Business in Vietnam. Particularities, rules of conducting, laws and traditions.

More and more foreigners come to Vietnam for a permanent residence and for many of them, the logical question about how to earn money here and how to conduct business arises.

Someone manages to get employed by Vietnamese companies (like Coc Coc), someone gets a job in the tourist industry, but many start their own business.

Taking into account the fact that the Vietnamese have little understanding of marketing and good service and not all of them speak English, it’s not difficult at all for an enterprising man or woman to launch a business in Vietnam.

The Advantages and disadvantages

The combination of an exotic nature and a pleasurable climate makes Vietnam an ideal place for living but there’s always a fly in the ointment:

• an undeveloped economic infrastructure;
• the all-pervading government bureaucracy;
• an embryonic juridical system.

Those are just some of the problems a foreign businessman may face. Anyway, the main tramp card and asset of the country is its people.

Vietnam has the third largest population in the Southwest Asia after Indonesia and the Philippines. The population is rather young. 80% of 73 million people are younger than 40 and many of them are well educated. The percentage of educated people is close to 90%. Besides, in spite of the communist “socialism” period, the Vietnamese have preserved their strong labor ethics and enterprise spirit.

Add the low labor cost (average annual per capita income is about 500 USD) and you’ll understand why foreign companies and investors aim to do business there.

To succeed in competing with local companies you’ll have to work hard and adapt to the local culture. You must understand and respect it. This article will give you some idea of doing business and of interpersonal communications in Vietnam.

How to invest in Vietnam

Vietnam conducts a policy stimulating investments in different industries and geographical areas. This becomes apparent in the following actions of the government:

• the corporate income tax exemption or reduction for several years;
• reduction of the land rental payment;
• the import duty exemption;
• deferred payment of the VAT.

An investment license is valid for 50 years and is renewable. The agency fia.mpi.gov.vn is the central institution for investor licensing. Its departments are all over the country – in 63 provinces – and are ready to help foreign investors. In some rare occasions, an investment license has to be approved by the prime minister. Investing in Vietnam can be made by buying shares. You can turn to The Chamber of Commerce and Industry of Vietnam or to business consultants. They will help you to choose an object for your investment, taking into account the best possible geographical location for your industry and also raw materials and labor force demands.

Differences in communication

For establishing a successful international business relationship it’s important to remember about cultural differences. Most business arguments happen because of misunderstanding between partners. For example, if in your society it’s customary to look closely at someone’s eyes during a conversation, in Asia, including Vietnam, it is considered impolite. To express your respect you need to keep your look down until your interlocutor finishes his speech. In the Asian culture, the place of a meeting and nonverbal behavior play a more important role than spoken words.

Smiles and nods not always mean agreement.

The Vietnamese trust “mouth to mouth” information, that’s why if an influential in this industry expert recommends you to someone, your chances to win get much higher. The Vietnamese still hold some preconceptions, for example:

• made in Japan – means reliability and durability;
• in Great Britain – quality and costliness;
• Germany associates with excellent technologies;
• France, Italy – they are gloss, fashion, and cosmetics.

Conflict resolution

It’s very important in Vietnam to “save face”, that is to have a good reputation, that’s why if you have some kind of disagreement with the Vietnamese side, it’s better to resolve it peacefully. Bringing the argument to trial will mean the end of your business relationship and the process of resolving your disagreement will be scrupulous and meticulous.

Transparency and personal relationship

It’s very difficult to obtain any information in this country. If you can get it from the open sources it means that the information is worthless. Really valuable knowledge can be gotten only due to personal connections.

Key sectors for business

Cho Chi Min is one of the largest commercial centers with a population of seven million people. Around Ho Chi Min and Hanoi whole industry parks are situated. There are several ways for companies to approach the Vietnamese market:

• direct export;
• establishing an agency;
• distributorship;
• opening a representative office;
• establishing a joint ventures company;
• a conclusion of a partnership agreement;
• a creation of a contract “assembly-operation- handover” type;
• franchise/licensing.

The Internet and correspondence

The Vietnamese are active Internet users so advertising in the net is highly effective. Most companies own websites but not all of them invest in their technical maintenance, update, and functionality. It’s not customary here to answer e-mails without a prior live personal meeting. The Vietnamese prefer to do business with people they know. If you don’t have an opportunity to organize a personal meeting, phone after sending an e-mail. Your e-mail then won’t be perceived as a spam and the addressee will understand how valuable for you a possibility of the partnership is.

Try to get direct contacts of the person you are interested in. Begin your conversation with asking for a meeting. If the answer is positive it means that you are of some business interest for the person. In spite of quite wide using of e-mails, personal meetings and paper correspondence still prevail here. It is especially true about representatives of the state structures. For the Vietnamese, a real signature and an ink stamp are very important.

Besides personal communication, cold calling, internet advertising, fairs, presentations, brochures, and catalogs are widely spread in Vietnam.

The customs

In the country, there’s a wide net of brokers and forwarding agents who can help with customs processing. Most imported goods are liable to the duty and VAT. The cost varies depending on what is imported.

The currency

The State Bank of Vietnam strictly controls all currency operations. State businesses, Vietnamese private companies and foreign companies working in the import substitution field or some other important areas of the economy are allowed to buy currency from commercial banks. Usually, they are included in the so-called investment license. Keep in mind that the right for currency conversion doesn’t guarantee its availability.  Abroad currency transfers from Vietnam are allowed only in the following cases:

• when a licensed importer pays for goods and services;
• makes operations with foreign documents (sale contracts, invoices, customs declarations, etc.).
• for payment of foreign loans and borrowing interest;
• for salaries, bonuses, and assistance payments to foreign workers.

In connection with the above, we recommend you to get the import license and the permission for currency conversion as soon as possible. For doing so, consult with your bank or representatives on payment issues in Vietnam.

Taxes

Vietnam has a complicated system of taxation:

• the corporate income tax;
• the value-added tax;
• the special sales tax;
• the income tax;
• the tax on capital accretion;
• the national resource tax;
• the property tax;
• the ecological protection tax;
• the population income tax, etc.

Hopefully, you’ll be able to get some tax reduction.

Tenders

The government is not a monopolist in purchasing so a preference is given to local companies and open tenders. There are lots of competitive proposals that are dealt with according to the international rules and regulations of the tendering process.

Documentation

The local representative of your company will take care of the documents needed for importing goods. To see the list of them, please visit the site of the Customs Committee of Vietnam ww.customs.gov.vn.

Goods transportation

Acceptable ways of transporting goods to Vietnam are by sea and by air. The most suitable for such goals are the international seaports in Haiphong, Da Nang, and Saigon and the international airports Noi Bai and Tan Son Nhat.

Standards

Vietnam has its own standards and technical requirements (including labeling). Their simplification or even a full exemption from them can be achieved upon a mutual agreement between the parties. Before exporting, make sure all the needed technical licenses are supplied.

Intellectual property rights

There are lows in Vietnam protecting intellectual property rights. If you notice a violation of your intellectual property rights you can be helped by:

• market supervision inspectors;
• customs investigators;
• the economic police.

Meetings and presentations

During an introduction give your visit card with both hands. Greet your conversational partner by his name. Its right pronunciation should be found out in advance. To “break the ice” during your conversation you may begin with discussing a match of the football Premier League, most Vietnamese support the Manchester United.

Many business relationships start after a recommendation of a more influential business partner.

Business relationship in Vietnam

Unlike western business relationship where it is not customary to cross the line of professional communication, in Vietnam, it may become very close and even turn to relative-like relationship. The more partners share their personal life events, their hobbies, political views and goals, the stronger they are connected.

Subordination

In Vietnam, subordination and the position held by a person are very important especially if you deal with a state structure or an official. Instead of addressing people just by “mister” or “missis” articulate their positions, for example: “president”, “director”, “head of”, etc. Presenting a visit card or a brochure of your company, start with the highest positions and move downwards. The same way, according to the rank the people hold, seats should be placed in a conference room or at a dinner table. The eldest and having the highest rank person always enters a room first.

Greeting

Every time you meet your Vietnamese friend or a potential business partner try to smile sincerely. If you meet with a group of people, greet everyone, including children. Following the Confucian tradition greet the eldest person first. Use shaking hands for greetings and goodbyes with representatives of your gender. Many Vietnamese use so-called two hands shaking holding the left hand on the right wrist. Women are always the first to show initiative. If a woman doesn’t do that, incline your head slightly. Visit cards are usually exchanged at the first meeting and it’s customary to give a card with both hands. Don’t put the card you are given into your pocket at once, show some interest.

A business lunch and dinner

Most business lunches and dinners are organized in hotels, restaurants or state institutions. If a potential partner invites you to a business lunch, it’s expected that you do the same in acknowledgment of the invitation. Business issues can be raised during a business lunch but it’s not customary to discuss them at dinners. Exchanging toast is a tradition and the organizer of a meal speaks first. At this time you should stand up directing your wine glass with both hands towards the eldest or having the highest rank person at the table in the testimony of your respect. While saying your toast you can, for example, mention the beauty and picturesqueness of Vietnam landscapes, talk about friendship and prospects of your joint business.

It’s uncustomary to bring your spouse to Vietnamese business parties. In case you can’t eat with chopsticks most good restaurants have western forks and knives. Usually, at the end of a dinner, a tray of fruit and sweet goods is brought. After that the guest must tell goodbye first, don’t make yourself to be waited for. Before you leave, make sure you shake hands with everybody who was at the table with you and thank eloquently the organizer of the meal if you hadn’t organized it yourself.

Behavior at the table

• respect elderly people, remember that the eldest person takes his seat first;
• during a meal use both hands;
• notice that eating up is considered to be a good form;
• don’t dig your chopsticks vertically into the plate – it reminds the Vietnamese of funerals and the dead. Besides, you shouldn’t press too hard with your sticks on the bottom of your plate – in the days of old, beggars did so;
• try to make as little noise as possible while eating;
• if you’d like to know more about what is on the table, don’t be shy to ask your colleagues. A polite guest will always get an answer.

If you are a business lady in Vietnam

If you are a businesswoman in Vietnam and are planning a business lunch with a Vietnamese businessman, choose a restaurant with lots of visitors. If you initiate a business lunch you should, by all means, insist on your paying for it.

Business presents

There’s a rather widely spread tradition in Vietnam to give each other business presents during a business lunch or after a meeting. The presents should be small and inexpensive.  For example, it could be a souvenir representing your country or having a logo of your company. Remember that it’s not an obligatory gesture but if you’d like to give something, avoid sharp things (a symbol of discord) or handkerchiefs (a symbol of farewell in Vietnam).

The body language

Even if you feel someone is very friendly or well-wishing towards you, avoid giving anyone a hag or kissing anyone publicly. You seldom see such things in the street in Vietnam. Don’t touch the shoulders or the head of another person. In the Asian culture the head is considered to be the symbolic highest point of a man and touching the face of another person is considered impolite. Remember that Vietnam is a conservative country where traditions and customs are considered sacred. Listen to your reason and all the time notice what is happening around you.

Some tips on how to gain a good reputation in Vietnam.

• make sincere compliments;
• divert attention from yourself. Transfer all praise to your mentors and partners. The Vietnamese value modesty;
• a business meeting can be fixed several weeks in advance;
• hire a local representative for your company. He can be helpful as your assistant and interpreter;
• the Vietnamese are punctual and expect the same from others;
• dress conservatively.
• if your friend gets into an awkward situation help him to find a way out without losing face;
• don’t give any promises that you cannot accomplish.

Be able to keep silence. It’s a rather widely spread practice in the Vietnamese culture. Silence may occur during talks, this way one of the sides can display disagreement with the other side.

You must make your business partner feel his value near you.

Never get rattled, avoid shouting or arguing and never come down to insults.

Making a company in Vietnam

Depending on the branch of an industry you are going to do business in, you can open the corresponding type of business:

• a limited liability company. It best suits small or middle-sized businesses. It has a simple corporate structure. Instead of shareholders, it has members who can owe different percentages of the company;
• an open joint-stock company. This type of company is optimal for a middle-sized or big business as it has a more complicated corporate structure. OJSC is an object of entrepreneurial activity and is mentioned in the Vietnamese legislation as an incorporated company shares of which belong to several initial shareholders;
• an affiliate. It suits foreign investors that would like to practice a commercial activity and make profits in Vietnam without opening a legal entity;
• an agency. An office of the main company without any business transactions. It is the simplest variant if a foreign firm is not planning to earn any income in Vietnam.

Requirements for a starting capital in Vietnam

For most entering the market enterprises no starting amounts are specified, any capital is possible. As practice shows, usually, it is 10000 USD. This principle opens wide possibilities for beginner entrepreneurs. Under the low of entrepreneurship, the capital has to be paid in ninety days after receiving a business registration certificate. This procedure is performed at the Department of Planning and Investments.

A small business launching in Vietnam

If your capital is less than 10000 USD you still can get a permission to invest in the economy of Vietnam. It’s important though that the area of your activity wouldn’t be too costly. Below are the examples of such areas:

• web design;
• management and consulting;
• marketing research.

Registration of goods distribution rights

Enterprises with a foreign capital that have a license for import but don’t have the right for distribution:

• can realize their product to Vietnamese traders;
• Cannot set up a distributing network of their own.

In other words, they can be engaged in trading on the local market with a help of agencies and it will lead to additional expenses. Why do obstacles exist for registration of goods distribution rights? Vietnam is trying to prevent an excessive import of goods protecting the inner market. On the other hand, the country encourages foreign investments in domestic manufacturing and technologies. Such companies automatically get the right to sell their product.

 What to do to register your own enterprise

• You should specify goods that are going to be introduced to the Vietnamese market.
• As Vietnam is a member of international trade organizations, the documents should meet the international norms, not only the inner ones.
• registering goods distribution rights takes 30 days;
• all the documents provided by a foreign company management should be valid in the country of the investor’s citizenship.

Nothing is impossible

Don’t take the first “yes” too optimistically and don’t get upset when you hear that something is “impossible”. Usually, it means that you have to work harder to earn your business partner’s interest in the partnership with you. Or, maybe, he hasn’t made up his mind yet. Always try to dig deeper. The very thing hiding behind the word “impossible” may be a solution to the problem.