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Currently, Vietnam is on the track to developing anintegrated economy with key capital coming from foreign investors,spreading across 139 countries and territories around the world asof early 2022. Although it has received many successes in more than30 years from foreign direct investment (FDI), Vietnam'smanagement and operation system still have many shortcomings anddifficulties that limit its expansion and attraction ofhigh-quality foreign investment capital.
At the Vietnam Prime Minister's Conference with foreigninvestment enterprises with the theme "Overcome challenges,seize opportunities, cooperate for development" held inSeptember 2022, many large and multinational corporations such asPanasonic, Dell Technologies, Bosch Corporation, Orsted, Meta, etc.highly appreciate Vietnam's operating system, therebyconsidering this country as a potential investment destination.
In the face of common world difficulties such as the Covid-19pandemic and international tensions, Vietnam still achievedpositive economic development results, demonstrated by maintainingpositive investment indicators. In particular, the policy toencourage FDI investment in Vietnam plays a particularly importantrole in attracting high-quality investment capital, which is highlycompetitive compared to other countries in the region.
In addition, advantages including a fast-growing economy with alarge openness, stable social navigation, positive growth, etc.also contribute to attracting and encouraging foreign investors toexpand their investment in Vietnam.
Besides, the strong growth of foreign investment capital willalso contribute to improving the social life and economy of Vietnamthrough solving labor problems, training high-quality humanresources, technology transfer and development, digitaltransformation, promotion of technical and social infrastructuredevelopment, and improvement of Vietnam's policy system in thefields of foreign investment, international trade, etc.
Vietnam market – Difficulties in attracting foreign investment
Although Vietnam has made great strides in attracting investmentcapital with new-generation free trade agreements such as CPTPP orEVFTA, a large part of foreign investors still realize manydifficulties and inadequacies when investing in Vietnam such as theissue of cost not being competitive enough compared to othercountries in the region, labor supply bottlenecks leading tofailure to meet production demand in time, underdevelopedinfrastructure, incomplete tax and management policies, lawenforcement, limitations in the supply chain, etc.
Not optimizing costs
Raw material costs increased sharply, and input prices werehigh, leading to difficulties in business activities. ManyVietnamese enterprises are facing the risk of bankruptcy,dissolution, and corporate restructuring because they cannot solvethe problem of balancing costs and finding raw materials at areasonable cost.
The cause of increase in costs is largely due to the recentRussian-Ukrainian international tension. However, the abovedifficulty is a common problem of the whole world, similar to thetime when the Covid-19 epidemic raged for 2 years, leading toorders to limit communication, isolation, and production stoppage.Foreign investors will not focus too much on the cause, but insteadon the results expressed through the input and output costs of theenterprise and the overall revenue and profit.
In order to optimize costs, Vietnamese enterprises need to findthe solution by themselves, however, it is necessary to note thatenterprises need to limit the increase in product costscorresponding to the price of input materials or cut the wages ofworkers to compensate along with other extreme measures that mayaffect the reputation of the business.
Limited labor supply
Currently, Vietnam is applying a relatively strict and tightmanagement policy for foreign workers working in Vietnam,specifically:
The provisions of Section 3 of the Labor Code No. 45/2019/QH14,as well as the guiding regulations in Decree No. 152/2020/ND-CP onforeign workers working in Vietnam and recruiting and managingVietnamese employees working for foreign organizations andindividuals in Vietnam, stipulating many strict conditions andprocedures for recruiting foreign workers, leading to difficultiesin practical recruitment application, inhibiting the development ofenterprises in particular and the Vietnamese economy ingeneral.
The setting of these regulations is made in accordance with thedevelopment orientation, prioritizing and protecting the source ofemployment for domestic workers, and minimizing the use andrecruitment of foreign workers. However, that has led to manybusinesses in Vietnam lacking a workforce with high professionaland technical qualifications.
From another perspective, the restriction on recruiting foreignworkers also makes foreign investors feel that Vietnam is not yetan open market for foreign factors, which can affect theirinvestment decisions.
Infrastructure does not meet international standards
According to a survey of many FDI enterprises investing in Vietnam in 2021,42% of the FDI enterprises participating in the survey said thatVietnam has a relatively poor infrastructure system and publicservice quality compared to other countries in the region such asChina, Thailand, Singapore, Indonesia and Malaysia, etc.
This conclusion has partly affected foreign investors'investment decisions in the Vietnamese market as well as futureinvestment trends if Vietnam does not give positive results inimproving its infrastructure. Because in addition to the additionalcosts incurred by transporting production infrastructure toVietnam, FDI enterprises also have to take into account otherfactors such as legal regulations, business conditions, economicgeography, local human resources, supply partners, etc. totransport, install and build new infrastructure systems suitable tothe business field.
Building and rebuilding from scratch take a lot of time andresources. Therefore, many foreign investors will consider notchoosing Vietnam as the destination for investment, as a solidinfrastructure system is one of the basic factors determining theproduction, export, and business system of enterprises.
Tax difficulties
Vietnam has many preferential tax policies for foreign investors, based on Singapore'spreferential and equal treatment policy between foreign investorsand domestic investors. However, the stage of application andimplementation of state policies still has many shortcomings andneeds a lot of improvement, specifically in terms of simplifying orconcretizing administrative procedures.
According to a study by NC Network, the average time spent byforeign investors in Vietnam to settle tax obligations is fourtimes higher than the average time in East Asia and Pacificregions.
Besides, many investors are also quite disappointed with thesystem of administrative procedures in Vietnam, partly because theprocess and procedures are complicated, and partly because theprocessing process is not as they expected.
Limited supply chain
With the strong shift in the global supply chain, manymultinational companies and corporations have stepped up investmentin Vietnam. In general, it is rare for any manufacturer to be ableto produce all parts and components of a product on their own,including multinational companies.
Therefore, foreign investors tend to look for businesses thatcan supply some element of product parts and components so thatthey can assemble a complete product. Southeast Asia is currentlyranked as one of the most efficient and potential supplymarkets.
However, the technology industry supporting component productionin Vietnam is still young, leading to some difficulties for FDIenterprises in the process of building supply chains. It is forthis reason and the substandard infrastructure system that foreigninvestors are forced to invest in other countries, even ifVietnam's policies and investment factors are attractive tothem.
Removing investment problems of foreign enterprises
Most foreign investors, after investing in Vietnam, have thecommon opinion that although Vietnam has many strengths, especiallyin economic potential, this country still has many limitations thatmake foreign investors disappointed.
Not only foreign investors but also domestic investors are alsorealizing the above inadequacies and difficulties in attractinginvestment capital from abroad to Vietnam and vice versa, fromVietnam to the world.
Complicated legal procedures, expensive costs, and general lackof management, supply, or infrastructure, make many domestic andforeign investors feel 'afraid' when doing business inVietnam.
In order to solve these difficulties, enterprises and stateagencies need to actively cooperate with each other to remove eachobstacle and difficulty so that Vietnam is truly an idealinvestment destination not only in Southeast Asia but also aroundthe world.
In terms of costs, besides support from the Government,businesses need to be more proactive in finding material sources atreasonable costs. In fact, Vietnam is a market with a strong supplycapacity. However, most businesses are currently facing manydifficulties in sourcing goods because their connection network andinformation system are still limited.
To expand the network, businesses can consider connecting withthird parties so that the two can jointly support the development,search, and establishment of new business hubs.
ASL LAW is a law firm specializing in in-depth legal advicewith a network of connections to many Vietnamese businesses in allbusiness fields and also international businesses in Singapore,China, Laos, Cambodia, Myanmar, Hong Kong, USA, Australia,Indonesia, Taiwan, EU and other countries where Vietnamesebusinesses are present.
Regarding labor resources, enterprises can consider cooperatingwith companies and enterprises providing seasonal labor withprestige and high efficiency, meeting the urgent production needsof enterprises in each period.
In terms of infrastructure, the Vietnamese government and thebusiness sector need to cooperate more in public investmentprojects with the goal of building and developing socio-economicinfrastructure.
In the tax field, the competent authorities dealing with tax issues in particular and publicadministrative procedures in general need to ensure the ability tomeet the needs and speed of processing according to the law forforeign investors. Simplify and concretize decrees and guidingdocuments to ensure that case processing specialists can beflexible in administrative procedures.
Regarding the supply chain, foreign-invested enterprises inVietnam can consider using diverse and reliable information sourcesto search and find their respective Vietnamese partners. In theopposite direction, large international enterprises can considertechnical support, capital, technology transfer, managementexperience, etc. to Vietnamese enterprises to help them have theability to participate in the global supply chain.
Q&A
Question: The opposite of attracting foreigninvestment capital into Vietnam is the investment of Vietnameseenterprises abroad. Can ASL LAW's lawyer tell us about thedifficulties that Vietnamese enterprises investing abroad mayface?
Answer: Currently, domestic investors whointend to invest abroad will face many difficulties,specifically:
Firstly, the investor must meet the conditions as well as carryout the procedures for registration of investment abroad. Besides,the legal regulations on transferring capital abroad, as well astransferring profits to Vietnam are also quite strict, bindinginvestors.
Secondly, in addition to meeting the conditions for investingabroad from Vietnam, investors must also meet the policies andconditions of investment and post-investment in the hostcountry.
Third, language and cultural differences, differences inscientific and technical qualifications, as well as labor resourcesin the host country are also some of the challenges that Vietnameseinvestors need to overcome.
However, in order to overcome the above difficulties easily,Vietnamese investors can seek support from consulting units thatare knowledgeable about the process of investing abroad as well asthe policies, and regulations of the host country. ASL LAW iswilling to cooperate to provide offshore investment consultingservices in many markets such as Singapore, China, Laos, Cambodia,Myanmar, Hong Kong, USA, Australia, Indonesia, Taiwan, EU, andother markets where Vietnamese enterprises are present.
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.
