Exploring Business Strategies When Expanding to Vietnam (InCorp Global)
Business OpportunitiesOctober 8, 2021 - InCorp Global Pte Ltd
This is a thought leadership article from PrimeGlobal member firm InCorp Global in Singapore exploring business strategies for companies considering expanding to Vietnam.
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Vietnam’s economy is the third-largest and one of the most lucrative investment destinations in Southeast Asia. The country is backed by an abundance of natural resources, a rapidly growing middle-class, an increasing number of internet users, and various free trade agreements. The socialist republic has proved its economic resilience with a GDP growth of 6.61% in Q2 2021 despite the ongoing Covid-19 pandemic and has set the stage for foreign investors to expand in Vietnam.
Moreover, Vietnam facilitates a relatively low cost of setting up a business in Southeast Asia, thanks to its quickly developing infrastructure for manufacturing, logistics, or eCommerce. What furthers the country as an investment hotbed is its young, skilled, and comparatively inexpensive workforce.
The business opportunities are abundant in Vietnam, but cannot be effectively leveraged if approached with a fallible strategy. An investor can also be vulnerable to procedural pitfalls, or misinformation. In this article, we will provide a comprehensive guide to form a strategy when expanding to Vietnam.
Since Vietnam requires no minimum capital to set up a business in most cases, the set-up cost and operational cost are comparatively low in Southeast Asia. However, a sufficient amount of funding suitable for the proposed business must be presented.
Furthermore, with the Communist Party of Vietnam (CPV) in control, Vietnam is one of the most politically stable countries in Southeast Asia. Its major goal, in addition to sustaining the one-party state system, territorial integrity, and social order, is economic prosperity. According to the CPV’s vision, Vietnam will become a middle-income nation by 2025, an upper-income country by 2030, and a developed, high-income country by 2045. The country acknowledges that achieving this goal would need greater economic change and long-term prosperity.
A representative office is a type of business entity that is considered as a reliant local structure to a foreign parent company. A representative office in Vietnam is typically chosen by a foreign company to establish a physical presence in the nation.
Representative offices, however, are forabidden from directly engaging in profit-making operations under Vietnamese legislation. Consequently, transitioning from a representative office to an FDI company is advantageous as it enables the management to observe and analyze the market beforehand and then capitalize on it by undertaking economic activities.
Besides the Representative Office, other business entities can also be considered by a foreign investor to make a successful business entry in Vietnam based on their type of investments.
Limited Liability Company (LLC)
A limited liability company (LLC) is a great choice for small and medium-sized businesses (SMEs). It is ideal for single investors as LLC only requires one founder. However, an LLC is not allowed to list its shares on the stock exchange.
Joint-Stock Company (JSC)
Since JSC's organizational structure is complex and needs a minimum of three founders, it is best suited for medium and large enterprises, with the provision to list their shares on the stock exchange.
A branch is a subsidiary of its parent firm. Owners of branches in Vietnam can profitably perform all of the parent company's business activities without forming a separate legal organization.
Vietnam has several important industrial zones that act as a powerhouse for a variety of industries, of all sizes.
Vietnam-Singapore Industrial Park (VSIP)
This world-class industrial park, which opened in 1996, comprises projects in north and south Vietnam, with a focus on electronics, automotive components, consumer products, and pharmaceuticals.
Hiep Phuoc Industrial Park (HPIP)
This industrial park, first opened in 2007, is located in Ho Chi Minh City's Nha Be District and features ready-built facilities scattered across 4,000 hectares of industrial property.
Phuoc Dong Industrial Park (PDIP)
Biofuel, steel components, logistics, support services, building materials, and textile are among the key investment areas of PDIP, which is considered to be one of Vietnam's most ecologically conscious manufacturing parks.
Dinh Vu-Cat Hai Economic Zone
Machinery, electronic and telecommunications, chemical, scientific, and electrical equipment are the primary businesses in this 22,540-hectare industrial zone, which is ideally positioned in Hai Phong.
Vietnam's government has provided several incentives to encourage international investment. In general, the list of investment areas includes a variety of prospective economic areas that benefit both society and investors, such as hi-techs, information technology, agriculture, and so on. When foreign investors engage in these economic areas, they are offered the following incentives:
- Low corporate income tax rate or corporate income tax exemption, corporate income tax reduction;
- Import tax exemption for imported goods used for fixed assets; raw materials, supplies, parts used for the project;
- Exemption or reduction for land rents, land levy.
Investing in Ho Chi Minh City
With more than 7,300 FDI projects ($44 billion capital) in operation, Ho Chi Minh City is regarded as Vietnam's economic center and top FDI magnet. The city is an enticing investment location for investors from all over the world because of its contemporary infrastructure, competent and abundant human resources, and growing middle class.
Investing in Hanoi
As the capital of Vietnam, Hanoi ranked fourth among cities and provinces in Vietnam with more than 4,489 FDI projects ($27 billion capital) in force. The city is largely sought out by foreign investors owing to its generous investment incentives, transportation infrastructure, and rich Vietnamese history, culture, and lifestyle.
Investing in Danang
Life in Danang, which is located in the center of Vietnam, is quite serene and calm, in contrast to other emerging cities that are bustling. Danang is connected to other surrounding nations by the East-West Economic Corridor, which makes it easier to transport products and people. The city has six industrial zones in operation and three more under construction, accompanied by a comprehensive and world-class infrastructure.
In summary, Vietnam’s huge market potential sets an ideal stage for foreign investors to invest, however, expanding to Vietnam isn’t without challenges and mountainous paperwork.
InCorp Global Pte Ltd
Headquartered in Singapore, InCorp Global is a leading corporate services provider, with an established regional presence across seven Asian countries, including Indonesia, India, Hong Kong, Philippines, Vietnam, and Malaysia. The group services more than 12,000 corporate clients across various industries, including asset / fund managers, as well as family offices. They are official partners with key government authorities in the region, such as Singapore’s Economic Development Board, a government agency that is tasked with bringing in foreign direct investments into Singapore.Learn more