Views on Vietnam: Opportunities, misconceptions and challenges

Koh Chong Yu, Regional Director (Ho Chi Minh City) and Hong Anh Bui Thi, Regional Director (Hanoi) from Enterprise Singapore shed light on doing business in Vietnam

1. What are some of the latest developments in Vietnam right now?

Bolstered by strong exports, investment and fast-growing domestic consumption, Vietnam's economy grew at a six year high of 6.8% in 2017. The country has seen a strong flow of foreign direct investments, especially from Japan, South Korea and Singapore.

One of the most recent developments in Vietnam is its plan to develop smart cities, especially for Danang, Hanoi and Ho Chi Minh City. These cities are part of the ASEAN Smart Cities Network, an initiative spearheaded by Singapore as chair of ASEAN 2018. There is demand in Vietnam for smart solution providers in transport, urban management, and security and solutions such as intelligent transport systems, flood monitoring systems and e-government services for citizens.

The Vietnamese government also recently announced the Vietnam Cashless 2020 initiative to move towards a 90% cashless economy by 2020 through reducing cash transactions and increasing electronic payments. To make this happen, the government is promoting e-payment services including cards, mobile wallets, mobile apps, internet banking and more, with plans to do away with cash transactions in hospitals, petrol and toll stations, restaurants, retail stores, schools and public services.

As Vietnam pushes for its cashless drive, it is also looking to upgrade payment infrastructure and cyber security for online transactions.

Vietnam is also keen to accelerate the privatisation of its State-Owned-Enterprises (SOE) to enhance the competitiveness of its private sector and economy. Recent divestments from Vinamilk and Sabeco, widely viewed as key cash generators, have demonstrated that the government is willing to sell off majority stakes in profitable SOEs to achieve its objective.

2. What are some of the biggest opportunities? Why should Singapore businesses consider entering?

Vietnam's abundant labour, competitive wages, network of Free Trade Agreements and connectivity to global centres of demand make it a choice location for manufacturing, particularly in electronics, textile and garment, and food processing.

Beyond that, Vietnam is rapidly urbanising and looking to improve the quality of life for its people. Singapore companies can contribute their know-how in master planning and smart city initiatives, water and waste treatment, and alternative energy sectors such as solar and wind. The increasing demand for energy also opens doors for Singapore oil and gas companies, especially in the Liquefied Natural Gas (LNG) sector.

Vietnam's huge population of more than 90 million with a fast-growing middle class means opportunities in consumer sectors such as F&B and retail. We see that the Vietnamese consumer is increasingly sophisticated and more open to new and foreign brands.

Of late, a new area that has emerged is technology. We observe that the technology community has been developing rapidly in Vietnam. It has developed a large workforce, with 40,000 new Infocomm Technology graduates each year. This availability of tech talents and the low operation costs in Vietnam have resulted in the country emerging as an offshore software research and development destination in the region. Singapore companies can tap this ecosystem to develop tech-related projects or find tech partners to expand into the market.

3. What are some misconceptions that businesses have about this market?

Many assume that businesses must be able to speak the local language in Vietnam. However, the inflow of foreign investments and multinational corporations has made English a more common language of communication. Nevertheless, it is useful to employ someone with local language ability to minimise miscommunication and interpret the non-verbal cues during meetings. The Vietnamese language is usually used in meetings when the main representatives are not conversant in English.

The choice of language used in meetings also varies from sector to sector. For example, within the technology sector, meetings are typically in English while for more traditional sectors like oil & gas and infrastructure, meetings tend to be conducted in Vietnamese.

Another misconception is that companies can adopt the same business strategy across Vietnam. However, localisation is important as there are different cultures even within different regions in Vietnam - different people have different ways of engaging for business.

4. What are some of the biggest challenges that businesses would face and how can they overcome these challenges?

A key challenge is navigating the business landscape and finding the right local partners. Enterprise Singapore leverages our in-market connections and offers insights on the current policies, key market and sector developments for companies, as well as introduce them to reliable local partners. We engage the local governments closely and discuss potential projects.

Although most sectors in Vietnam are already open to majority or full foreign ownership, partnerships are preferred as Vietnamese companies can help them navigate the local regulations and provide access to local networks. However, information on potential partners via desktop research can be limited. Singapore companies should invest substantial efforts in engaging local contacts to identify partners and do the necessary due diligence.

Leasing an office space can also be challenging due to regulatory requirements and high overhead costs. In Vietnam, companies are required to lease for a period of 2 - 5 years. One way to overcome this is to utilise co-working spaces. This enables companies to set up easily and quickly without the hassle of business registration, renovation and rental agreements. On top of this, there are business mentors and advisors available to provide guidance.

In Vietnam, Enterprise Singapore works with partners to provide pre-market entry advisory, business matching, in-market consultations and co-working spaces. This is part of our Plug and Play Network, which aims to ease market entry for SMEs in over 45 major cities in 6 key markets across India, China and South-east Asia including Vietnam. One of our partners is Toong, a professional large-scale co-working space in Vietnam with six co-working space locations in Danang, Hanoi and Ho Chi Minh City. It offers a wide range of set-up options from hot-desking to private offices.

5. What's your top advice for SMEs thinking of entering this market?

While Vietnamese businesses and consumers generally associate the Singapore brand with quality and reliability, Singapore companies often cannot compete on pricing due to the relatively lower costs of manpower, land and other resources in Vietnam. Thus, the first thing Singapore companies need to be very clear on is their value proposition; how their offering makes an intrinsic difference to the customer.

Second, Vietnam's privately-owned enterprises (POEs) could be good local partners for Singapore companies. These POEs are large family conglomerates with diverse businesses and strong local networks and play an increasingly significant role in driving the domestic economy. This is a change from earlier years, when the economy was dominated by SOEs. The good news is that POEs are commercially driven and receptive to new business ideas. They also view partnerships with foreign companies positively, including those from Singapore.

Third, build an acute understanding of cultural differences and nuances. Take time to understand the socio-economic aspects of doing business in a country as big and diverse as Vietnam. Vietnam has two broad, distinctive cultures - one in the north and one in the south. People in the southern parts tend to be more direct in the way they speak and engage for business. In the north, the people place great emphasis on relationships and spend more time building networks and relationships before formally engaging in business discussions.

For more market insights on ASEAN and information on how Enterprise Singapore can work with your business to venture to the region, please visit www.enterprisesg.gov.sg/ASEAN