With English now being more widely spoken than ever before, more and more businesses are looking abroad for opportunities to expand into new markets or benefit from lower labour costs. Lots of businesses have recently been drawn to Southeast Asia, where Vietnam is emerging as one of the most hospitable countries for foreign investment. But like anywhere else, there are advantages and disadvantages to doing business in this tropical paradise. This article takes a brief look at both sides.
Advantage 1: Location and Trade Agreements
With around 100.4 million people, Vietnam is quite a large market, but one of its biggest advantages is its proximity to China. Businesses setting up in Vietnam are primed to benefit from this as many Chinese buy goods there and infrastructure linking the two countries is good. Vietnam is also a member of several free trade agreements, including AFTA with its Southeast Asian neighbours, and EVFTA with the EU.
Advantage 2: Skilled Workforce at Lower Prices
With English proficiency and higher education numbers soaring across the country, Vietnam has a large population of young, motivated, and able workers. Manufacturing, IT, and finance are areas where they are really beginning to stand out, and foreign businesses have much to gain from this because the labour costs in Vietnam are much lower. Many businesses are already taking advantage of this by having vendors in Vietnam handle their IT, payroll, and more.
Advantage 3: Supportive Business Environment
The Vietnamese government has been actively encouraging foreign investment in recent years, notably through tax incentives and the cutting of red tape when it comes to foreign ownership of businesses in certain important sectors. They have also worked to improve digital infrastructure by investing in internet connectivity for more areas, and they have relaxed some licensing procedures to make them more business-friendly and less bureaucratic.
Disadvantage 1: Complex Regulations
Despite the government’s pro-business stance and ongoing reforms, bureaucratic and regulatory challenges still linger and are hard to change. In the meantime, some companies have sought out professional accounting & tax services in Vietnam to help them comply with the tricky financial laws and regulations. Local partners may also be able to help expedite some licensing and other bureaucratic procedures. These are known to be subject to delays.
Disadvantage 2: Limited Infrastructure
This one may not be a disadvantage for long, but at the time of writing, Vietnam still has some areas where infrastructure is proving to be a challenge. There are still underdeveloped roads and ports in some rural areas, which can make travelling for business difficult, as can the Internet connectivity. Although it has improved of late thanks to the aforementioned government investment, it is not always reliable if you head outside of the major cities.
Disadvantage 3: Cultural Barriers
Cultural differences are a potential cause of disruption for any business entering a foreign market. The cultural upbringing of the workforce influences almost every interaction they will have as an employee, from how they speak to customers to what opinions they share with you. Cultures with strictly hierarchical corporate structures, such as Vietnam, may also experience undue delays when decisions have to be made because everybody needs to get things signed off by their superior.
Conclusion
Vietnam offers much to benefit foreign investors, with low labour costs and trading partnerships being the highlights for many of the businesses that have established themselves there. Setting up a business there can be challenging at times, so it will be important for you to weigh these pros and cons. But remember that professional local guidance is available to help you navigate most issues, and the government has clearly signalled that they want to make things easier for businesses.