BODY

  • As a newly industrialized middle-income country, Vietnam was not this successful a few decades ago. 
  • A strong manufacturing and foreign investment sector helped the economy boom in the fourth quarter and be one of the world’s best performers.
  • The country’s GDP grew by 7.1%, more prominent than the global median estimate of 6.9%, according to a Bloomberg survey of 12 economists.
  • According to the World Economic Forum (WEF) Inclusive Development Index, the country was also able to make their growth processes more inclusive and sustainable.
  •     In this regard, the surging Vietnamese economy has become a quiet economic achiever with excellent domestic performance, yet it is very open to foreign investors.

 

A December 2018 Bloomberg article reads “Vietnam Economy Remains Outperformer as Growth Tops 7% Mark”, acknowledging the positive economic indicators of the country and its overall growth.

From 2017 to 2018, the country’s GDP grew by 7.1%, bigger than the global median estimate of 6.9%, according to a Bloomberg survey of 12 economists. A strong manufacturing and foreign investment sector helped the economy boom in the fourth quarter and be one of the world’s best performers.

“Vietnam is poised to capture some of China’s global market share in labor-intensive manufacturing,” Trinh Nguyen, senior economist at Natixis Asia from Hong Kong said.

Its economy has been growing fastest in the last decade, with the World Bank dubbing it as “one of the most dynamic emerging countries” in the East Asian region.

In fact, realized foreign investment rose by 9% in 2018 from a year earlier. In terms of the country’s Foreign Direct Investments (FDIs), top cities Hanoi, Ba Ria-Vung Tau, Binh Duong, Dong Nai, and Ho Chi Minh are leading in the race of those with most registered capital.

This 2019, Vietnam’s administration has set a soft GDP target of 6.8%, an achievable mark given the country’s achievements in local demand and foreign investments.

 

Vietnam’s sprint to success

As a newly industrializing middle-income country, Vietnam was not this successful 30 years ago. It’s quiet rise has been the subject of many analysts, and the reason for its success remains to be a topic of debate among sociologists.

When the 1975 Vietnam War ended, its economy was one of the poorest in the world, and growth under its government was anemic.

In 1986, the government introduced “Doi Mo’ i,” a set of political and economic reforms that allowed the country to transition to a “socialist-oriented market economy.” It focused on domestic changes, which allowed the entry of foreign companies to Vietnam. 

At present, Vietnam has become more open to its neighbors and other foreign partners, and is doing more in terms of collaborating with other Southeast Asian economies.

According to World Bank analysts and think tank Brookings, the country’s miraculous rise can be attributed to how “it has embraced trade liberalization with gusto; how it has complemented external liberalization with domestic reforms through deregulation and lowering the cost of doing business; and finally, how it has invested heavily in human and physical capital, predominantly through public investments”.

What matters greatly, however, is how the economic growth of the country was fairly inclusive.

According to the World Economic Forum (WEF) Inclusive Development Index, the country made their growth processes more inclusive and sustainable in terms of gender and economic standing.

According to the index, women worked better, and women-led households are less likely to be poor. The World Bank also notes that women’s employment rate is within 10% of that of men.

 

Investing in Vietnam: A sound idea

Should you invest in Vietnam? It would still be entirely up to you. While Vietnam may not be the first country that comes to mind when it comes to investing, doing so might be a good idea considering its promising growing market.

There are many reasons why you should decide to invest: strategic location in mainland Asia, The World Bank records several reasons why, and here it is in summary:

  1. Vietnam has had a remarkable development record over the past 30 years

Doi Moi, launched in 1986, has paved the path for rapid economic growth and development. Through its series of economic and political reforms, the country was transformed into a lower middle-income country. 

 

  1.     It shows a steadily decreasing poverty rate

With the rising manufacturing and foreign investment sector, the extreme poverty rate is seen to take a drop below 3% following the GDP growth in 2018. More people are employed, and there was a broad-based pickup in economic activity.

 

  1. Its medium-term outlook is favorable as it is positioned to benefit from several trade agreements

Looking beyond the changing global trade patterns, and incomplete banking and state-owned enterprise reforms, Vietnam is firmly positioned to be at the winning end of several free trade agreements that are still coming into force at present and over the forecast period.

 

  1. It is projected to grow by 6.6% this 2019; poverty is expected to decline further as labor market conditions remain favorable

As mentioned, Vietnam is forecasted to grow still this 2019 at 6.5%. With this, poverty is depicted to decline further, as market conditions remain favorable. This is seen to be driven by the tightening of credit, the slowing down of private consumption, and weaker external demand.

 

  1. Vietnam is undergoing a fast demographic and social change

At present, 70% of the Viet population is under 35 years old, with life expectancy set at 73. The general population, however, is rapidly aging. There is an emerging middle class as well, currently comprising 13% of the total population but is expected to double to 26% by 2026.

 

  1. Its growth is more inclusive, as the provision of essential services has significantly improved

As mentioned earlier in this article, the government has made the provision of social welfare services a priority. In terms of the human capital index (HCI), the country tanks 48th out of 157 countries, following Singapore in the ASEAN.

On educational levels, Vietnam at present has more learning outcomes which are proven to be achievable in primary school. As well, their students exceed the average performance of students from OECD countries.

 

  1. Access to household infrastructure has significantly improved

Access to services such as electricity and rural access to clean water has improved considerably. In 2016, the users of electricity rose to 99% from 17% in 1993. On the other hand, 70% of rural dwellers have gained access to clean water, compared to 17% in 1993.

 

  1.     Gender gaps have narrowed down

Even when some gaps persist within the nation, gender gaps are narrowing, and it is not only the women who are benefitting. In fact, 2015 data show that there are more female students in secondary and tertiary schools, the maternal mortality rate has been declining, and women’s overall economic empowerment has improved.

As well, there have been more cases of women having more share in wage work. This means that the work done by women are already economically recognized, especially with the entry of foreign investments in the country.

 

How can I start?

The surging Vietnamese economy has become a quiet economic achiever, yet it is very open to foreign investors. Here are the simple and essential things to know when investing or setting up shop in Vietnam.

 

Structures of small and medium businesses in Vietnam

Knowing the usual business structures of establishments in Vietnam will not only make it easier for you to build something from scratch but will also make you catch up quickly with the existing models locally.

A standard model in Vietnam is Limited Liability Companies (LLC) which could either be Single Member or Multiple Member. A Single Member LLC has only one founder and owner and is the only one liable for the company’s charter capital.

A Single Member LLC owner has all of the authority in deciding for business operations. This kind is allowable in most types of businesses, but when the line of business is not open to 100% foreign ownership, a two-member LLC is needed where one is a local resident.

 

Foreign company tax compliance

In any country you will plan to invest in, taxes are always in need of compliance. In Vietnam, dividends could be paid by cash, stocks, or other properties.

Single Member LLCs are not required to pay taxes on dividend payments, while individual investors’ dividends from other businesses are taxed separately and on a transaction basis.

If you are having a hard time dealing with taxation in Vietnam, some firms like CD+A can give you assistance that will allow you to comply to taxation requirements.

 

Minimum capital requirements for small businesses

In Vietnam, there has not been any minimum capital requirement that has been set. However, your intended capital must already consider the expected costs and revenue into account.

Thus, if your company’s overhead cost is not that high, your capital does not need to be necessarily high.

 

Cultural mindfulness

Aside from the technical, financial, and administrative aspects of putting up businesses mentioned above, cultural precautions are always advised.

If you are coming from Asia, then Viet cultural ways are easier to understand. Meetings at karaoke bars or over drinks, sheer politeness, exchanges of business cards, and signing of contracts outside board rooms are only some of the practices which may be unfamiliar to Westerners.

The Vietnamese do people do business with people they trust, and holding meetings outside company rooms is part of how they get to know investors and potential partners.

 

Outsourcing

In any business, some matters and job processes are often too expensive to be hired full time and in-house, especially when they are non-core business procedures. If you ever encounter such issue, consider outsourcing for job services like payroll and invoicing, marketing and sales, accounting, and other IT-related services.

While all are crucial in running a successful business, outsourcing is more affordable and useful, produces the needed outputs minus the whole recruitment process, which may also take up your time.

There are top recruitment agencies in Vietnam who will help you find the right partner for your business needs.

 

In Vietnam, Around Asia Pacific

It is prime time for Vietnam. With the increasing competitiveness and demand in the country, let CDA help you in completing your staffing needs.

Curran Daly + Associates is an executive search firm based in Vietnam with representatives in different areas of the Asia Pacific. We can help you find top-notch talent who will fill your company roles and contribute to your business development for your investment wants.

To know more about how we can help you fulfill your business needs and for a partnership that will not let you down, message us here.

 

References

Curran Daly and Associates. (n.d.). Vietnam Executive Recruiters Recruitment. Retrieved from https://currandaly.com.vn/

Eckardt, S., Mishra, D., & Viet, T. (2018, April 17). Vietnam’s manufacturing miracle: Lessons for developing countries. Retrieved from https://www.brookings.edu/blog/future-development/2018/04/17/vietnams-manufacturing-miracle-lessons-for-developing-countries/

Nguyen, D. (2018). Vietnam economy remains outperformer as growth tops 7% mark. Retrieved from https://www.bloomberg.com/news/articles/2018-12-27/vietnam-s-economy-remains-outperformer-as-growth-tops-7-mark

Nguyen, H. (2019). How will foreign investment change Vietnam’s economy?. Retrieved from https://www.voanews.com/a/how-will-foreign-investment-change-vietnam-s-economy-/4846702.html

Vanham, P. (2018). The story behind Viet Nam’s miracle growth. Retrieved from https://www.weforum.org/agenda/2018/09/how-vietnam-became-an-economic-miracle/

World Bank. (2019). Vietnam overview. Retrieved June 11, 2019, from https://www.worldbank.org/en/country/vietnam/overview

World Economic Forum. (2018). The inclusive development index 2018: Summary and data highlights. Retrieved from http://www3.weforum.org/docs/WEF_Forum_IncGrwth_2018.pdf

Share This

Share This

Share this post with your friends!