Business Expansion in Vietnam: Opportunities and Challenges

This report discusses the opportunities and challenges of expanding business in Vietnam. It covers the country's economic growth rate, industrial production growth, foreign direct investment, laws and procedures related to foreign direct investment, and market entry options for foreign investors. The report also highlights the barriers that foreign investors face while entering the country and suggests that the Vietnamese government needs to develop an easy mode of entry to attract international business and increase FDI in the economy.

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INTERNATIONAL MARKETING

BUSINESS EXPANSION IN VIETNAM 1
Introduction
Vietnam is the World’s 47th largest economy which is measured by nominal GDP and it ranked
35th in the world measured by PPP. Previously Vietnam is a member of Association of Southeast
Asian Nations and Asia-Pacific Economic Cooperation, but when it became a member of World
trade organization the foreign countries shows their interest more in the investing in Vietnamese
economy. The topic for which is selected for this report is Expanding business in Vietnam
because the economy is doing well in the world and attracting many developed nation to invest
in the economy.
Lee, K. and Jung, M., (2015) Overseas factories, domestic employment, and technological
hollowing out: a case study of Samsung’s mobile phone business. Journal of World
Economics, 151(3), pp. 461-475.
Over past few years, Vietnam has become a best place for business expansion and investment.
Many U.S investors and exporters are showing their interest in Vietnam market. Vietnam market
considered to be the fastest growing market, it has the highest economic growth rate worldwide.
The average growing rate of Vietnam is 7.2% annually. Vietnam is also experiencing amazing
industrial production growth. In last decade the average industrial production was approx. 12%
per year. All these contribute in raising GDP of the country. The U.S foreign direct investment
flows in Vietnam, in 2013 the US foreign direct investment I Vietnam was estimated approx.
$524 million which is 10.8% more than last year. The good infrastructure is a factor which has
made Vietnam appealing for U.S firms to set up their business here in the country. In Vietnam,
international business owners are allowed to own and operate their firms either through indirect
or direct foreign investment. Indirect investment refers to acquiring shares in the Vietnamese

BUSINESS EXPANSION IN VIETNAM 2
firms that are either wholly foreign-owned or joint business venture with local business owners.
Direct foreign investment refers to the business or operations conduct by foreign company
directly with any collaboration with national company or firm and by establishing their own
office or business in the country.
Dinh, T. Q., and Hilmarsson, H. P., (2014) What are the Economic Justifications for the
Existence of Export Credit Agencies and How Can They Facilitate Cross Border Trade to
Emerging Market Economies? Journal of Regional Formation and Development
Studies, 6(1), pp. 15-25.
Setting up a business in Vietnam is quite complex task in comparison to other companies for
foreign business owners. The laws and procedures that are related to foreign direct investment
are complicated and rising difficulties for international companies in setting up their business
and operations in Vietnam. Therefore, it is recommended to a business who are interested in
setting up their business and operations in Vietnam to experienced and understand the
Vietnamese company set up laws and procedures. If the international entrepreneur were thinking
of setting up their business in Vietnam, then there are two ways to enter the market of Vietnam.
The international business owners have a discrete power to choose the most suitable way of entry
in the country market. The first method of entering Vietnam market is direct investment, direct
investment means the owners of business can invest directly in the market without any local
support and the second way of investment in Vietnam economy is indirect investment. In
indirect investment the foreign investor have to take help or has to involve local company or firm
to invest in the market

BUSINESS EXPANSION IN VIETNAM 3
Raven, P. and Le, Q.V., (2015) Teaching business skills to women: Impact of business
training on women’s microenterprise owners in Vietnam. International Journal of
Entrepreneurial Behavior & Research, 21(4), pp. 622-641.
Setting up the business in Vietnam has a complex task because of its local regulations, for the
foreign investors. The registration process of company is very time consuming, the process
requires that each activity related to the registration of the company should be appropriately
detailed and approved. The Vietnamese authorities are very particular about the paperwork and
they do the paper work very carefully. In addition each business or company has to understand
and follow requests and requirements under prevailing laws. The process further involve steps
like pre-licensing to post-licensing, from initial registration through to accounting and human
resource set up requirements. To start the company in Vietnam foreign investor must requires
few things such as, an office address in Vietnam, at least one legal representative who is a
resident of Vietnam or who generally resides in Vietnam, proper evidences that can prove that
the investing company has the sufficient financial capacity to remit the approved chapter capital
into Vietnam within 90 days from company establishment. All companies are limited to provide
services in Vietnam. At each stage of incorporating of the company and post incorporation of
company in Vietnam required certain licensing, tax and accounting procedures to be adhered to.
Linh, D.H. and Lin, S., (2014) CO2 emissions, energy consumption, economic growth and
FDI in Vietnam. Journal of Managing Global Transitions, 12(3), pp. 219-232.
Modern infrastructure, dramatic increase in foreign direct investment and increasing gross
domestic product are the signs that the economy of Vietnam has transformed into an attractive
investment destination, but still there are some barriers remain in the economy of Vietnam which
are providing negative impact on the investors. There were 13544 foreign investment projects

BUSINESS EXPANSION IN VIETNAM 4
were established in Vietnam with the total registered capital of US $213 billion. Vietnam
emerges as a large overseas investment country which has occupied about 43.4% industrial
product value and 17% of GDP. The foreign companies are attracted toward Vietnam market
because of 87 million strong population which include large number young workforce. Since
1990, Vietnamese economy emerge as a strong economy with high economic growth rate, even
at time of global financial crisis the country with their effect economic strategies overcame the
crisis pretty soon. Various sectors such as tourism development, real estate, and infrastructure
and retail sector development in urban areas are attracting huge amount of foreign direct
investment. When the economy of Vietnam move from centralized to market orientated
economy, it attracts high amount of overseas firms. However, International Finance Corporation
and the World Bank rank Vietnam 99 in the world for comfort of doing business, which means it
is essential to seek local help for expanding in business in Vietnam.
Pham, T.H.H. and Nguyen, T.D., (2013) Foreign direct investment, exports and real
exchange rate linkages in Vietnam: evidence from a co-integration approach. Journal of
Southeast Asian Economies, pp. 250-262.
Large population of 93 million among which half is under thirty, ongoing reforms and continues
strong economic growth have combined together to create a quick and dynamic evolving
commercial environment in Vietnam. Technologies, sales of equipment, management and
consulting services are associated with growth in Vietnam industrial and export sectors. In April
2017, The Asian Development bank released figures, and the figures states that Vietnam’s public
and private investment sectors ranked highest in Southeast Asia. In 2018, the per capita GDP
was estimated to be $ 2546 and the government of Vietnam has stated a goal to increase this
figure at least $ 18000 by 2035. Sectors like power generation, education, defense, aviation,

BUSINESS EXPANSION IN VIETNAM 5
environmental project management, infrastructure construction, transportation, information
technology and telecommunication will offer the most promising opportunities to the foreign
companies to establish their business in Vietnam by including less time. These sectors need to
expand continuously to pursuit a rapid economic development in Vietnam. Health care is also
considered to be a growing sector as the increasing wealthy population is spending more money
on treatment.
Meyfroidt, P., Vu, T.P. and Hoang, V.A., (2013) Trajectories of deforestation, coffee
expansion and displacement of shifting cultivation in the Central Highlands of
Vietnam. Journal of Global Environmental Change, 23(5), pp. 1187-1198.
In the latest survey which is been conducted by Japanese External trade organization it is found
that 65.1% Japanese businesses are operating in Vietnam and making huge profits. There are few
firms which are incurring losses, report states that in 2016 19.4% companies has suffered loss in
their business. Many economists said that the main reason due to which the Japanese companies
are expanding or developing plan to expand business in Vietnam is increasing turnover of
Vietnam based firms. The business environment of Vietnam has improved significantly over past
few years, the survey pointed out that the complicated tax procedures and rising labor cost are
the main reason because of which the Japanese companies want expand their business in
Vietnam. The labor cost in Vietnam is rose by 3.1% and the complex tax procedures also rose by
3.5%. Beside all profits the company also facing difficulties. The Japanese External trade
organization who has conducted this survey expects that the Vietnamese government will
consider all risks and difficulties identified in the survey and will help Vietnam by improving its
investment d business environment to become more attractive destination for the investors
belong to Japan and the global investors.

BUSINESS EXPANSION IN VIETNAM 6
Anwar, S. and Nguyen, L.P., (2014) Is foreign direct investment productive? A case study
of the regions of Vietnam. Journal of Business Research, 67(7), pp. 1376-1387.
Foreign direct investment has played a very essential role in the substantial development of
Vietnam in recent years. The growth in Vietnam began with Doi Moi Reforms in 1980s and
again it pick up in 2007 when the country sign an agreement and become a member of WTO.
With the entry in WTO, the trade barriers were get reduced for entry of foreign investors. It is
essential requirement that every member of WTO has to follow the international trade policies
that are designed by WTO, after being the member of WTO Vietnam also bind to follow
international trade policies. Foreign invests has found a various options for entry into the
Vietnamese market. All market entry options are defined in Vietnam’s Law on investment and
Vietnam’s Law on Enterprise implementation in 2015. The most common and best entry modes
for foreign investors to invest in Vietnam market are hundred percent foreign owned enterprises,
joint ventures, PPP agreements in Vietnam, and representative office. Vietnam is the fastest
growing economies in South Asia and has priorities to become a developed nation by 2020 they
have planned their activities accordingly. More than half of the foreign investment in Vietnam
comes from manufacturing especially from mobiles phones. Around 70% of Samsung
smartphones are made in Vietnam and majority were being exported.
Conclusion
To conclude, the economy is doing well in, the various developed nations like U.S, and Japan
has established their business in japan. However, the international companies are facing various
challenges while entering the country. Vietnam government needs to develop an easy mode of
entry to attract international business and to increase FDI in the economy.

BUSINESS EXPANSION IN VIETNAM 7
References
Anwar, S. and Nguyen, L.P., (2014) Is foreign direct investment productive? A case study of the
regions of Vietnam. Journal of Business Research, 67(7), pp. 1376-1387.
Dinh, T. Q., and Hilmarsson, H. P., (2014) What are the Economic Justifications for the
Existence of Export Credit Agencies and How Can They Facilitate Cross Border Trade to
Emerging Market Economies? Journal of Regional Formation and Development Studies, 6(1),
pp. 15-25.
Lee, K. and Jung, M., (2015) Overseas factories, domestic employment, and technological
hollowing out: a case study of Samsung’s mobile phone business. Journal of World
Economics, 151(3), pp. 461-475.
Linh, D.H. and Lin, S., (2014) CO2 emissions, energy consumption, economic growth and FDI
in Vietnam. Journal of Managing Global Transitions, 12(3), pp. 219-232.
Meyfroidt, P., Vu, T.P. and Hoang, V.A., (2013) Trajectories of deforestation, coffee expansion
and displacement of shifting cultivation in the Central Highlands of Vietnam. Journal of Global
Environmental Change, 23(5), pp. 1187-1198.
Pham, T.H.H. and Nguyen, T.D., (2013) Foreign direct investment, exports and real exchange
rate linkages in Vietnam: evidence from a co-integration approach. Journal of Southeast Asian
Economies, pp. 250-262.
Raven, P. and Le, Q.V., (2015) Teaching business skills to women: Impact of business training
on women’s microenterprise owners in Vietnam. International Journal of Entrepreneurial
Behavior & Research, 21(4), pp. 622-641.