In a recent article, HSBC Vietnam’s CEO, Mr. Tim Evans, discusses vital improvements Vietnam must make to become a more enticing destination for foreign investors. He identifies three primary challenges: enhancing productivity, upgrading logistics, and refining the legal framework.

Mr. Evans notes the fast pace of global economic changes and the importance of keeping up with trends that are reshaping economies on a global and regional scale.

He foresees the continued growth and realignment of supply chains, with a notable trend of economies reducing their trade dependencies on China. Despite China’s role as a major import source for many countries, ASEAN nations, particularly Vietnam, are poised to benefit from this diversification.

Western companies are actively seeking to lessen their dependence on China by diversifying their sourcing to other Asian countries, including Vietnam and India. This has led to a surge in foreign direct investment (FDI) in these countries, outpacing China, especially in the manufacturing sector. Concurrently, China is expanding its supply chains into Vietnam.

Vietnam’s strategy to draw more FDI should involve a thorough understanding of its competitive stance against other ASEAN countries and consider other markets like India and Mexico. While Singapore and Malaysia are at the forefront of the semiconductor industry, Vietnam is slowly entering the electric vehicle and semiconductor markets, aiming to focus on high-value-added products and continue attracting key electronics manufacturers.

Mr. Evans underscores the importance of pinpointing and addressing the “bottlenecks” that hinder foreign investors. He points to three main concerns:

First, Vietnam needs to improve labor quality and access, as well as boost productivity, to climb the quality ladder. Vietnam’s labor productivity trails behind that of other ASEAN countries.

Second, there’s a need to enhance Vietnam’s logistics efficiency, which currently lags behind China, Malaysia, and Thailand. The country faces challenges in logistics capacity, delivery times, and traceability, and its logistics infrastructure isn’t up to international standards. There’s also an excessive reliance on road transport, despite a shift in demand towards sea transport and seaports.

Third, adapting to the legal environment is crucial for investors exploring opportunities in Vietnam. The HSBC Global Connection survey reveals that legal changes are among the top challenges for foreign businesses in Vietnam. Developing a stable and user-friendly legal framework will be a significant step in attracting more investment.

Addressing these issues is essential for Vietnam to solidify its position as a prime location for foreign investment.

In the initial months of the current year, Vietnam’s FDI sector solidified its position as a key export contributor, generating $43.2 billion in revenue, marking a 14.7% increase and constituting 72.8% of the nation’s total export earnings.

Notable growth was observed in the export of electronics, machinery, and textiles, with increases between 4.1% and 33.9%, as reported by Dau tu Newspaper.

Concurrently, the demand for imported materials for production, such as electronic components and textiles, rose by 18%, reflecting the sector’s robust activity.

Related: Here’s how to set-up an import – export company in Vietnam as a foreign investor 

Vietnam achieved a trade surplus of $4.72 billion during this period, with the FDI sector, inclusive of crude oil, contributing an $8.25 billion surplus.

The United States emerged as a significant importer, purchasing $17.4 billion in goods from Vietnam, up 33.7% from the previous year, leading to a $15.2 billion trade surplus for Vietnam, a 36.3% increase year-over-year.

FDI enterprises were the primary suppliers of the most sought-after products in the US, including technology, textiles, and footwear.

Trade Counsellor Do Ngoc Hung projected that the US market could potentially yield over $100 billion in export revenues for Vietnam by 2025. However, he cautioned about the increasing trade barriers imposed by the US to safeguard its domestic industries and urged Vietnamese entities to remain vigilant of the US’s political and policy shifts for appropriate adaptation.

In the EU market, Vietnam’s exports soared to $7.7 billion, up 14.2% compared to last year, a trend that’s likely to persist, propelled by the EVFTA. Since the agreement’s enactment in August 2020, trade between Vietnam and the EU has seen double-digit growth, surpassing the previous 5%-7% increase in exports and 3%-5% in imports.

The number of newly established businesses in January 2024 increased by 24.8% compared to the same period in 2023.

According to records from the Department of Business Registration Management (Ministry of Planning and Investment), there were 13,536 newly established enterprises in January 2024, marking a 24.8% rise over the corresponding period in 2023. Notably, this January also witnessed the highest number of businesses entering the market in the 2018-2024 period.

Additionally, the Department of Business Registration Management reported that the total number of businesses entering and re-entering the market in January 2024 reached 27,335, reflecting a 5.5% increase from the same period in 2023.

In terms of registered capital, the economy saw an addition of 370,101 billion VND in January 2024, showing a 2.1% decline from January 2023. The registered capital of newly established enterprises alone amounted to 51,451 billion VND, signifying a substantial increase of 52.8% from the corresponding period in 2023.

Related: Here’s how to start your business in Vietnam as foreign investor

For operating enterprises, 4,380 were registered to increase capital in January 2024, indicating a 3.5% decrease compared to January 2023. Despite the decline in numbers, the additional registered capital of operating enterprises reached 218,650 billion VND, representing a 6% decrease from the same period in 2023. The average registered capital per enterprise in January 2024 reached 11.2 billion VND, marking a notable increase of 22.4% over the same period in 2023.

Concerning businesses returning to operation, the Department of Business Registration Management reported 13,799 businesses re-entering the market in January 2024. Notably, the real estate sector saw the highest increase in the number of returning businesses (29.3%), followed by information and communications (11.6%), and processing and manufacturing industries (6.9%)…

On the contrary, the entire country recorded 53,888 businesses withdrawing from the market in January 2024, indicating a 22.8% increase from the same period in 2023. The majority of these businesses chose short-term business suspension, accounting for 81.5%.

Specifically, 43,925 businesses temporarily suspended operations, marking a 25.5% increase from January 2023. The majority of these businesses had a short operating time, less than 5 years, accounting for 44.6%. They were predominantly small-scale enterprises (under 10 billion VND) with 39,625 businesses, representing 90.2% and reflecting a 25.2% increase from the same period in 2023.

The number of businesses waiting for dissolution procedures stood at 7,798 enterprises, showing a 14% increase from January 2023. Enterprises waiting for dissolution procedures were mainly concentrated in the capital range of less than 10 billion VND, with 6,941 enterprises accounting for 89%, and experiencing a 14.9% increase from the same period in 2023.

The number of dissolved enterprises reached 2,165, indicating a 6.2% increase from January 2023. Among these, 10 out of 17 main business sectors experienced an increase in the number of dissolved enterprises compared to the same period in 2023. The majority of enterprises dissolved in January 2024 had a short operating time (less than 5 years), with 1,587 enterprises accounting for 73.3%, and mainly focused on a capital scale of less than 10 billion VND, with 1,879 enterprises representing 86.8% and experiencing a 6.7% increase from the same period in 2023.

On January 17, Prime Minister Pham Minh Chinh led a seminar titled “Vietnam – Pioneering Sustainable Investment in ASEAN” in Davos, Switzerland, as part of his visit to attend the 54th Annual Meeting of the World Economic Forum (WEF-54).

The seminar, a collaborative effort by the Vietnamese Ministry of Planning and Investment, Vietnam’s permanent mission in Geneva, the Young Presidents’ Organisation (YPO), and the VinaCapital Foundation, aimed to showcase Vietnam’s commitment to sustainable investment.

During the WEF-54, themed “Rebuilding Trust,” Prime Minister expressed optimism that the event would contribute to reinforcing trust among nations, businesses, and the partnership between nations and businesses, including enhanced confidence in Vietnam. The Prime Minister outlined key factors that position Vietnam as a secure, healthy, and sustainable investment destination. He emphasized Vietnam’s adherence to principles such as national independence and socialism, leveraging national and international solidarity, innovative application of Marxist-Leninist ideology, President Ho Chi Minh’s principles, and cultural and historical traditions—all under the leadership of the Communist Party of Vietnam.

Regarding Vietnam’s future direction, Prime Minister conveyed the country’s commitment to building a socialist democracy and a law-governed socialist state that serves the people. He stressed the importance of the people as the central focus and driver of development, asserting that Vietnam prioritizes social equality, welfare, and environmental concerns over mere economic growth.

Maintaining consistency in its foreign policy, Vietnam remains committed to independence, self-reliance, peace, friendship, cooperation, and comprehensive international integration. The PM highlighted the “four no’s” defense policy, emphasizing Vietnam’s diplomatic ties with over 190 countries, including strategic partnerships with all five permanent UN Security Council members and numerous G20 economies. Additionally, Vietnam has signed 16 Free Trade Agreements (FTA) with over 60 countries.

Prime Minister outlined Vietnam’s aspirations to become a developing country with a modern industry and upper-middle-income status by 2030, progressing to a developed, high-income nation by 2045. To achieve these goals, the country will focus on strategic infrastructure construction, high-quality personnel training, and institutional improvement.

In line with its vision, Vietnam will introduce mechanisms and incentives for priority sectors like digital transformation, science-technology, AI, and green transition. Prime Minister highlighted the nation’s efforts in maintaining macroeconomic stability, controlling inflation, fostering growth, and managing public finances responsibly.

Despite global challenges, Vietnam remains committed to a balanced approach that harmonizes the interests of the State, people, businesses, and investors. The Prime Minister invited investors to contribute capital and advanced technologies to Vietnam, encouraging dialogue and pledging government readiness for negotiations.

Seminar participants acknowledged Vietnam’s notable socio-economic achievements in 2023, including a 5.05% GDP growth, controlled inflation, and a substantial volume of foreign direct investment. Delegates expressed confidence that Vietnam would assume a more significant role in the global supply chain. Thomas Serva, CEO of France’s Baracoda Group, praised Vietnam as an attractive destination with abundant, high-quality human resources, expressing his group’s interest in contributing to innovation centers and AI development in the country.

Are you considering starting a business in Vietnam as a foreigner? Understanding the intricacies of launching and running a small business in a new cultural and legal environment can be challenging.

According to Sophie Dao, Senior Partner at GBS – Global Business Services LLC, an investment consulting firm in Vietnam, while many local startups expand their businesses internationally, there are also numerous foreign entrepreneurs who have successfully established businesses in Vietnam. However, the process of starting a business in Vietnam as a foreigner remains a significant question for many aspiring companies.

When venturing into the Vietnamese business landscape, it’s crucial to navigate through language, culture, and legal considerations. This article aims to shed light on these vital factors and provide insights into the question of “How to start a business in Vietnam as a foreigner?”

Understanding the business culture in Vietnam is key to launching a successful venture as a foreigner. Business culture is often regarded as the soul of an enterprise, influencing production activities, business decisions, and both internal and external relationships. Vietnam, situated in the Eastern cultural region, boasts a distinct agricultural culture with characteristics deeply rooted in Eastern traditions.

When engaging with Vietnamese partners, introducing yourself and sharing personal details, such as your age, is a common practice. This allows Vietnamese individuals to determine their roles in the conversation, considering the abundance of personal pronouns in the Vietnamese language.

Gift-giving holds significant cultural importance in Vietnam. During Vietnamese Tet holidays, presenting gifts and greeting cards to partners and associates is a customary gesture that strengthens relationships.

Sharing meals is an integral part of community and business activities in Vietnam. Having dinners with local representatives or customers not only aids in relationship development but also helps you understand the local culture.

The etiquette of drinking in Vietnam is unique. Drinking alone is considered impolite; it is customary to toast before taking a sip. Additionally, during work, Vietnamese counterparts often express the need to consider decisions, so sending necessary documents before meetings can expedite the decision-making process.

Initiating negotiations often involves casual conversations unrelated to the main discussion, which is considered a way of ‘creating atmosphere.’ Avoid impatient behavior during this phase. Moreover, it is advisable not to bring up legal aspects or mention your lawyer during negotiations, as Vietnamese counterparts may find this off-putting.

Understanding the slow-paced approach to business situations in Vietnam is crucial. The leisurely attitude towards time, known as “rubber hours,” is a common practice among modern Vietnamese individuals. Patience and adaptability are key virtues when navigating the business landscape in Vietnam as a foreign entrepreneur.

As the world’s leading manufacturers increasingly establish their presence in Vietnam, the imperative of developing urban centers in close proximity to industrial hubs has become more pressing than ever. This strategic approach not only enhances the appeal of these areas but also aids in the retention of skilled workers.

Troy Griffiths, Deputy Managing Director of Savills Vietnam, predicts that new urban areas with prime locations and modern infrastructure are becoming magnets for an increasing number of professionals, catering to the demands of multinational corporations.

One primary concern among investors is the availability of skilled labor in Vietnam and how to ensure a continuous supply of skilled workers for their operations, the Business Times reported.

Related: Here’s how to set-up a foreign invested company in Vietnam

In Vietnam, only a handful of industrial parks out of nearly 400 offer comprehensive urban amenities and services that cater to the needs of both investors and workers. Notable examples include the Vietnam Singapore Industrial Park (VSIP) group, a joint venture between Vietnam’s Becamex IDC Group and Singapore’s Sembcorp Industries, with locations in provinces like Binh Duong, Hai Phong, and Quang Ngai.

Vo Van Minh, Chairman of Binh Duong Provincial People’s Committee, shared that Binh Duong province has adopted the “industry-urban-service” development model, creating an attractive living environment and services for the diverse community surrounding the industrial center. “Investors can easily find workers, and workers can secure stable employment in the locality,” noted the Chairman.

Binh Duong, strategically situated in the heart of Vietnam’s Southern Key Economic Region and north of Ho Chi Minh City, has witnessed the development of new urban areas like Tokyu Garden City, a Japanese-style project co-developed by Becamex IDC and Japan’s Tokyu Group. This development is surrounded by major employment centers, including VSIP II and My Phuoc Industrial Park.

In a bid to cater to the increasing number of international manufacturers, other industrial parks, especially in tier 2 cities, need to enhance the level of services they provide to the growing workforce.

“Given labor shortages and limited land availability in prime locations like Binh Duong and Bac Ninh, investors are exploring tier 2 and 3 urban areas in Vietnam for more opportunities” Sophie Dao, Senior Partner at Global Business Services LLC (GBS) told reporter.

Sophie pointed out that emerging provinces are increasingly focusing on industrialization, with manufacturing and R&D projects moving to areas such as Nghe An in Central Vietnam.

Affordable Housing

Approximately 2.7 million workers are employed in industrial clusters across Vietnam, with nearly 1.2 million in need of housing support.

In response, the government recently approved a plan to construct at least one million low-cost houses for industrial park and low-income workers by 2030. Vietnamese banks are also offering interest-rate credit packages totaling 120 trillion VND to support buyers.

However, the development of social housing in Vietnam is currently slow, with only about 19,500 low-cost housing units completed, according to a Ministry of Construction report in August. The Ministry has proposed various solutions to expedite this process, including completing the legal framework and allocating land for social housing and worker dormitories.

Marc Townsend, a senior consultant at Arcadia Consulting Vietnam, anticipates a shift toward more affordable housing solutions in the next two decades to meet the strong demand.

Additionally, he identified a gap in the market for 2-star and 3-star international brand hotels in tier 2 urban areas, close to industrial parks. “There is a significant demand for hotels and accommodation, not just for workers but also for managers and buyers visiting factories,” he noted.

@Vietnam Insider