Vietnam market entry: Guide to set up a company in SEA’s most vibrant economy

Your company is ready to expand to new markets, whether to diversify manufacturing or reach a new client base, and you are now planning your Vietnam market entry. This is a country that has quickly become a hotspot for businesses relocating out of China as well as those looking for rising consumer-driven markets.

5 minute read

Written in collaboration with Cekindo Vietnam

The country is striving to be a hub for high-tech manufacturing, as the U.S. pressure on China has forced tech companies to rethink their supply chain that supports the world’s tech industries. This inflow of foreign direct investment has created an expansion of the middle-class that should not be ignored. But an entry into Vietnam comes with the usual, and unusual, growing pains of any quickly expanding economy that all need to be taken into consideration.

In this article, we’ll discuss how a good market entry strategy in Vietnam will help international investors navigate a new market with unique consumer behaviour trends and business requirements.

Vietnam market entry: Summary

• To delve into such a unique and rapidly changing market research is essential.
• Know your incorporation options whether you set up a company with a local partner or you establish a 100% foreign-owned entity.
• Know the FDI incentives available to your company by the Vietnamese government.
• Hiring in a country with a high turnover rate and a developing labour force can be a challenge, know your options.

For a breakdown of all company registration types, click here.

Why is Market Research paramount for Vietnam’s market entry?

Market research will mitigate the risks and maximise the opportunities in your market entry decisions.  Vietnamese consumers move in leaps and bounds often skipping huge phases of development seen in other developed markets. For example most consumers have smartphones but never owned a fixed-line telephone. Most consumers have skipped credit cards in their financial management and have moved from cash straight to e-wallets.

Vietnam has a population of 98 million consumers across 27 million households. But it is far from one market, different segments manifest in geographies, needs, beliefs, brand use and income segments. Understanding who your consumer target is, their current habits and beliefs are critical to successfully launching a new product or service in Vietnam. Market research will assist you to identify the consumers whom you should be targeting. That is consumer segments that offer a commercially viable size in terms of both volume and expenditure and ‘where’ your business and brand can win.

Building a strategy requires identifying the best target, building a positioning that your brand can deliver, that attracts your target consumers and differentiates you in the competitive landscape. Optimising the product or service for the Vietnamese consumer segment will involve many choice trade-offs.  Market research will help you make better choices.  Every route to market choice between geographic coverage, channels, distributor selection and retail support will involve choices that will impact your success.   Marketing tactical decisions will present numerous choices across pack, price, promotion, communications and even the product formulation or service utilities. Market research will help you make the best choices with the strongest positive impact on your success. Market research will afford you a far higher rate of return on your capital employed when entering the Vietnamese market.

Available options to incorporate while entering the Vietnamese market

The four main legal entities that foreign firms can incorporate are LLC, Joint-stock company, branch office and representative office.  Here is a summary of each business entity and what differentiates them.

Company registration options

Foreign investors have the option of incorporating/registering the following types of companies in Vietnam:

Limited liability company (LLC)

The most prevalent legal entity type in Vietnam is the limited liability company (LLC), which is an ideal choice for small and medium-sized businesses (SMEs). Single investors can benefit from the company’s straightforward corporate form, which only requires one founder. Multi-member LLCs can have anything from two to fifty founders.

Joint-stock company (JSC)

In Vietnam, a Joint Stock Company is suggested for medium and large firms since its corporate form necessitates the presence of at least three founders. Its registration procedure has more stringent standards. A joint-stock company can issue shares and be listed on the Vietnam Stock Exchange allowing for more flexibility in terms of mobilization of capital.

A representative office

For foreigners who wish to study and investigate the local market, a representative office in Vietnam is ideal. It has limitations in terms of income generation, invoicing and more but it helps you to establish a market presence for the parent firm before expanding fully into Vietnam.

A branch office

A branch office is a subsidiary of the main corporation. Without forming a distinct legal corporation, you can conduct all of your parent company’s commercial activities and generate a profit from your branch office in Vietnam.

Alternative route: Purchase a shelf company

A shelf company has been created and registered but not used once the incorporation process is finished. You just purchase an off-the-shelf corporation after conducting due diligence and completing all relevant documentation. Hence, a shelf company is an excellent option for businesses wanting to swiftly enter the market in Vietnam.

Incentives to encourage foreign investment in Vietnam

Vietnam has attractive tax regimes, offering enterprises and organizations the following tax benefits.

Corporate income tax (CIT) incentive

Preferential tax rates and tax incentives will be granted to new investment projects based on their location, industry, and size. These are earmarked by the government according to priority.h

Import duty exemption for fixed assets

Projects designated under sectors that are promoted by the Vietnamese government and are located in encouraging regions, as well as items imported under specific conditions, are eligible for import duty exemptions.

Exemption of land rental fee

If specific conditions are met, such as investing in encouraging industries or business areas, and/or promoting geographic regions, a range of investment projects is eligible for a land rental fee exemption. This is especially relevant for those looking to do manufacturing in the country.

Free trade zones in Vietnam

Investing in Vietnam’s free trade industrial zones is an ideal medium for international investors who want to set up production and sell their goods globally. These free trade zones come with  the advantage of various government incentives and investment benefits. For instance, payment of only 10% of the CIT for 15 years, a 50% tax reduction on personal income, and tariff reductions on products across ASEAN regions. The following are some of Vietnam’s prominent Free Trade Zones, which are among the country’s 250 industrial zones:

• Northern Vietnam Key Economic Region (NVKER)
• Southern Key Economic Zone (SKEZ)
• Central Vietnam Key Economic Region (CVKER)
• Mekong River Delta Economic Zone (MeKEZ)

Aspects of Hiring Staff in Vietnam

With a higher than average turnover rate of 24%  and a national education system that still lacks international standards, hiring a skilled workforce can be a challenge. On the other hand Vietnam was sending approximately 170,000 students to study abroad in developed countries before the pandemic.

Professional Employer Organization (PEO)

It is possible to cut overhead expenditures & improve hiring efficiency by partnering with a PEO. All of your talent acquisition, human resource, payroll, and administrative activities may be handled by the local PEO, allowing you to focus on your bottom line. The benefits of using such an organization is that they have had extensive experience in the local market and with their expertise, your pool of talented workers can be expanded and your turnover rate can be minimized.

Final recommendations for your Vietnam market entry

To truly succeed in such a rising market like Vietnam, thorough due diligence is an essential step towards succeeding. However, there are pitfalls that many foreign companies don’t take into consideration. These can include inter-cultural issues, a gap in education levels and a slow laborious bureaucratic process. In terms of government processes, be aware that Vietnam is still in the initial stages of digitizing its procedures and office functions, therefore be aware of the slow-moving legal and bureaucratic processes of setting up your company, paying your taxes, etc.  A successful market entry strategy combines thorough market research with an understanding of the local business environment and the incorporation legalities.