Pros And Cons Of Doing Business In Vietnam – JDI Group

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 clarify what makes Vietnam become so desired for market expansion, as well as some risks and barriers against foreign business.

Advantages Of Doing Business In Vietnam

Fast-growing Economy And Young Market

Vietnam is one of the fast-growing countries in Asia, even worldwide. According to the world bank, Vietnam’s average annual GDP growth rate was 6.76% in 2014-2019, while the average world GDP growth rate was only 3.05%. Vietnam was also one of only a few countries to maintain economic growth through 2020 when the pandemic hit. 

Moreover, Vietnam is also considered a young and well-educated country.  With a 96 million overall population, more than 45% of the Vietnamese population is 25 to 54 years old. It means the majority of the consumers and the workforce now are educated Gen X and Millennials in Vietnam. In addition, there are also 29 million Gen Z in Vietnam now, which promises the strong purchasing power and productivity in the next generation.

The increasingly prosperous populations and emerging markets mean the vast potential of increasing demand and market growth, making Vietnam an ideal investment location for most industries.

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 operation 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. Such a potential workforce lends to a competitive salary. As a result, it is 15-50% cheaper to build an offshore IT team in Vietnam compared to other Asian countries like 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

The Vietnamese government has been actively engaging in global trading to attract foreign investors and encourage entrepreneurial development. These improvements provide firms 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. 

Disadvantages Of Doing Business In Vietnam

Tax Rate Considerations

The Vietnamese government has already undertaken much reform of its tax system, including electronic tax declaration and process simplification. However, there are still about 32 corporate tax payments for a country each year, which can still be a great challenge for newcomers.

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 these rules will ensure your compliance with tax laws and regulations and also help you maximize profits, so don’t hesitate to ask for help from a third party if you have any trouble with the tax considerations.

Complexed Business Setup Process

Currently, there are about eight procedures to undertake before setting up your business in Vietnam. Depending on your industry and the type of business entity, you will need to submit various documents to facilitate the setup progress—for example, the capital requirement. 

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. Based on our experience, VND 230 million (US $10,000) can be promising capital for most businesses. However, it can be pretty challenging for new entrants to deal with these vague and hidden requirements.

Cultural And Language Barriers

One common business challenge of doing business  in Vietnam is the language barrier. All the official documents and business paperwork must be filled in Vietnamese. Therefore, it’s common for foreign companies to have both English and Vietnamese versions of legal documents simultaneously. 

On the other hand, building your teams in Vietnam means you need to have at least a basic understanding of 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. 

As such, it’s common for Vietnamese to show agreement even when they don’t understand or agree with the tasks to avoid embarrassment. However, much of these understandings of Vietnamese society come from the basic knowledge of the local language, which means having someone familiar with Vietnamese language and culture in your Human Resource team will be crucial. 

Conclusion

As one of the fast-growing economies in the world, the stable political and  supportive business environment, fast-growing market, and cheap, well-educated laborers of Vietnam provide foreign entrepreneurs with endless opportunities. However, expanding business in a foreign country is always a high risk-reward decision, especially for beginners who are  unfamiliar with the policy, market, and culture. Therefore, it can be critical to get assistance from trusted professionals.