Currently, Vietnam is on the track to developing an integrated economy with key capital coming from foreign investors, spreading across 139 countries and territories around the world as of early 2022. Although it has received many successes in more than 30 years from foreign direct investment (FDI), Vietnam’s management and operation system still have many shortcomings and difficulties that limit its expansion and attraction of high-quality foreign investment capital.
At the Vietnam Prime Minister’s Conference with foreign investment enterprises with the theme “Overcome challenges, seize opportunities, cooperate for development” held in September 2022, many large and multinational corporations such as Panasonic, Dell Technologies, Bosch Corporation, Orsted, Meta, etc. highly appreciate Vietnam’s operating system, thereby considering this country as a potential investment destination.
In the face of common world difficulties such as the Covid-19 pandemic and international tensions, Vietnam still achieved positive economic development results, demonstrated by maintaining positive investment indicators. In particular, the policy to encourage FDI investment in Vietnam plays a particularly important role in attracting high-quality investment capital, which is highly competitive compared to other countries in the region.
In addition, advantages including a fast-growing economy with a large openness, stable social navigation, positive growth, etc. also contribute to attracting and encouraging foreign investors to expand their investment in Vietnam.
Besides, the strong growth of foreign investment capital will also contribute to improving the social life and economy of Vietnam through solving labor problems, training high-quality human resources, technology transfer and development, digital transformation, promotion of technical and social infrastructure development, and improvement of Vietnam’s policy system in the fields of foreign investment, international trade, etc.
Vietnam market – Difficulties in attracting foreign investment
Although Vietnam has made great strides in attracting investment capital with new-generation free trade agreements such as CPTPP or EVFTA, a large part of foreign investors still realize many difficulties and inadequacies when investing in Vietnam such as the issue of cost not being competitive enough compared to other countries in the region, labor supply bottlenecks leading to failure to meet production demand in time, underdeveloped infrastructure, incomplete tax and management policies, law enforcement, limitations in the supply chain, etc.
Not optimizing costs
Raw material costs increased sharply, and input prices were high, leading to difficulties in business activities. Many Vietnamese enterprises are facing the risk of bankruptcy, dissolution, and corporate restructuring because they cannot solve the problem of balancing costs and finding raw materials at a reasonable cost.
The cause of increase in costs is largely due to the recent Russian-Ukrainian international tension. However, the above difficulty is a common problem of the whole world, similar to the time when the Covid-19 epidemic raged for 2 years, leading to orders to limit communication, isolation, and production stoppage. Foreign investors will not focus too much on the cause, but instead on the results expressed through the input and output costs of the enterprise and the overall revenue and profit.
In order to optimize costs, Vietnamese enterprises need to find the solution by themselves, however, it is necessary to note that enterprises need to limit the increase in product costs corresponding to the price of input materials or cut the wages of workers to compensate along with other extreme measures that may affect the reputation of the business.
Limited labor supply
Currently, Vietnam is applying a relatively strict and tight management 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 on foreign workers working in Vietnam and recruiting and managing Vietnamese employees working for foreign organizations and individuals in Vietnam, stipulating many strict conditions and procedures for recruiting foreign workers, leading to difficulties in practical recruitment application, inhibiting the development of enterprises in particular and the Vietnamese economy in general.
The setting of these regulations is made in accordance with the development orientation, prioritizing and protecting the source of employment for domestic workers, and minimizing the use and recruitment of foreign workers. However, that has led to many businesses in Vietnam lacking a workforce with high professional and technical qualifications.
From another perspective, the restriction on recruiting foreign workers also makes foreign investors feel that Vietnam is not yet an open market for foreign factors, which can affect their investment 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 that Vietnam has a relatively poor infrastructure system and public service quality compared to other countries in the region such as China, Thailand, Singapore, Indonesia and Malaysia, etc.
This conclusion has partly affected foreign investors’ investment decisions in the Vietnamese market as well as future investment trends if Vietnam does not give positive results in improving its infrastructure. Because in addition to the additional costs incurred by transporting production infrastructure to Vietnam, FDI enterprises also have to take into account other factors such as legal regulations, business conditions, economic geography, local human resources, supply partners, etc. to transport, install and build new infrastructure systems suitable to the business field.
Building and rebuilding from scratch take a lot of time and resources. Therefore, many foreign investors will consider not choosing Vietnam as the destination for investment, as a solid infrastructure system is one of the basic factors determining the production, export, and business system of enterprises.
Vietnam has many preferential tax policies for foreign investors, based on Singapore’s preferential and equal treatment policy between foreign investors and domestic investors. However, the stage of application and implementation of state policies still has many shortcomings and needs a lot of improvement, specifically in terms of simplifying or concretizing administrative procedures.
According to a study by NC Network, the average time spent by foreign investors in Vietnam to settle tax obligations is four times higher than the average time in East Asia and Pacific regions.
Besides, many investors are also quite disappointed with the system of administrative procedures in Vietnam, partly because the process and procedures are complicated, and partly because the processing process is not as they expected.
Limited supply chain
With the strong shift in the global supply chain, many multinational companies and corporations have stepped up investment in Vietnam. In general, it is rare for any manufacturer to be able to produce all parts and components of a product on their own, including multinational companies.
Therefore, foreign investors tend to look for businesses that can supply some element of product parts and components so that they can assemble a complete product. Southeast Asia is currently ranked as one of the most efficient and potential supply markets.
However, the technology industry supporting component production in Vietnam is still young, leading to some difficulties for FDI enterprises in the process of building supply chains. It is for this reason and the substandard infrastructure system that foreign investors are forced to invest in other countries, even if Vietnam’s policies and investment factors are attractive to them.
Removing investment problems of foreign enterprises
Most foreign investors, after investing in Vietnam, have the common opinion that although Vietnam has many strengths, especially in economic potential, this country still has many limitations that make foreign investors disappointed.
Not only foreign investors but also domestic investors are also realizing the above inadequacies and difficulties in attracting investment capital from abroad to Vietnam and vice versa, from Vietnam to the world.
Complicated legal procedures, expensive costs, and general lack of management, supply, or infrastructure, make many domestic and foreign investors feel ‘afraid’ when doing business in Vietnam.
In order to solve these difficulties, enterprises and state agencies need to actively cooperate with each other to remove each obstacle and difficulty so that Vietnam is truly an ideal investment destination not only in Southeast Asia but also around the world.
In terms of costs, besides support from the Government, businesses need to be more proactive in finding material sources at reasonable costs. In fact, Vietnam is a market with a strong supply capacity. However, most businesses are currently facing many difficulties in sourcing goods because their connection network and information system are still limited.
To expand the network, businesses can consider connecting with third 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 advice with a network of connections to many Vietnamese businesses in all business fields and also international businesses in Singapore, China, Laos, Cambodia, Myanmar, Hong Kong, USA, Australia, Indonesia, Taiwan, EU and other countries where Vietnamese businesses are present.
Regarding labor resources, enterprises can consider cooperating with companies and enterprises providing seasonal labor with prestige and high efficiency, meeting the urgent production needs of enterprises in each period.
In terms of infrastructure, the Vietnamese government and the business sector need to cooperate more in public investment projects with the goal of building and developing socio-economic infrastructure.
In the tax field, the competent authorities dealing with tax issues in particular and public administrative procedures in general need to ensure the ability to meet the needs and speed of processing according to the law for foreign investors. Simplify and concretize decrees and guiding documents to ensure that case processing specialists can be flexible in administrative procedures.
Regarding the supply chain, foreign-invested enterprises in Vietnam can consider using diverse and reliable information sources to search and find their respective Vietnamese partners. In the opposite direction, large international enterprises can consider technical support, capital, technology transfer, management experience, etc. to Vietnamese enterprises to help them have the ability to participate in the global supply chain.
Question: The opposite of attracting foreign investment capital into Vietnam is the investment of Vietnamese enterprises abroad. Can ASL LAW’s lawyer tell us about the difficulties that Vietnamese enterprises investing abroad may face?
Answer: Currently, domestic investors who intend to invest abroad will face many difficulties, specifically:
Firstly, the investor must meet the conditions as well as carry out the procedures for registration of investment abroad. Besides, the legal regulations on transferring capital abroad, as well as transferring profits to Vietnam are also quite strict, binding investors.
Secondly, in addition to meeting the conditions for investing abroad from Vietnam, investors must also meet the policies and conditions of investment and post-investment in the host country.
Third, language and cultural differences, differences in scientific and technical qualifications, as well as labor resources in the host country are also some of the challenges that Vietnamese investors need to overcome.
However, in order to overcome the above difficulties easily, Vietnamese investors can seek support from consulting units that are knowledgeable about the process of investing abroad as well as the policies, and regulations of the host country. ASL LAW is willing to cooperate to provide offshore investment consulting services in many markets such as Singapore, China, Laos, Cambodia, Myanmar, Hong Kong, USA, Australia, Indonesia, Taiwan, EU, and other markets where Vietnamese enterprises are present.
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ASL LAW is the top-tier Vietnam law firm for Investment Services. If you need any advice, please contact us for further information or collaboration.