Business Opportunities in Vietnam – a Guide for Investors

Currently, ASEAN’s economy is expanding rapidly. After the collapse of economics and an increasingly difficult financial market, Vietnam surprised international investors with its rapid economic growth and capability to rebound from the pandemic. Don’t miss out on business opportunities in Vietnam – read this article for company registrations.

State of the Vietnamese Investment Market in 2023

Vietnam is one of the few countries that maintained strong economic growth in 2023 despite the global and domestic uncertainties caused by the COVID-19 pandemic. According to the World Bank, Vietnam’s GDP growth was projected to ease to 6.3% in 2023 from a robust 8% in 2022, as services growth moderated and higher prices and interest rates weighed on households and investors. Yet, optimism surrounds Vietnam, as it’s poised to ride the revival wave of primary export markets like the US, China, and the EU.

The international investment landscape of Vietnam in 2023 paints a robust picture. In just the first quarter, the country recorded a staggering 7.8 billion US$ in foreign direct investment (FDI), marking an 18.5% increase from the previous year. A deep dive reveals 590 novel FDI projects, predominantly in manufacturing, processing, and renewable energy. Singapore stands as the largest contributor, pouring in capital of US$ 1.43 billion, shadowed closely by Japan, South Korea, and China.

A Magnet for Foreign Investment

As of 2023, Vietnam has not lost its appeal as a destination for foreign investment. Prominent countries such as Japan, South Korea, Singapore, and the US, remain drawn to its potential, investing mainly in sectors like manufacturing, renewable energy, IT, and real estate.

While major economic centers like Hanoi and Ho Chi Minh City remain popular choices, there is also a growing interest in the central region of Vietnam. Most foreign investors choose structures such as joint ventures, wholly foreign-owned enterprises, and business cooperation contracts.

So, what draws these global entities to Vietnam’s shores?

• Political Stability: The Vietnamese government provides a stable political environment, ensuring a secure backdrop for business operations.
• Economic Integration: Vietnam’s active participation in global trade agreements like the CPTPP and EVFTA provides foreign investors with significant trade benefits.
• Demographic Dividend: With over half its population under 30 and a growing middle class, Vietnam offers a large consumer base and skilled workforce.
• Innovation Potential: The country has been rapidly advancing in terms of tech infrastructure and digitalization, presenting vast opportunities for innovative industries.

As a result, Vietnam is a market full of life and potential, waiting for those who want to explore the next big frontier of global investment.

From Solid Foundations to Diverse Opportunities

Vietnam’s Industrial Policy Vietnam has emerged as a strong manufacturing hub in Asia Pacific, thanks to its carefully crafted legal environment, attractive incentives, and various modes of foreign investment:

Vietnam’s Legal Landscape: Stability and Assurance

One of the key factors that draw so many foreign enterprises and investors to Vietnam is its Law on Foreign Investment, which was revised and enacted in 2020. This law not only defines the operating boundaries for foreign enterprises but also ensures that they have adequate protections in place. Some of the notable features of the Law on Foreign Investment are:

• A “negative list” approach, which allows foreign investors to access most sectors as domestic investors (i.e. national treatment).
• Higher ownership thresholds for national investor treatment, which grants more benefits and incentives to foreign investors with significant Vietnamese capital.
• A “national security” provision, which enables the government to review and reject any foreign investment that may harm national interests.
• New investment incentives, such as tax breaks, land fee reductions, and preferential import and export duties, for projects that meet innovation, technology, environment, or social criteria.
• Streamlined investment procedures, such as simplified registration, shorter time limits for issuing certificates, and enhanced online services.

The law also simplifies investment procedures, reducing registration complexities and time frames while enhancing online services for investors. This legal refinement underscores Vietnam’s dedication to aligning with international standards and fostering a transparent, favorable investment climate to stimulate economic growth.

Vietnam’s Strategic Approach to Investor Incentives

Drawing in foreign investors requires more than just a legal framework, and Vietnam understands this all too well. The nation offers a suite of incentives to make the investment journey rewarding:

• Financial Alleviation: The government provides substantial tax incentives, ensuring businesses can maintain healthy cash flows and prosper.
• Pro-Trade Initiatives: The reduction in tariffs underscores Vietnam’s commitment to stimulating international trade and opening its market to the world.
• Beneficial Land Lease Policies: By offering favorable land lease costs, Vietnam further strengthens its position as an attractive hub for business expansion and investment.

Investment Avenues: Pick Your Path

Vietnam also offers various modes of foreign investment, depending on the preferences and objectives of the investors. These include:

• Foreign Direct Investment (FDI) allows investors to directly participate in production or business activities in the country, either by establishing new enterprises or acquiring stakes in existing ones.
• Foreign Indirect Investment (FII) involves investing in securities, financial instruments, or other intangible assets in the country without directly influencing the management or operation of the target entities.
• Portfolio Investment (PI) mainly refers to buying stocks or bonds in the country without seeking to control or manage the target companies.
• Public-Private Partnership (PPP) is a form of cooperation between a private-sector company and a governmental agency to provide public goods or services, such as infrastructure, utilities, or health care.

Advantages and Disadvantages of Different Investment Types

Vietnam’s incentives and investment avenues show its readiness for growth and global integration. Each policy, incentive, and partnership is a step towards creating an environment where businesses and investments can flourish, making Vietnam a nation where potential meets opportunity. These strategic pathways are not just gateways for investors but are key parts of Vietnam’s rapid economic development story, each adding to the creation of a nation full of opportunity, innovation, and growth.

Government Support and Incentives

The Vietnamese government recognizes the pivotal role of foreign investment in fueling its economic growth. To this end, a comprehensive array of incentives has been rolled out to allure and retain foreign capital. These incentives span tax breaks, reduced administrative barriers, and direct financial support in certain sectors, thereby ensuring a conducive ecosystem for investors.

A Glimpse into Tax Incentives

Tax incentives are one of Vietnam’s strategic tools to attract foreign investment. If you are interested in investing in Vietnam, you should be aware of the tax benefits and exemptions that the country offers to foreign investors. These are some of the main incentives that can lower your operational costs and increase your profitability in Vietnam:

• Corporate Income Tax (CIT) Reduction: For prioritized investment sectors or regions, there’s a reduced CIT rate and, in some cases, a complete exemption for a few initial years followed by a reduced rate for subsequent years. The normal CIT rate is 20%, but some projects can get a lower rate of 5%, 10%, or 15% for a limited time, based on the sector, location, and size of the project.
• Import Duty Exemptions: Vietnam has low or zero tariffs for many imports due to its WTO membership and FTAs. Some projects can also get import duty exemptions for five years for goods not made in Vietnam, such as raw materials, machinery, equipment, parts, and components.
• Value Added Tax (VAT) Incentives: The normal VAT rate is 10%, but some goods and services have a lower rate of 5% or no VAT at all. These include essential goods and services like food, medicine, education, health care, public transportation, agriculture, and renewable energy. Some projects can also get a lower VAT rate of 5% for 10 years if they are in difficult areas or have many workers.
• Tax Deductions: Vietnam allows investors to deduct expenses for R&D, technology transfer, and employee training from their taxable income. The deduction rate can be from 50% to 200%, depending on the expense.

These tax-related incentives are designed to lower the operational costs for foreign investors, encouraging more investments in the country’s gross domestic product. However, these incentives are not automatic and may require certain conditions and procedures to be met. Therefore, it is advisable to consult with a professional tax advisor before making any investment decisions.

Investment Promotion Agencies

Vietnam has strategically positioned itself as a prime investment destination, largely due to the various investment promotion agencies that offer support and guidance at both national and regional levels:

• The Ministry of Planning and Investment (MPI): MPI plays a dual role – not only does it oversee investment policies and projects but it also champions promotional activities, highlighting the lucrative opportunities within Vietnam’s diverse sectors.
• Provincial Departments of Planning and Investment: These entities offer tailored support at the regional level. They assist investors in understanding the unique investment climate of each province, facilitating license processes, and aligning projects with regional advantages.
• Vietnam Investment Promotion Center: This center is pivotal in organizing events and updating investors on the latest policies. It also advises on potential investment areas, ensuring investors are equipped to tap into promising sectors.

As Vietnam continues to grow and position itself as a global investment hub, these agencies will undoubtedly play an even more significant role. They symbolize Vietnam’s proactive approach towards foreign investments, ensuring every investor experiences a streamlined and informed journey in the nation’s thriving economic landscape.

Top Business Opportunities in Vietnam That Are Catching the Attention of Investors

The Vietnamese business landscape is a vibrant tapestry of profitable business opportunities, beckoning investors with a blend of traditional sectors and modern industries. Here’s an in-depth look at what makes Vietnam a goldmine of promising opportunities for global investors:

Consulting Service: A Growing Demand for Expertise

As Vietnam’s economy grows and diversifies, businesses need professional guidance to optimize their performance and competitiveness. The consulting service sector in Vietnam is thriving, providing solutions in various domains such as strategy, operations, human resources, and information technology.

According to a report by Mordor Intelligence, the market size for consulting services in Vietnam is expected to reach $411.48 million by 2028, growing at a compound annual growth rate (CAGR) of 4.96% from 2023 to 2028.

This presents a lucrative opportunity for consulting firms to tap into the Vietnamese market and offer their niche expertise.

Tourism Industry: A Resilient and Attractive Sector

Tourism is one of the key drivers of Vietnam’s economy, contributing about 12% of its gross domestic product (GDP) in 2021. Despite the challenges posed by the COVID-19 pandemic, Vietnam’s tourism industry is showing signs of recovery and potential. The government has set an ambitious target to attract 8 million international tourists by 2023, leveraging its natural beauty, cultural heritage, and hospitality.

Vietnam’s tourism industry offers investors a wide range of opportunities in sectors such as hotels, resorts, restaurants, travel agencies, and entertainment. Some of the major tourist destinations in Vietnam include Ha Long Bay, Hoi An, Da Nang, Ho Chi Minh City, and Hanoi.

Information Technology: A Rising Star in Southeast Asia

Vietnam is emerging as a regional hub for information technology (IT), attracting both local and foreign investment alike. The IT sector in Vietnam received over $3 billion in investment in 2022 alone, making it one of the fastest-growing industries in the country.

Vietnam’s IT sector benefits from several factors, such as favorable government policies, low labor costs, high-quality human resources, and strong demand from domestic and international markets.

Vietnam’s IT sector offers investors opportunities in software development, hardware manufacturing industry, cloud computing, artificial intelligence, and blockchain. Some of the growing IT industries in Vietnam include fintech, e-commerce, cybersecurity, and smart city solutions.

Import and Export: A Major Player in Global Trade

Vietnam is a prominent player in global trade, thanks to its strategic geographical location and competitive advantages. Vietnam’s export market was worth $458.1 billion in 2022, ranking it among the top 10 exporters in the world.

Vietnam’s main export products include textiles, electronics, machinery, footwear, and agricultural products. Vietnam also imports a large amount of goods from other countries, such as machinery, petroleum products, steel, and chemicals.

Vietnam’s import and export sector offers opportunities for investors to participate in global supply chains and benefit from free trade agreements.

Retail and e-Commerce: A Booming Market with High Potential

Vietnam’s retail and e-commerce sector is witnessing unprecedented growth. This surge is fueled by various elements, including the increasing urban population, a spike in disposable income, and the ubiquity of internet connectivity and smartphones.

Vietnam’s retail and e-commerce market is fast-growing and dynamic, attracting many investors who want to enter or expand their business ideas and presence in this sector. However, remember to note that the scene is already dominated by big players like Lazada, Shopee, Tiki, and Sendo, who offer a variety of products and services to meet the diverse needs of Vietnamese shoppers.

Languages Centers: A High-Demand Skill for Globalization

As Vietnam carves its niche in the global landscape, the demand for foreign language proficiency surges. This skill opens doors for Vietnamese citizens in education, work, and cultural contexts. While English dominates as the most sought-after language, Chinese and Japanese closely follow.

The foreign language training market, valued at least US$2 billion, presents a gold mine for investors. Factors like inconsistencies in domestic education quality, the burgeoning middle class, high international school fees, and an escalating need for skilled professionals amplify this demand.

Investors can seize this opportunity by partnering with or establishing top-tier language teaching centers that emphasize quality education and internationally recognized certification.

Foods and Beverages: A Delicious and Diverse Sector

Vietnam’s food and beverage (F&B) sector is a reflection of its rich culinary culture and changing consumer preferences. The F&B sector in Vietnam is expected to reach a valuation of $35 billion by 2024, growing at a CAGR of 7%.

The F&B sector in Vietnam offers opportunities for investors in various segments, such as food processing, food delivery, food service, and beverage production. Some trends that are shaping the F&B sector in Vietnam include health-consciousness, convenience, innovation, and sustainability.

Healthcare Services: A Sector in Need of Innovation

Vietnam’s healthcare sector is facing many challenges that concurrently present opportunities for investors. Some of the challenges are the shortage of qualified staff, the unequal access to facilities, the low rate of health insurance, and the high cost of treatment.

Investors introducing innovative solutions in digital health, biotechnology, pharmaceuticals, etc, can profit from the sector’s increasing demand, increased technology adoption, and favorable government policies.

Despite having a sizable profit potential, the healthcare industry in Vietnam is not without risk. It’s crucial for investors to have a keen understanding of the market dynamics, regulatory landscape, competition, and consumer behavior. As a result, it can be very helpful to collaborate with local authorities who are familiar with the specifics of the Vietnamese healthcare system.

Manufacturing: Ready for Industry 4.0

With a well-established manufacturing base, the textile industry in Vietnam produces a diverse range of products for both local and global markets. This sector stands out as one of Vietnam’s premier business opportunities, given its commendable 38th rank in the 2020 global CIP Index. This achievement can be attributed to the nation and industry’s abundant young workforce, cost-effective production, and favorable trade agreements.

Embracing the wave of Industry 4.0, Vietnam is integrating cutting-edge technologies like big data, cloud computing, IoT, and AI to enhance production processes. The government has rolled out an action plan that outlines the country’s industrial goals up to 2030, looking even further to 2045. Ambitiously, they aim to be among the top three industrialized economies in ASEAN and enhance the proportion of high-tech products to at least 45%.

This forward-looking approach, combined with governmental incentives for adopting Industry 4.0 technology, presents lucrative opportunities for investors. They can establish or revamp manufacturing units to be at the forefront of Industry 4.0 capabilities.

Challenges and Risks

Vietnam is one of the fastest-growing economies in Southeast Asia, with a large population, a young workforce, and a strategic location. However, investing in Vietnam also comes with challenges and risks that foreign investors should be aware of and prepared for.

Cultural & Linguistic Obstacles

Foreign companies and investors often face significant hurdles in cultural differences and language barriers when entering the Vietnamese market. The rich tapestry of Vietnam’s culture values relationships and harmony, which can be a stark contrast to the directness and individualism in Western societies. The complexity and regional variations of the Vietnamese language add another layer of difficulty.

Key Approaches:

• Engaging in cultural awareness training or workshops.
• Hiring local experts or liaisons who are adept at bridging the cultural and linguistic gaps.

Regulatory & Compliance Hurdles

The legal landscape in Vietnam is intricate. Investors may encounter laws that are inconsistent or overlapping. The enforcement of these regulations can also vary widely, and the presence of corruption and bureaucracy can exacerbate the challenges.

Key Approaches:

• Conducting exhaustive due diligence.
• Seeking professional legal and business advice.
• Ensuring complete compliance with local laws and regulations.

Infrastructure & Logistics Bottlenecks

While Vietnam’s infrastructure and logistics framework is progressing, it still lags behind its regional counterparts. Investors may face challenges in transporting goods and services, both domestically and internationally. Additionally, inconsistent power supply, water treatment facilities, and waste management systems can impact the operational quality and sustainability of small businesses.

Key Approaches:

• Joining or partnering with infrastructure development projects.
• Working with local logistics or distribution experts.
• Adapting to the existing infrastructure for sustainability and efficiency.

Market & Competitive Dynamics

The Vietnamese market is a melting pot of domestic and international players, making it both dynamic and highly competitive. To thrive, investors need a deep understanding of consumer preferences, behaviors, and the evolving trends influencing product or service demand. Staying ahead of the competition also necessitates a keen awareness of market competitors and their strategies.

Key Approaches:

• Researching and analyzing consumer behaviors and preferences.
• Creating a strong value proposition and clear differentiators.
• Monitoring market changes and competitors to adjust strategically.