Known as an attractive manufacturing hub for labour-intensive and less capital-intensive industries, Vietnam provides trade and investment opportunities for Canadian companies in several sectors including aerospace, agriculture and agri-food, construction and infrastructure, and consumer goods.
While lagging infrastructure, bureaucracy, corruption, the environment and the country’s dependence on state-owned Enterprises (SOEs) can pose challenges for foreign investors, stability, location, favourable demographics and a growing middle class are among the factors that continue to make Vietnam an attractive market.
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Regional Manager Asia,
What are some of the key challenges for Canadian companies that want to do business here?
- Setting up a business in Vietnam can be challenging. In 2016, Vietnam was ranked 82 out of 190 in terms of ease of doing business by The World Bank, an improvement from the previously ranked 93rd place.
- The language barrier can be challenging; however, the situation is improving as the younger generation is becoming increasingly aware of the need to master an international language such as English.
- Inconsistent and sometimes conflicting rules and regulations at national and local levels can cause confusion when navigating the market.
- Bribes/corruption, poor enforcement of intellectual property rights and a legal system that lacks judicial independence (often favouring state-owned enterprises) can complicate dispute resolution.
What are some misconceptions about doing business in Vietnam?
Support from the state should not be implied without a formal guarantee in place when dealing with state-owned enterprises. Despite many recent positive developments in Vietnam, it is not necessarily a rules-based business environment.
What key advice can you offer Canadian businesses?
Patience is required when dealing with corporates in Vietnam and especially with the government; as contract negotiation can be long and protracted. Ensure all proper certificates required are in place.
Involving EDC, the Trade Commissioner Service as well as our other partners, such as trade support with the various Canadian provinces, early in the process is key as we can all help navigate the complexities of doing business in the market.
Senior Trade Commissioner, Vietnam
Canadian Trade Commissioner Service
Can you highlight specific locations in Vietnam that make ideal points of entry for Canadian businesses?
Vietnam is blessed with a young and a vibrant urban population. Market entry points depend very much on the business sector; however, Ho Chi Minh City (HCMC) is traditionally known as the commercial and financial hub of Vietnam. Many firms choose HCMC as an entry point due to its dynamic business climate, openness to foreign firms and strategic location in Southeast Asia.
The surrounding provinces of HCMC (Dong Nai, Binh Duong, Ba Ria-Vung Tau, etc.) are part of a major manufacturing and food-processing hub with established road and port infrastructure, where many foreign investors establish their facilities. Another potential entry point for businesses that require significant government or regulatory engagement is the capital city of Hanoi, which is located close to Hai Phong, a major port city in the north linking Vietnam to China and other South East Asia cities.
Any recommended market entry strategies?
The market strategy for a company will depend on a variety factors such as the business sector and its long-term objective, but any market entry strategy by a Canadian firm will require some type of sustained local presence. It is very difficult for a company to operate from a distance without first establishing strong relationships on the ground. Entering into a partnership arrangement or a joint venture with a local firm is a popular approach for small or mid-sized companies wanting to do business in Vietnam, but foreign companies need to invest time and resources to conduct the proper due diligence before selecting a partner. This would normally entail a few visits to Vietnam over the course of several months (or even years) to establish trust and foster relationships. Canadian companies may also wish to explore the network of Vietnamese-Canadian diaspora who have returned to Vietnam to engage in commercial activities in the market.
Any emerging niche industries where you see particular opportunities?
Vietnam is now Canada’s largest trading partner in ASEAN (Association of Southeast Asian Nations), with bilateral merchandise trade between the two countries more than doubling over the last four years.
Improved living standards, coupled with a growing and more affluent middle class, a shift in consumer spending habits and increasing concerns over food safety present growth opportunities for premium Canadian food products. The restructuring of Vietnam’s agriculture sector, with a focus on added value and sustainability, opens further trade/service opportunities in productivity and efficiency improvement.
Vietnam’s rapid growth brings with it challenges to build and maintain adequate infrastructure to meet the country’s growing transportation and energy needs, leading to opportunities in urban transport, renewable energy, water/wastewater management and waste-to-energy facilities. Another sector of interest for Canadian companies is information and communication technologies, with a particular focus on mobile technology, big data and analytics, financial technology and applications for health care.
Education is by far the most important Canadian service export to Vietnam. Canada’s education institutions are well placed to provide quality education at all levels to Vietnamese students and to undertake institutional and education training partnerships. Vietnam is the largest source country of international students to Canada across the ASEAN region.
There is no shortage of potential opportunities in Vietnam for Canadian companies willing to make a commitment to the market. As in any challenging market in Asia, companies need to be prepared to invest time to undertake careful analysis of the opportunities before diving in. The Trade Commissioner Service is ready to support them.
Canadian Chamber of Commerce in Vietnam
Where do you see opportunities for growth?
Opportunities depend on the Canadian or foreign partner’s capabilities and experience in Vietnam. Opportunities are not the key issue; navigating and realizing opportunities is the key challenge. We can find opportunities in every sector and service, many of which are highly complementary with Canadian services and products profile. This means that many of the products that Canada is a leader in, and are in high demand in Vietnam, are not necessarily produced or available in sufficient quantity or quality in Vietnam.
Therefore, opportunities lie in the area of safe and consistent quality, due to advanced regulations and policies in Canada that are under-developed in Vietnam. Many countries have been taking advantage of this for years in Vietnam, with New Zealand, Australia and individual countries in Europe being very successful.
What do exporters need to know about Vietnam? What kind of help do Canadian companies look for?
If you do not have experience in Vietnam, it will be difficult to navigate, let alone foresee the challenges. However, it is being done, and being done expertly by more and more countries and companies.
Assuming it’s an exporter that has undertaken their preliminaries, through research, national or provincial trade services, etc. and/or doesn’t need to know the basics, the important stage is to get to understand the Vietnam market. The challenge, however, is how to get relevant and up-to-date market intelligence and experienced insight rather than generalized or simply wrong information. This comes from professional advisers and consultants, coming from experienced and objective sources of market intelligence and networking such as the chamber of commerce. It can also come from a local partner.
I also generally recommend adjusting time frames by 2 to 3 times – with additional time and resources on upfront work (market intel gathering, initial HR hiring etc). This will pay off in less time and fewer resources required when it’s time for ‘tire to hit the tarmac.’ This is not a country where you want to be under pressure to get results more rapidly than should be reasonably expected. Expect the unexpected and you can profit from it.
How can the Canadian Chamber of Commerce in Vietnam help?
In a number of ways: membership provides access to our board, our newsletter, our network and to discounts when you are in Vietnam. We also provide bespoke market access services, for a fee, as well as temporary business and office services. We also have an outstanding board of directors and office team ready to provide practical, experienced and unbiased insight, as well as directions to our favourite street food or Vietnamese coffee stand. We have dozens of years of experience on our board that we can lend to companies looking at Vietnam or Canada for investment or trade opportunities. We have met with companies looking at multi-billion-dollar investments in manufacturing and introduced them to Intel and Samsung’s key people for advice on how to avert labour productivity issues. We also meet with SMEs to guide them on their experience in tapping new markets – for example, recently in craft beer from Ontario. We also help Canadian exporters understand the opportunities not only in Vietnam, but in the region as many of us have worked in a number of countries throughout ASEAN.
Partner, Baker & McKenzie Vietnam
From a legal perspective, what are the top three things Canadian companies need to consider about the Vietnamese market?
Three top issues Canadian companies should consider before coming to Vietnam include:
- Whether they have the time and resources to stay involved in the business.
- If the business itself is one where foreign participation is welcome.
- Whether it is the right time for the business in terms of Vietnam socio-economic development.
Vietnam is not a place for passive investment. There is a growing securities market that offers some opportunities for foreign portfolio investors, but for the most part it is a very hands-on market where the foreign party has to stay closely involved in order to manage the business properly. This is due to the lack of local senior managerial personnel and the poor compliance culture in the local business environment.
For the second issue, it is much easier to get a licence and do business in an area that is clearly open to foreign participation by way of setting up a commercial presence. In areas open to foreign participation, by way of a commercial presence such as a subsidiary or joint venture company, it may be easier in many lines of business to enter into a distribution agreement, franchise or other commercial arrangement with a local company – provided you can find the right one. The lines of business that are open for foreign participation in the services sector are listed in the services schedule Vietnam submitted in connection with its accession to the World Trade Organization in 2007.
Are there any aspects of Vietnamese company law that appeal to Canadian investors?
Vietnam’s Enterprise Law reflects many of the same good governance principles as most modern company laws. There are two relevant forms of doing business: the Limited Liability Company (the LLC), which can be owned by a single investor, or as a joint venture among two or more; and then there is a Joint Stock Company (JSC), which can issue shares and bonds. Though not without their local wrinkles, these familiar legal vehicles make it easier to operate in Vietnam.
What’s your top advice for Canadian companies coming to Vietnam?
Do not rely on the advice of a “well-connected” local consultant whose primary expertise is a real or purported relationship to someone in a position of power. Vietnam has its own laws and regulations, and it takes them seriously. Although the compliance environment is not strong where local enterprises are concerned, where foreign businesses are concerned the letter of the law may be strictly implemented.
From a regulatory and legal point of view, what do Canadian companies need to know about doing business here?
One important point to remember is that the regulatory environment is still in a rapid state of evolution. Laws and regulations change constantly, and although there is legal protection against retroactive legislation in principle, that can be hard to translate into practice in some cases. How to cope? Just assume that whatever regulatory issues there are in most other countries in a given area, Vietnam will eventually introduce them here too. If a business can’t do something in most other jurisdictions for one reason or another, then it’s safe to assume that Vietnam will eventually turn its attention to it as well.
And – last of all – always make sure that you have a legal basis for the business you are doing. The authorities always want to see a specific licence or permit for doing business, whatever that business is. “Informal” or “nominee” investments are still legal but unreliable, and in some cases may be invalid and possibly even illegal as a circumvention. The licensing requirements may seem daunting at the outset, but having a legal basis for the business will enable the investor to sleep better at night.
Manager, Legal Research, TRACE International
How would you characterize the risk of corruption in Vietnam?
Bribery risks in Vietnam are elevated, but roughly on par with the East Asia/Pacific region. The country scores 77 out of 100 on the 2016 TRACE Matrix business bribery risk index, placing it 175th out of 199 countries and reflecting a high level of risk, based largely on poor government transparency and limited press freedom.
Judging from the 2015 World Bank Enterprise Surveys, bribery expectations are relatively high in government procurement and tax matters, but quite low for more ordinary services. Only 11.1% of firms reported being expected to give gifts to obtain electrical service, and only 4.8% reported such an expectation with respect to water service. Yet an astonishingly high 90.7% of firms said that gifts to public officials were expected in order to “get things done.” These figures suggest that while corruption is deeply ingrained at the higher levels of government dealings, it presents a relatively small impediment to carrying out lower-level business operations – consistent with the mere 7.6% of firms identifying corruption as a major constraint.
How do these risks affect Canadian businesses?
Vietnam is a developing economy, growing rapidly and eager to attract foreign investment. Where such investment means doing business with the government, companies face a higher than average likelihood of encountering corrupt demands, despite the country’s relatively stringent (but only sporadically enforced) public sector anti-bribery laws. Although lower-level bribery demands are not considered a serious impediment to doing business, opportunities to make “facilitation payments” to help things run more smoothly are pervasive.
How can Canadian businesses guard against these corruptive practices?
Given the high risk of corruption in procurement and tax matters, companies should consider allocating resources to monitoring their bidding processes and other high-level government interactions. Vietnam’s growing economy and need for foreign capital may give Canadian businesses leverage with which to resist bribery demands when they do occur. Operationally, where corruption appears less intrusive, normal monitoring of employees and agents may be appropriate – assuming they are properly instructed regarding the company’s ethical expectations. It should also be noted that although permits and services are by and large obtainable without bribery, facilitation payments can be an easy way for employees facing strict time pressures to speed up the process. Recognizing this at the managerial level and planning accordingly may help reduce that temptation.
Companies may wish to refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
In addition, companies may choose to work with TRACE Certified entities, who have completed a comprehensive due diligence review process.
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