted partner that can help accelerate business market entry and establish a strong foundation for future growth within Vietnam. Learn about their success story here.
More importantly, companies must have an optimal market entry strategy to ensure their successful venture into Vietnam.
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To successfully establish your presence in Vietnam, read our next curated insights: Best Market Entry Strategy For Vietnam
