Vietnam - Market Challenges Vietnam Market Challenges
Market Challenges
The same AmCham survey regarding the current business environment in ASEAN nations revealed the following areas of concern in Vietnam:
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Corruption
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Laws and regulations
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Legal system and contract sanctity
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Tax structure
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Infrastructure
Also in the survey, the business factor that has created the largest drop in satisfaction in the business environment over the last five years was local protectionism.
The evolving nature of regulatory regimes and commercial law in Vietnam, combined with overlapping jurisdiction among government ministries, often results in a lack of transparency, uniformity, and consistency in government policies and decisions on commercial projects. Project timelines often exceed initial projections, especially when financed using official development assistance (ODA). “Tied ODA”, which must be used to procure goods or services from the country of the aid provider, in addition to corruption, continues to be a significant challenge for U.S. firms bidding on infrastructure projects. Some companies have successfully collaborated with Japanese firms to be eligible to bid on Japanese ODA funded projects, which represents the largest source of foreign ODA in Vietnam.
Vietnam has a comprehensive anti-corruption legal framework in comparison with other Asian countries. The anti-corruption legal framework significantly improved after the adoption of the Anti-Corruption Law in 2005 and the National Strategy on Anti-Corruption to 2020. Anti-corruption has moved up the political agenda recently and the government endeavors to pass its draft anti-corruption law in late 2018. Corruption and administrative red tape within the government has been a vast challenge for governmental consistency and productivity and for foreign companies doing business in Vietnam. Vietnam ranked 107 (out of 180) on Transparency International’s 2017 Corruption Perceptions Index, placing it low in a region infamous for its high levels of corruption. As comparison, regional neighbors ranked – Philippines at 111, Thailand and Indonesia at 96, China 77, and Malaysia 62.
Many firms operating in Vietnam, both foreign and domestic, found ineffective protection of intellectual property to be a significant challenge. Piracy rates for software were estimated to be 74 percent in 2017, a small improvement from 92 percent ten years earlier, but signaling a steady but slow decline. While Vietnam has reduced tariffs on many products in line with its WTO commitments, high tariffs on selected products remain. The U.S. industry has identified a range of products, which include agricultural products, processed foods, and nutritional supplements, which have significant export growth potential if Vietnam's tariffs could be reduced further. Investors often run into poorly developed infrastructure, high start-up costs, unexpected tax assessments, arcane land acquisition and transfer regulations and procedures, and a shortage of skilled personnel.
On a positive note, Vietnam moved up 14 places to rank 68 among 190 countries in the World Bank’s Doing Business 2018 report, putting it ahead of the regional average. Of note, the World Bank reported that reforms in trading across borders and enforcing contracts are making it easier to do business. 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.