Vietnam - Country Commercial Guide
Market Challenges

Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.

Last published date: 2021-09-15

Vietnam is ranked 70th out of 190 countries in the World Bank’s 2020 Ease of Doing Business Index (while the U.S. is ranked 6th).  A 2018 survey of AmChams in the ASEAN region regarding the trade and investment outlook reveals the following areas of concern in Vietnam:

  • Corruption
  • Laws and regulations
  • Legal system and contract sanctity
  • Tax structure
  • Infrastructure

The survey also noted that the business factor that has created the largest drop in satisfaction in the Vietnamese business environment over the last five years was local protectionism.

The evolving nature of regulatory regimes and commercial law in Vietnam, combined with overlapping jurisdictions among government ministries, often results in a lack of transparency, uniformity, and consistency in government policies and decisions on commercial projects. Project timelines often exceed initial projections, especially when financed using official development assistance (ODA). “Tied ODA”, which must be used to procure goods or services from the country of the aid provider, in addition to corruption, continues to be a significant challenge for U.S. firms bidding on infrastructure projects. Some companies have successfully collaborated with Japanese firms to be eligible to bid on Japanese ODA funded projects, which represents the largest source of foreign ODA in Vietnam.

Vietnam has a comprehensive anti-corruption legal framework in comparison with other Asian countries. Especially since 2017, the anti-corruption focus in Vietnam has witnessed some new milestones, with several updates to laws, regulations, and measures to strengthen the anti-corruption legal framework. In 2019, the Vietnamese government issued Resolution 02, which focuses on improving business integrity by providing measures that reduce corruption, aiming to bring Vietnam into the top four countries in ASEAN in terms of business competitiveness. The past several years have seen significant improvements in Vietnam’s anti-corruption legal framework, with the implementation of more anti-corruption actions, and the prosecution of many high-ranking officials involved in corruption cases. However, corruption and administrative red tape within the government is still a vast challenge for governmental consistency and productivity and for foreign companies doing business in Vietnam. Vietnam ranked 104 (out of 180) on Transparency International’s 2020 Corruption Perceptions Index (8 spots worse compared to 2019), placing it as one of the worst in a region infamous for its high levels of corruption. By comparison, regional neighbors ranked as follows:Malaysia at 57, PRC at 78, Indonesia at 102, Thailand  at 104, Philippines at 115,  Lao PDR at 134, Myanmar at 137 and Cambodia at 160.

Many firms operating in Vietnam, both foreign and domestic, found ineffective protection of intellectual property to be a significant challenge. Online piracy is rampant in Vietnam, and increasingly, Vietnam is host to some of the most egregious piracy sites and services in the world with no clear or effective enforcement path available against these sites or their operators. Illegal content generally can be accessed via online and mobile network piracy such as download sites, peer-to-peer networks, linking sites, streaming sites, search engines, cyberlockers, apps and on social media networks.

While Vietnam has reduced tariffs on many products in line with its WTO commitments, high tariffs on selected products remain. The U.S. industry has identified a range of products, which include agricultural products, processed foods, and nutritional supplements, which have significant export growth potential if Vietnam’s tariffs could be reduced further.

Vietnam plays a critical role in strengthening diverse and secure U.S. supply chains. With its strategic location, young and tech-savvy workforce, welcome approach to foreign investment and a broad network of free trade agreements, the country has become a top destination for global manufacturing, as firms seek to increase supply chain resilience and decrease reliance on China. As a result, Vietnam is a key node in U.S. supply chains for apparel and footwear, furniture and electronics, including critical goods like semiconductors.

However, Vietnam faces serious challenges in both the short and long-term. Amid a fast-growing fourth COVID-19 outbreak, Vietnamese authorities in the summer of 2021 established some of the strictest manufacturing protocols in the world, especially in Ho Chi Minh City and surrounding areas of Southern Vietnam.  These protocols required factories to house workers on-site or isolate them in hotels. The pandemic and accompanying restrictions have severely curbed industrial production, impacting supply chains and the U.S. industrial base. Consumer goods have also been impacted, as apparel, footwear and furniture factories have been forced to close.  The Government has directly pledged support to help resolve the supply chain resiliency issues, and directed local governments to implement consistent directives.  These measures will take time to adopt and enforce, however, and have been slow to roll out.

Furthermore, investors often run into poorly developed infrastructure, high start-up costs, unexpected tax assessments, arcane land acquisition and transfer regulations and procedures, and a shortage of skilled personnel. On a positive note, Vietnam remained steady with a ranking of 70 among 190 countries in the World Bank’s Doing Business 2020 report, putting it in the middle of the regional average. Of note, the World Bank reported that reforms in trading across borders and enforcing contracts are making it easier to do business. Lack of financial transparency and poor corporate disclosure standards add to the challenges U.S. companies face in performing due diligence on potential partners and clients.

Resources

  • Toward Transparency: https://towardstransparency.org/en/
  • Transparency: https://www.transparency.org/en/cpi/2020/index/nzl
  • ECON’s IIPA _2021 Special 301 Report on Copyright Protection and Enforcement:https://www.iipa.org/files/uploads/2021/01/2021SPEC301REPORT.pdf