Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Generally, import-export wholesale companies import goods into Laos and sell goods to retailers. Goods may enter Laos by air, road, or (less formally) by river. Laos possesses two active railroads, one is a short spur line from Nong Khai, Thailand that began operating in 2009 and opened its freight facilities in 2016. The other is a railway line linking Kunming in China’s Yunnan Province with Vientiane which began operating on December 2, 2021. The lack of a well-developed road system and other basic infrastructure in many areas makes distribution outside of the main urban areas in Vientiane, Luang Prabang, Savannakhet, and Pakse difficult, time-consuming, and costly. Apart from dry ports, road improvements are ongoing, with several decent roads in the northern provinces and along the southern corridor connecting Thailand, Laos, and Vietnam. More companies based in Laos are electing to move their products to the deep-water ports of Vietnam, as road improvements have—in some cases—made the route more economical than traveling south to Thai ports. The Lao and Vietnamese governments have agreed in principle to develop an expressway and potential railway line linking Laos to a seaport at Vung Ang in Vietnam.
Using an Agent to Sell U.S. Products and Services
Employing a Lao agent or distributor, or finding a Lao business partner, are frequently used methods for developing contacts with Lao businesses, customers, and government officials. Numerous import-export companies are based in Vientiane and in the cities located at or near border crossings in the provinces of Luang Namtha, Bokeo, Bolikhamxay, Khammouane, Savannakhet, and Champasak.
Most import-export companies are ill-equipped to handle large-scale distribution. U.S. firms looking for a distributor or an agent in a particular province should contact the provincial branch of LNCCI and the Trade and Investment Department of the respective province for assistance in identifying viable business partners.
Establishing an Office
Laos continues to reform its legal and regulatory framework to develop a more investment-friendly environment. In 2016, the government revised a 2009 Law on Investment Promotion to simplify and clarify investment procedures that were often confusing and inconsistently implemented. Generally, foreign investors seeking to establish operations in Laos are required to obtain a foreign investment and business license, an enterprise registration certificate, and a tax registration certificate.
There are three types of investment in Lao PDR as follows:
- General Business
- Controlled or Concession Business
- Special or Specific Economic Zones (SEZs)
The amendment and execution of the 2009 Investment Law in November 2016 initiated the establishment of the Board of Investment Administration and Service within the Investment Promotion Department (IPD) under the Ministry of Planning and Investment (MPI). This body, chaired by a Deputy Prime Minister, and having ministers and vice ministers from related ministries as members, will be responsible for concession businesses. Until the body is officially established, the steps necessary to open an office depending upon the type of investment will remain unchanged.
For concession businesses, investors must first submit project proposals to the “one stop service” unit in the IPD at MPI. For general investments which are not listed in controlled businesses, proposals must go to the one stop service unit of the Enterprise Registration and Management Department for General Business at the Ministry of Industry and Commerce (MOIC). Investments in SEZs and specific economic zones must be taken to the MPI or to the one stop service unit located within a pre-established SEZ.
Each of the three bodies should screen projects for financial and technical feasibility before forwarding them to relevant line ministries for review. Depending on the size of the investment, they may be sent to the Prime Minister’s Office or “Government Office” for adjudication. In addition to the investment license, foreign investors may be required to obtain other permits, including: an annual business registration from MOIC; a tax registration from the Ministry of Finance; a business logo registration from the Ministry of Public Security; permits from each line ministry related to the investment (e.g., MOIC for manufacturing; Ministry of Energy and Mines for power sector development); appropriate permits from local authorities; and an import-export license, if applicable. Obtaining the necessary permits can pose a challenge, especially in areas outside the capital. The government should respond to proposed new investments within 15–45 working days, though in practice this limit is exceeded. Foreign enterprises must begin business activities within 90 days from the date of receipt of an investment license, or the license is subject to termination.
Franchising is popular in urban areas of Laos, with several regional and global chains represented in the market. “Texas Chicken,” the overseas version of Church’s Chicken, opened in early 2017, and Avis Car Rental operates in several cities. Starbucks plans to open its first franchise in Vientiane in 2022. Hotel, car rental, and food and beverage companies have successfully entered the Lao marketplace, usually entering Laos after finding success in Thailand or Vietnam.
Direct marketing in Laos by electronic means is an area for potential growth, as an estimated 89 percent of the total population possesses mobile cellular subscriptions, and internet penetration (though still low) is growing quickly, particularly in urban areas. Although the road network is improving, there is limited postal coverage. The literacy rate is officially estimated to be 84.7 percent for those older than 15 years.
Care in selection of suitable business partners for joint ventures is crucial in Laos. As in other countries in the region, joint venture partners can contribute local knowledge of language and culture, local contacts, and access to human resources. There can also be challenges in a joint venture arrangement, including different management styles, different cultural expectations, and difficulty in exiting business arrangements with a local partner.
Lao foreign investment law recognizes joint ventures, while minimum registered capital for foreign investors has been abolished according to the 2016 amended law. However, such a requirement is still applied to certain activities under the list of controlled businesses governed by specific regulations. Capital contributed via foreign currency should be converted into Lao kip based on the exchange rate of the Bank of the Lao People’s Democratic Republic on the day of the capital contribution.
The foreign partners’ equity may be foreign currency, plant and equipment, capital goods, technology, and/or skills and management. Lao partners (including the Lao government) may contribute money, land, water rights, natural resources, and/or capital goods. The value of the inputs and assets of each side are assessed at international market rates and converted into local currency at the prevailing exchange rate on the date of equity payment.
Licensing arrangements also require a trustworthy Lao partner and opportunities should be thoroughly researched with, among others, the Lao government and LNCCI.
Express delivery services exist in Laos, though they remain costly and inhibited by the lack of a formal system of addresses. Furthermore, in many cases the Lao postal service must act as an intermediary.
Due diligence is key in the Lao market. Companies are advised to make regular trips to Laos prior to investing in order to meet both with potential partners and with relevant government officials. Working with a local lawyer (see below) is recommended.