Doing Business in Vietnam: 2011 Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2011. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES. • Chapter 1: Doing Business in Vietnam • Chapter 2: Political and Economic Environment • Chapter 3: Selling U.S. Products and Services • Chapter 4: Leading Sectors for U.S. Export and Investment • Chapter 5: Trade Regulations, Customs and Standards • Chapter 6: Investment Climate • Chapter 7: Trade and Project Financing • Chapter 8: Business Travel • Chapter 9: Contacts, Market Research and Trade Events • Chapter 10: Guide to Our Services Return to table of contents Chapter 1: Doing Business in Vietnam • Market Overview • Market Challenges • Market Opportunities • Market Entry Strategy Market Overview Return to top • Vietnam is a true emerging market, offering ground floor and growing opportunities for U.S. exporters and investors. Vietnam’s economic growth rate has been among the highest in the world in recent years, expanding at an average about 7.2 percent per year during the period 2001-2010, while industrial production grew at an average of about 12 percent per year during the same period. • Vietnam registered GDP growth rate of 6.7 percent in 2010 and was one of only a handful of countries around the world to experience such levels of economic growth. • Moving forward, inflation remains a main risk to Vietnam’s economy, which the Government of Vietnam (GVN) is addressing by balancing growth targets with price stability measures. This challenge will not be easy to meet. Nevertheless, the GVN has confirmed its commitment to economic growth and is targeting 2011 GDP growth at 6.5 percent. • The momentum and direction generated by the entry into force of the U.S.–Vietnam Bilateral Trade Agreement (BTA) in 2001 transformed the bilateral commercial relationship between the United States and Vietnam and accelerated Vietnam’s entry into the global economy with Vietnam joining the WTO in January of 2007. Since the BTA, bilateral trade has increased over six-fold from $2.9 billion in 2002 to $18.6 billion in 2010. • Despite the continuing global economic recession in 2010, U.S. exports to Vietnam grew by an impressive 19.8 percent to $3.7 billion. During the same period, Vietnam’s exports to the U.S. increased 21.0 percent to $14.9 billion resulting in an $11.2 billion bilateral trade deficit with Vietnam. • In 2010, U.S. exporters saw significant growth in agricultural products sectors, which accounted for roughly one-third of U.S. exports to Vietnam. Industrial inputs also continued to see steady growth as Vietnam continues to import machinery, chemicals, instrumentation and software to support its growing industrial sector. • New commitments of foreign direct investment (FDI) in Vietnam saw an 18 percent decline in 2010, following the direction set in 2009, though disbursed FDI increased by 10 percent. However, the industrial/manufacturing, real estate/tourism and construction sectors continued to attract a major share of new capital flowing into the country, while utilities projects – electricity and gas production and distribution – gained increased interest from investors in 2010. • The bilateral trade and investment momentum has continued with the United States and Vietnam signing a Trade and Investment Framework Agreement (TIFA) in 2007. Under the TIFA the United States and Vietnam continue to address trade and investment issues with the aim of advancing the BTA and Vietnam’s WTO commitments. • In November 2010, Vietnam joined the United States, Peru, Chile, Malaysia, Singapore, Brunei, New Zealand, and Australia to participate as a full member in the Trans-Pacific Economic Partnership (TPP) negotiations to conclude a high-standard, 21st century Asia-Pacific free trade agreement. In 2010, Vietnam moved forward on its commitment to WTO obligations by implementing laws and regulations to increase compliance of local industries. • Through 2015, the GVN has committed to implementing far-reaching economic, regulatory and administrative changes that will provide an increasingly favorable environment for American businesses to enter and expand in the market. • To this end, from 2007-2010, the Ministry of Planning and Investment implemented Prime Minister Dung’s initiative to cut, simplify, and revise the national and provincial regulations that affect businesses and citizens throughout the country under the National Public Administrative Reform Project (“Project 30”). Administrative reform will continue under the new Administrative Procedures Control Agency established as part of this process. The MPI also plans to pilot a revised public procurement process, which is expected to make infrastructure development projects more transparent and provide such projects with greater access to public financing through the capital markets and public-private partnerships. • Vietnam’s recent convictions of political activists, arrests of lawyers and journalists, pressure on independent research organizations and tightening restrictions on the media threaten to impact negatively the growing bilateral economic relationship. Market Challenges Return to top • The evolving nature of regulatory regimes and commercial law in Vietnam, combined with overlapping jurisdiction among Government ministries, often result in a lack of transparency, uniformity and consistency in Government policies and decisions on commercial projects. • Corruption and administrative red tape within the Government has led to a lack of transparency and has been a vast challenge for Governmental consistency and productivity. • Many firms operating in Vietnam, both foreign and domestic, find ineffective protection of intellectual property to be a significant challenge. • “Tied” official development assistance, in addition to corruption, continues to be a significant challenge for U.S. firms bidding on infrastructure projects. • While Vietnam has reduced tariffs on many products in line with its WTO commitments, high tariffs on selected products remain. U.S. industry has identified a range of products, including agricultural products, processed foods and nutritional supplements, where it sees significant potential of export growth if Vietnam’s tariffs could be reduced further. • Investors often find poorly developed infrastructure, high start-up costs, arcane land acquisition and transfer regulations and procedures, and a shortage of skilled personnel. • Vietnam’s labor laws and implementation of those laws are not well developed; international companies sometimes face difficulties with labor management issues. • 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. Market Opportunities Return to top • Continued strong economic growth, ongoing reform and a large population of 86 million—half of which are under the age of thirty—have combined to create a dynamic and quickly evolving commercial environment in Vietnam. • Sales of equipment, technologies and consulting and management services associated with growth in Vietnam’s industrial and export sectors and implementation of major infrastructure projects continue to be a major source of commercial activity for U.S. firms. • Per capita GDP surpassed $1,000 in 2009 and is estimated to be at about $1,100 as at the end of 2010. With disposable income levels in major urban areas four to five times this level, significant opportunities in the consumer and services sectors are fast emerging. • Telecommunications, information technology, oil and gas exploration, power generation, highway construction, environmental project management and technology, aviation and education will continue to offer the most promising opportunities for U.S. companies over the next few years as infrastructure needs continue to expand with Vietnam’s pursuit of rapid economic development. • The GVN plays a significant role in the economy, with state-owned enterprises (SOEs) making up 38 percent of GDP. The GVN strategy to “equitize” (partially privatize) SOEs in all sectors of the economy is slowly moving forward. While the GVN will maintain majority ownership in the largest and most sensitive sectors of the economy, including energy, telecommunications, aviation and banking, the equitization process will nevertheless create opportunities for many U.S. companies. • Key U.S. agricultural inputs to production such as hardwood lumber, cotton, hides and skins and feed ingredients also continue to play a key role in helping fuel Vietnam’s export led manufacturing strategy. Demand continues to also grow for consumption oriented products such as meat, dairy and fresh and dried fruits. • A new telecommunications law and a new radio frequency law were passed by the National Assembly in November 2009 and went into effect on July 1, 2010, potentially opening up new opportunities for trade and investment by foreign firms in this rapidly expanding market segment. Market Entry Strategy Return to top • American companies interested in doing business in Vietnam may do so indirectly through the appointment of an agent or distributor. U.S. companies new to Vietnam should conduct sufficient due diligence on potential local agents/distributors to ensure they possess the requisite permits, facilities, manpower and capital. Firms seeking a direct presence in Vietnam should establish a commercial operation utilizing the following options: