Vietnam Report This report was completed on: June 30, 2011
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Research provided by: Export Readiness Center Washington State University 1235 N. Post – Suite 201 Spokane, WA 99201 www.export.wsbdc.org Spokane Export Readiness Center ‐ 509.358.7596 Seattle Export Readiness Center ‐ 206.439.8084
Introduction The following report provides a comprehensive overview of Vietnam with the specific purpose of providing small businesses in the State of Washington sufficient information to assess Vietnam as a potential export market for their goods and/or services. Vietnam is a new Asian tiger, located in Southeastern Asia. In recent years, it has been one of the fastest growing economies in Asia, with GDP growth averaging 7.6% annually between the years 2000 and 2009. Given its rapid development, Vietnam has a high demand for steel for construction and machinery for factories. Over the past two years, Washington State exporters have seen this growing market and increased their exports to Vietnam. In addition to the products identified above, Vietnam also needs to import products such as fertilizers, grain, and cement; these products could offer export opportunities to Washington State businesses. On Jan 11st 2007, Vietnam joined the World Trade Organization (WTO). It is also a member of the Association of Southeast Asian Nations (ASEAN), the ASEAN Free Trade Area (AFTA), and the U.S.‐Vietnam Bilateral Trade Agreement (BTA). Vietnam’s large, well educated and inexpensive labor force is one of the country’s chief attractions to foreign investors. In 2011, Vietnam ranked number 78 among nations globally based on its ease for doing business, an improvement from its number 88 ranking in 2010. However, when doing business in Vietnam, companies will have to face some tough challenges of legal system, intellectual property right, corruption, and culture differences.
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Table of Contents Introduction ................................................................ 2 Table of Contents ........................................................ 3 Country Overview........................................................ 6 GEOGRAPHIC CHARACTERISTICS .............................................................. 6 Map ...................................................................................................... 6 Total Area and terrain .......................................................................... 6 CLIMATE .................................................................................................... 7 NATURAL RESOURCES ............................................................................... 7 Minerals and materials ........................................................................ 7 Oil and natural gas ............................................................................... 7 Arable land ........................................................................................... 7 Water resource .................................................................................... 7 REGIONS/STATES/PROVINCES .................................................................. 7 MAJOR CITIES ............................................................................................ 8 INFRASTRUCTURE ..................................................................................... 8 Main ports of entry .............................................................................. 8 Transportation between cities ............................................................. 8 Telecommunications ............................................................................ 9 Foreign trade zones .............................................................................. 9 Market structure and distribution channels ........................................ 9
Economy ................................................................... 11 GDP ......................................................................................................... 11 Growth trends .................................................................................... 11 Industry sector ................................................................................... 11 MAJOR IMPORTS AND EXPORTS ............................................................. 12 BALANCE OF TRADE ................................................................................ 12 ECONOMIC STRUCTURE .......................................................................... 12 ECONOMIC POLICY .................................................................................. 13 CURRENT ECONOMIC SITUATION ........................................................... 13 TAXATION ................................................................................................ 14 Income tax .......................................................................................... 14 Corporate tax ..................................................................................... 14 Capital gains tax ................................................................................. 14 Withholding tax.................................................................................. 14 VAT ..................................................................................................... 14 Corporate governance ....................................................................... 15 BARRIERS TO TRADE AND IMPORTING ................................................... 15
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Tariffs ................................................................................................. 15 Non‐tariff ........................................................................................... 15 Ease of market entry .......................................................................... 17 ECONOMIC ZONES .................................................................................. 17 Export processing zones ..................................................................... 17 LABOR FORCE .......................................................................................... 17 Labor practices and restrictions ......................................................... 18 Unemployment rate (%) ..................................................................... 18 Productivity ........................................................................................ 18 Wage structure .................................................................................. 19 Below the poverty line (%) ................................................................. 19 PROFIT REPATRIATION ............................................................................ 19 CURRENCY ............................................................................................... 20 Exchange rate and exchangeability ................................................... 20 Rate of inflation ................................................................................. 20
Political ..................................................................... 21 POLITICAL SYSTEM(S) AND INSTITUTIONS .............................................. 21 MAIN POLITICAL PARTIES/FIGURES ........................................................ 21 RECENT POLITICAL DEVELOPMENTS ....................................................... 21 POLITICAL RISK ........................................................................................ 21 Political stability, historical perspectives ........................................... 21 Political stability, current assessment ................................................ 21 MILITARY CAPABILITY ............................................................................. 22 RELATIONSHIP WITH THE U.S. ................................................................ 22
Legal .......................................................................... 23 CONSTITUTION ........................................................................................ 23 JUDICIAL STRUCTURE .............................................................................. 23 Influential religion/culture practice ................................................... 23 TRADE AGREEMENT ................................................................................ 23 INTELLECTUAL PROPERTY RIGHT, PATENT, COPYRIGHT, TRADEMARK, AND SECRET PROTECTION ........................................................................................... 24
Demographics Characteristics .................................... 25 POPULATION DEMOGRAPHICS ............................................................... 25 Size and growth .................................................................................. 25 Ethnic groups and societal make‐up .................................................. 25 Age distribution .................................................................................. 25 Gender distribution ............................................................................ 25 Urban vs. rural distribution ................................................................ 25 Health ................................................................................................. 26
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Major religion(s) ................................................................................. 26 Income distribution (per capita) ......................................................... 26 LANGUAGES ............................................................................................ 26 EDUCATION ............................................................................................. 26 TECHNOLOGICAL PENETRATION ............................................................. 27 RECEPTIVE TO THE U.S. AND OTHER FOREIGN PRODUCTS .................... 27
Culture ...................................................................... 28 PEOPLE .................................................................................................... 28 Collectivism vs. individualism ............................................................. 28 Power distance ................................................................................... 28 Gender roles ....................................................................................... 28 Uncertainty avoidance ....................................................................... 28 High vs. low context ........................................................................... 28 Long vs. short term orientation .......................................................... 29 Religious influences on culture ........................................................... 29 Prohibited goods and services ............................................................ 29 BUSINESSS ............................................................................................... 29 Business culture and practices ........................................................... 29 Business etiquette .............................................................................. 30 Relationship building .......................................................................... 30 Bribes ................................................................................................. 31 Timeliness ........................................................................................... 31 OVERALL CULTURAL IMPLICATIONS FOR IMPORTING ............................ 31
Environment .............................................................. 32 PROTECTION POLICIES ............................................................................ 32 ENERGY CONSERVATION ........................................................................ 32 RECYCLING AND WASTE DISPOSAL ......................................................... 33 PACKAGING RESTRICTIONS ..................................................................... 33
U.S. Agencies Supporting Exports .............................. 34 Information Source .................................................... 36
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Country Overview GEOGRAPHIC CHARACTERISTICS Vietnam is located in Southeastern Asia, bordering the Gulf of Tonkin (to the east), South China Sea (to the southeast), and the Gulf of Thailand (to the southwest). Vietnam’s neighboring countries are China to the North, and Laos and Cambodia to the West. Map
(Source: Map of Vietnam. National Online Project, 2011.) Total Area and terrain Vietnam covers a territory of 331,210 sq km (205,804 sq mi), with 21,140 sq km (13,135 sq mi) of water and 310,070 sq km (192,668 sq mi) of land, of which approximately 133,330 sq km (82,847 sq mi) is forest. Extending 1,650 km (1,025 mi) north to south, the country is only 50 km (31 mi) across at its narrowest point. For comparison, it is slightly larger than New Mexico, and similar in size to Ohio, Kentucky, and Tennessee combined. Vietnam’s terrain varies from
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mountainous to coastal delta, with low, flat delta in the south and north. The Central highlands are hilly to mountainous in the far north and northwest.
CLIMATE Vietnam’s climate varies from south to north. It is tropical, and more equable in the south; monsoonal in the north with a hot, rainy season (May to September) and a warm, dry season (October to March); the centre is most subject to typhoons. Vietnam has a minimum temperature of approximately 23.7 ºC (74.6 ºF), and maximum temperature of approximately 32.3 ºC (90.14 ºF). In Vietnam, the rains are highly unpredictable with an annual mean rainfall of 1931 millimeters (76.02 inches). (Background Note: Vietnam) NATURAL RESOURCES Minerals and materials Vietnam has substantial and varied energy, metal and mineral resources, including phosphates, coal, manganese, rare earth elements, bauxite, chromate, offshore oil and gas deposits, timber, and hydropower. The country’s reserves of bauxite, estimated at 8bn tons, are the third‐largest in the world and are largely untouched. There is also an estimated 520 million tons of iron ore. Oil and natural gas Proven oil reserves total approximately 3.4bn barrels, along with natural gas (185bn cu meters reserves) and coal in the Red River Delta (3.8bn tons, mainly anthracite). Vietnam’s energy resources are a major source of export earnings and support domestic industries. Arable land Vietnam’s arable land is scare‐just 0.08 hectares (0.19 acres) per person‐but it is highly productive, so that Vietnam is routinely the world’s second or third largest exporter of rice. (The World Factbook) Water resource The two major rivers of the country are the Red river and the Mekong river in the north and south respectively. The notable smaller rivers in Vietnam are Ka Long O River and Huong river (Perfume River) respectively. Whether large or small, Vietnam’s rivers are a natural resource of the country. The total renewable water is approximately 891.20 (cu km). (Vietnam Rivers) REGIONS/STATES/PROVINCES Vietnam's eight regions shown on the map above are: the Northwestern Region (Tay Bac), the Northeastern Region (Dong Bac), Greater Ha Noi/Red River Delta (Ha Noi Kinh‐Dong Bang Song Hong), North Central Coast (Bac Trung Bo), South Central Coast (Nam Trung Bo), Central Highlands (Tay Nguyen), Southeastern (Dong Nam Bo), and the Southwestern region in the Mekong River Delta (Tay Nam Bo‐Dong Bang Song Cuu Long). (Background Note: Vietnam)
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MAJOR CITIES Capital: Hanoi (pop. 6.472 million) Other cities: Ho Chi Minh City (formerly Saigon; pop. 7.163 million) Haiphong (pop. 1.841 million) Danang (pop. 890,500) Can Tho (pop. 1.189 million). (Background Note: Vietnam) INFRASTRUCTURE Main ports of entry Airports In 2010, Vietnam had 44 airports. Ho Chi Minh City ‐ Tan Son Nhat International Airport (IATA code: SGN), Hanoi ‐ Noi Bai International Airport (IATA code: HAN), and Da Nang ‐ Da Nang International Airport (IATA code: DAD) are the main airports. Other international airports in Vietnam, are Can Tho ‐ Tra Noc International Airport (IATA code: VCA), Da Lat ‐ Lien Khuong International Airport (IATA code: DLI), Hai Phong ‐ Cat Bi International Airport (IATA code: HPH), Hue ‐ Phu Bai International Airport (IATA code: HUI), and Nha Trang ‐ Cam Ranh International Airport (IATA code: CXR). The flagship state‐owned national airline, Vietnam Airlines (VA), has been modernizing and expanding rapidly. Seaports Vietnam has more than 80 sea ports. The main seaports are Haiphong and Quang Ninh in the north, Danang and Qui Nhon in the centre, Ho Chi Minh City in the south‐east and Can Tho in the Mekong Delta. Tariffs at Saigon Port (Ho Chi Minh City) are competitive compared with other ports in the region, such as Hong Kong and Singapore, ports that are able to process larger ships. Vietnamese ports handled 38 million tons of freight in 2007. (Vietnam Data) Land‐entry ports From China – Mong Cai, Quang Ninh province (China side ‐Dong Xing, Quang Xi province), Huu Nghi Quan, Lang Son province (China side ‐You Yi Quan, Quang Xin province), and Lao Cai, Lao Cai province (China side – He Kou, Yun Nan province). From Laos – Nam Can, Nghe An province, Highway 07 (Laos side – Nam Khanh, Xieng Khoang province), Cau Treo, Ha Tinh province, Highway 08 (Laos side – Nam Phao, Bolikhamxai province), and Lao Bao, Quang Tri province, Highway 09 (Laos side – Lao Bao). From Cambodia – Moc Bai in Tay Ninh province (Cambodia side – Bavet), Chau Doc in Chau Doc town, (Cambodia side – Kaam Samnor ); this is the Mekong river crossing. (Vietnam Ports of Entry) Transportation between cities Vietnam has 2347 km (1458 mi) of railway, 222,179 km (138,055 mi) of roadway, and 17,702 km (10,999 mi) of waterway. The network of national roads has been improving; 84% are now paved, up from 61% in 1997. Rural roads vary widely in quality, but 76% of the population lives
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within 2 km (1.24 mi) of an all‐weather road, a high proportion relative to other developing countries. Two‐thirds of all vehicular trips in Hanoi and Ho Chi Minh City are made by motorcycle. There are over 20 million motorcycles on the roads in Vietnam, equivalent to one for every household. The demand for cars is still modest, but has more than tripled since 2001. Vietnamese roads are fairly dangerous, with an average of 33 fatalities per day, equivalent to almost 12,000 annually. (The World Factbook) Telecommunications Vietnam’s telecommunications industry has been growing rapidly (see Table 1). By August 2008, there were 48 million mobile‐phone subscribers, representing a penetration rate of 56% of Vietnam’s population. The three leading providers,’ Viettel, MobiFone and VinaPhone, account for 94% of the market; all three are state‐owned, but are due to be at least partly privatized over the coming year. In August 2008, there were 10.8 million fixed lines, equivalent to a density of 13 lines per 100 households. Table 1: Telecoms industry statistics 2003 2004 2005 2006 2007 Telecoms statistics Telephone main lines (m) 3.9 4.6 6.5 8.2 9.8 Telephone main lines (per 100 population) 4.8 5.6 7.7 9.6 11.4 Mobile subscribers (m) 3.4 5.7 9.6 19.3 35.7 Mobile subscribers (per 100 population) 4.2 6.8 11.5 22.8 41.5 In 2010, Vietnam had 129,318 internet hosts. Internet services, which became available in mid‐ 1998 in Hanoi and Ho Chi Minh City, are becoming more affordable, and there were 6.2 million subscribers by August 2008. Approximately 21 million people use the Internet regularly, a penetration rate of over 24%. Internet access, traditionally slow because of government firewalls, has speeded up with the arrival of asymmetric digital subscriber line (ADSL) technology. Most people wishing to access the Internet do so through Internet cafes, which are common in urban areas. A government firewall blocks access to pornographic and politically sensitive sites. (Country Analysis Report: Vietnam, Country Profile‐Vietnam) Foreign trade zones Vietnam has 234 industrial zones (IZs) and export processing zones (EPZs), most of which are located in Vietnam’s key economic zones. Projects in IZs and EPZs often enjoy investment incentives by sectors and geographic areas. Enterprises that operate inside these zones pay no duties when importing raw materials if their end products are exported. In 2009 there were 3,325 foreign invested enterprises licensed in these zones with a total registered capital of $39.3 billion. IZs and EPZs employ approximately 1.1 million people. (Datamonitor) Market structure and distribution channels Vietnam’s distribution system is a fragmented patchwork of state‐owned import‐export companies, private and state‐owned wholesalers, independent Vietnamese agents and distributors, retail outlets, and street stalls. The formal distribution channels often overlap parallel channels for smuggled and black market goods.
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Non‐Vietnamese entities are barred from general participation in Vietnam's distribution system, although foreign investors have the right to sell, market, and distribute locally the goods that they manufacture. Most local firms holding import licenses are state‐owned enterprises (SOE's). For many products, nationwide distribution requires the establishment of separate networks in the north, the south, and the central regions. Lack of physical infrastructure links among the major regions, cultural and economic differences across the nation, and the fact that today's Vietnam was divided during the period when the modern economy was established, all make it difficult to achieve “one‐stop” distribution in many industries. Customs warehouse keepers can provide transportation services and act as distributors for the goods imported. Additional services relating to customs declaration, appraisal, insurance, reprocessing or packaging require the approval of the provincial customs office. In practice the level of service needs improvement. The time involved for clearance and delivery can be lengthy and unpredictable. (How to Market Your Products/Services)
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Economy GDP
Growth trends Vietnam’s gross domestic product (GDP) is $92.6 billion (2009); $70 billion (through third quarter 2010). At over 8.7%, GDP growth in 2007 was the highest since the Asian Financial Crisis of the late 1990s. Increases in exports and petroleum price hikes were mainly responsible for this robust performance. In 2006 the economy grew at 8.2%; however growth decreased to 6.2% in 2008. Then the global economic slowdown lowered the GDP growth rate to 5% in 2009 however Datamonitor estimates indicate that GDP growth is expected to recover to 5.9% in 2010. (Datamonitor) Industry sector GDP of Vietnam comprises 3 sectors: (see Figure 1). Agricultural products are paddy rice, coffee, rubber, cotton, tea, pepper, soybeans, cashews, cane sugar, peanuts, bananas, poultry, fish, and seafood. Industrial principal sectors are mining, quarrying, manufacturing, electricity, gas, water supply, cement, phosphate, chemical fertilizer, glass, tires, oil, paper and steel. Services principal sectors are tourism, wholesale and retail insurance, repair of vehicles and personal goods, hotel and restaurant, transport and storage, and telecommunications.
Figure 1:
GDP composition by sectors in Vietnam 2008
19.0% 38.4%
42.6%
Agriculture
Industry
Services
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MAJOR IMPORTS AND EXPORTS Imports Vietnam imports mainly machinery and equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement and motorcycles. A breakdown of import partners is: China (23.08%), Singapore (14.54%), Japan (11.69%), South Korea (10.98%) and Thailand (7.55%). From 2008 to 2009, imports have decreased 4 billion from 89 billion to 85 billion. Exports Vietnam export products are: crude oil, marine products, rice, coffee, rubber, tea, garments and shoes. A breakdown of export partners is: the U.S. (22.97%) (according to nationmaster, Vietnam ranked #1 in the export of cashews to the U.S.), Japan (15.27%), China (8.81%), Singapore (5.11%) and Malaysia (3.91%). From 2008 to 2009, exports have decreased 2 billion from 69 billion to 67 billion. (WISERTrade) Exports from Washington State to Vietnam In 2010, Washington State’s (WA) exports to Vietnam totaled approximately $224.12 million, representing a 114% growth from the previous year. The top exports from WA to Vietnam are: food industry residues, waste, and animal feed at $93.08 million; iron and steel at $37.98 million; wood and articles of wood at $12.97 million; edible fruit, nuts, and citrus fruit or melon peel at $12.57 million; aircraft, spacecraft, and parts thereof at $10.09 million; industrial machinery, including computers, at $7.62 million; raw hides and skins (no fur skins) and leather at $6.61 million; and cereals at $5.83 million. (WISERTrade) BALANCE OF TRADE Vietnam has consistently witnessed a current account deficit during the years 2004–08.The current account deficit increased from $0.3 billion in 2006 to approximately $7 billion in 2007, or from 0.5% to 10.3% as a percentage of GDP. The current account deficit increased to approximately $12.7 billion in 2008, which is approximately 15.5% of Vietnam’s GDP. Vietnam’s external debt increased from $25.89 billion as of December 31, 2008 to $31 billion as of December 31, 2009. (Datamonitor) ECONOMIC STRUCTURE Vietnam’s economic structure is classified into the following sectors: Primary Sector: Vietnam’s primary sector is agriculture. From 1994 to 2004, agriculture and forestry grew at a yearly rate of 4.1% and contributed 21.8% to the GDP in 2004. The agricultural output declined but employment in this sector remained comparatively higher than in the industry and service sectors. In 2005, 60% of the labor force was concentrated in agriculture, forestry and fishing; although agricultural produce was responsible for only 30% of exports. The reduction of a government monopoly on rice exports transformed Vietnam into one of the world’s largest rice exporters.
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Secondary Sector: Vietnam’s secondary sector is industry. Japan has been aiding Vietnam to develop its auxiliary industries. From 2008 until 2010, Japan has given approximately U.S. $180 million as aid to finance small and medium enterprises (SME). Vietnam has already built supporting industry zones in several places including the Que Vo district and the Bac Ninh province. There is a high prospect of developing supporting industries, such as garment, textile, leather, electronics, IT, automobile and engineering. Priority is also being given to livestock and aquaculture industries. The latest technology and business solutions are being employed to serve the increasing domestic and export demands. Tertiary Sector: Vietnam’s tertiary sector is service. At 36‐38% of its GDP, the proportion for the service sector in Vietnam is not high compared to more developed economies where 45% is common. Other services such as science research, style design, marketing or market research are only in the beginning stages of development. At the current growth rate, for 2010 the service sector will create just 0.5 million jobs. The service sector in Vietnam has not created a good environment for the development of the economy due to the high service costs in telecommunication, ports, and transportation compare to these average costs in other countries in the region. Vietnam is 30‐50% higher in telecommunication costs and 40‐50% higher in maritime‐shipping costs. (Vietnam Economic Structure, Vietnam Ministry of foreign affairs) ECONOMIC POLICY Vietnam committed to eliminating prohibited export subsidies on entering the WTO. In 2007, Vietnam became the 150th member of the WTO and upon its admission promised to fully comply with WTO agreements on Customs Valuation, Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary Measures (SPS). As part of AFTA, ASEAN members1 are committed to making this region a competitive trading area, consequently Vietnam and its ASEAN country partners have signed a trade agreement. In addition, the U.S. and Vietnam signed a Bilateral Trade Agreement (BTA) in 2000, which entered into force in 2001. For more information on the BTA please see: www.buyU.S.a.gov/vietnam/en/U.S.?_vietnam_bta.html Currently, Vietnam has 55 bilateral investment agreements with the following countries and territories: Algeria, Argentina, Armenia, Australia, Austria, Belarus, Belgium and Luxembourg, Bulgaria, Burma, Chile, China, Cuba, Czech Republic, Cambodia, Denmark, Egypt, Finland, France, Germany, Hungary, Iceland, India, Indonesia, Italy, Japan, Kuwait, Laos, Latvia, Lithuania, Malaysia, Mongolia, Mozambique, The Netherlands, North Korea, The Philippines, Poland, Qatar, Romania, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Thailand, Ukraine, United Kingdom, Uzbekistan, United Arab Emirates and Venezuela. (Political Risk Yearbook: Vietnam Country Report) CURRENT ECONOMIC SITUATION The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004. Economic growth in Vietnam is expected to average 7.2% a year for 2011‐15, underpinned by strong growth in consumption, investment and exports. Private consumption growth will be driven by an improvement in the labor market and a consequent increase in real wages. Vietnamese policymakers seem well aware of the 1
ASEAN members are Brunei, the Philippines, Indonesia, Laos, Myanmar, Malaysia, Singapore, Thailand, Cambodia, and Vietnam. http://www.asean.org/
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current economic situation, this week disclosing revised expectations for growth and inflation for 2011. The government now expects GDP growth to come in at 6.5% (compared with the approved target of 7‐7.5%), while the inflation target was raised to 11.75% (compared with an initial goal of 7%). Despite these revisions, Vietnamese policymakers should be applauded for being realistic. Given their recent reiteration that tackling inflation takes priority, it is to be expected that further tightening actions on both fiscal and monetary fronts will be implemented until inflation shows a meaningful slowdown, which we expect will take place no earlier than Q4. (Economic outlook, Economics‐Data Reactions) TAXATION Income tax Vietnam has differential tax rates from 0% to 35% and there are different rates for Vietnamese employees and foreigners. Non‐residents are subject to a flat 20% tax on their income from Vietnam. From January 1 2009, a personal deduction worth Vietnam Dong (VND) 4 million (US $195) per month is granted to each taxpayer and VND 1.6 million (US $91) per month is granted to each dependent. This initiative by the Vietnamese government will reduce the taxable income giving more disposable income to citizens. The applicable Personal Income Tax (PIT) rates are progressive and are set out below in Table 2. Table 2: Personal Income Tax (PIT) breakdown
Monthly Income (in U.S. Dollars) Up to $312 From $312 to $625 From $625 to $1,125 From $1,125 to $2,000 From $2,000 to $3,250 From $3,250 to $5,000 Over $5,000
PIT Rate in % 5 10 15 20 25 30 35
Corporate tax The corporate income tax rate has been lowered from 28% to 25% as of January 1, 2009, with an additional 30% reduction in the corporate income tax bill for an eligible SME. Capital gains tax Foreign companies’ gains on the transfer of interest in a foreign‐invested or Vietnamese enterprise (capital assignment) are subject to a flat tax of 28%. Withholding tax Vietnam does not levy withholding tax on dividends paid to residents or non‐residents. A 10% withholding tax is imposed on interest payments on offshore loans unless the rate is reduced under an applicable tax treaty. VAT Value‐added tax (VAT) is applied at three different rates: a standard rate of 10% and reduced rates of 0% and 5%. The 0% rate applies to exports of software and services to firms operating in the EPZ .The 10% rate applies to 16 specific categories of goods and services.
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Corporate governance Most enterprises in Vietnam have inspection committees. According to the Enterprise Law 1999, the inspection committee is responsible for overseeing all operations and business activities of the company on behalf of the shareholders. The law also specifies that an inspection committee is required for any company that has more than 11 shareholders. In practice, however, many inspection committees in Vietnam lack adequate authority to perform their roles to the full extent. The members of an inspection committee are often subordinate to the company's senior management, and therefore lack sufficient confidence or authority to identify and challenge any malpractice that they see occurring. Vietnam has weak internal corporate controls that guard against related party transactions that could be detrimental to the firm and its shareholders; and there exists the potential for conflicts of interest for management. The majority of firms surveyed had no written guidelines on either of these issues and therefore these are susceptible to abuse. (Political Risk Yearbook: Vietnam Country Report) BARRIERS TO TRADE AND IMPORTING Tariffs Imports into Vietnam currently attract an average tariff of approximately 18%; high by global or regional standards. The Government of Vietnam is reducing tariffs in preparation for meeting its goals under AFTA. Vietnam has made significant progress in eliminating non‐tariff barriers under the U.S.‐BTA. The U.S. negotiated the removal of additional non‐tariff barriers when Vietnam joined the WTO. As a result, Vietnam has eliminated and has committed to not reintroducing any quantitative restrictions on imports or impose other non‐tariff measures, such as quotas, bans, permits, prior authorization requirements, licensing requirements, or other restrictions having the same effect, which would not be consistent with the WTO Agreement. Vietnam’s tariff system suffers from a lack of transparency. The National Assembly establishes tariff bands for each product. The government is free to adjust applied tariffs within the bands and frequently does so. There is no published tariff schedule, and it is often difficult to determine when and how tariffs have changed. In addition to formal tariffs, Vietnam applies “price differential surcharges” on some products, although there is no fixed list of goods subject to these surcharges. Non‐tariff Quantitative restrictions and non‐automatic licensing Salt, tobacco, eggs, and sugar are under a tariff‐rate quota restriction, according to the 2006 Commercial Law. Separate regulations apply to exports of rice, imports of petroleum and fuel, and imports of cigarettes and cigars. Special authority regulation The importation of certain categories of goods is limited to state‐trading enterprises (see Trading Rights below), and others are subject to automatic or non‐automatic import licensing. Since August 2008, Vietnam has subjected a number of imports to an automatic licensing process that can sometimes cause bureaucratic delays to importation. The list includes the following items: 1) essential oils and resinoids; perfumery, cosmetic or toilet preparations; 2) plastics and articles thereof; 3) ceramic products; 4) glass and glassware; 5) articles of iron or steel; 6) aluminum
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and articles thereof; 7)nuclear reactors, boilers, machinery and mechanical appliances, and parts thereof; 8) electrical machinery and equipment, sound recorders, and accessories of such articles; 9) passenger transportation means, their parts and accessories; and 10) furniture. Foreign exchange system Foreign investors can purchase foreign currency at authorized banks to finance current and capital transactions as well as other permitted transactions. Residents and non‐residents can open and maintain foreign exchange accounts, and foreign investors are allowed to transfer abroad profits and other legal income. Vietnam does not require documenting the discharge of tax obligations when purchasing, remitting or carrying foreign currency overseas in the fulfillment of currency transactions. Foreign investors and foreign invested businesses are required to use Vietnamese currency (Dong) in most regular business activities and portfolio investments, except where specifically authorized, such as in tourism‐related businesses like hotels and airlines. Customs Vietnam implemented the WTO Customs Valuation Agreement through the 2006 Customs Law, and through related implementation regulations. The Customs Law makes the use of transaction value applicable to all imports and provides for a full application of the computed value and deductive methods. Subsequent regulations have been issued relating to customs procedures and inspection, post‐clearance audits, and valuation of imported goods. These changes have significantly improved customs valuation in Vietnam. However, the application of the WTO Customs Valuation Agreement principles has not been uniform, and importers complain about the low level of automation of Vietnam’s customs system. The U.S. will continue to work with Vietnam to monitor implementation of the WTO Customs Valuation Agreement as part of the ongoing Trade and Investment Framework Agreement (TIFA) dialogue. Trading rights Import rights are granted for all products except for a limited number reserved for state trading enterprises and those subject to a phase‐in period for importation by foreign firms. Vietnam has reserved the right of importation for state trading entities for the following categories: cigars and cigarettes; crude oil; newspapers, journals and periodicals; and recorded media for sound or pictures (with certain exclusions). Starting in January 2009, foreign firms and individuals are now allowed to import pharmaceuticals; motion picture films; unused postage, printed cards and calendars; certain printed matter; machinery for typesetting and print machinery (excluding ink‐jet printers); and certain transmission apparatus for radio‐telephony (excluding mobile phones and consumer cameras). Foreign individuals and enterprises will be given the right to export rice no later than January 1, 2011. The U.S. will closely monitor implementation of these commitments. (Political Risk Yearbook: Vietnam Country Report)
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Ease of market entry Although the U.S. is the top exporter to Vietnam, the ease of doing business with Vietnam is not high. Vietnam is ranked 78rd out of 181 countries by the World Bank in the category “ease of doing business”. This ranking takes into account several factors including: market entry, regulatory environment, trade obstacles, and protection of investment. (Global Edge) ECONOMIC ZONES Vietnam now has nine EZs (See Table 3) with a total area of 342,766 hectares (846,933 acres). These were established in 2003. Chu Lai EZ in Quang Nam province was the first EZ in Vietnam. Six of the EZs are concentrated in the central part of Vietnam and two are situated in the Southern part of Vietnam (Phu Quoc Island and Nam An Thoi Islands EZ). Most of the Industry Parks (IPs) and EPZs are located in key economic zones of Vietnam, including the North key economic zone, Central key economic zone, and South key economic zone. Table 3: List of Vietnam EZs
No. Name of EZ 1 2 3 4 5 6 7 8 9
Chu Lai EZ Dung Quat EZ Nhon Hoi EZ Chan May‐ Lang Co EZ Vung Ang EZ Nghi Son EZ Van Phong EZ Phu Quoc Island and Nam An Thoi Islands EZ Dong Nam Nghe An EZ
Total Area
Location (province) Area (hectares/acres) Quang Nam Quang Ngai Binh Dinh Thua Thien Hue Ha Tinh Thanh Hoa Khanh Hoa Kien Giang
27,040/66,817 10,300/25,451 12,000/29,652 27,108/66985 22,781/56,293 18,611/45,988 150,000/370,658 56,100/138,626
Nghe An
18,826/46,520 342,766/846,933
Economic zones are different from normal IZs, because they are more modern and more international. EZs are not only economic entities, but also administration institutions. At present, the Ministries of Planning and Investment, Industry and Trade set regulations and policies for these zones. Export processing zones Currently, Vietnam has approximately 74 EPZs which are defined as an industrial park which specializes in the manufacture of products for exporting, and the provision of services for the manufacture of export products and export activities, which has defined geographical boundaries and is established in accordance with regulations of the Government. The very‐first EPZ, Tan Thuan EPZ, was established in Ho Chi Minh City in 1991. (Guidebook) LABOR FORCE Vietnam’s large, well educated and inexpensive labor force remains one of the country’s chief advantages for foreign investors. In 2009, the labor force totaled 47.7 million people from a population of 87 million. Vietnam’s labor force percentage by sector is as follows: agriculture
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53.9%; service 25.8%; and industry 20.3%. In 2012, the workforce consisted of 24.6 million men and 23.1 million women, mostly young people between the ages of 15 and 24. Vietnam’s labor force grew annually by an average of 1.24 million during time period 2005‐2009. This represents a growth rate of approximately 2.9 percent per year, or approximately twice the rate of growth of the total population. (Vietnam’s Labor Market Update) Labor practices and restrictions Foreign investors can hire and recruit staff directly, but only after exhausting a 15‐day period using a state‐run employment and recruitment bureau. In practice, many employers omit this step and hire their personnel directly without going through the bureau. All personnel must be registered with the Government of Vietnam (GVN). The 2007 Labor Law introduced an extensive process of mediation and arbitration to deal with labor disputes. In practice, these procedures are often not used. According to the Labor Law, workers cannot go on strike until mediation procedures have been exhausted. New sections of the Law also require that at least 50 percent of the workers in enterprises with fewer than 300 workers must vote to strike and 75 percent of the workers in enterprises with 300 or more workers. During the first 11 months of 2009, there were 292 labor strikes, compared to more than 700 strikes in 2008. In 2009, 70 percent of the strikes occurred in Ho Chi Minh City, Binh Duong, and Dong Nai. The Government of Vietnam rarely takes action against “illegal” strikers. Employers are required by law to establish labor unions within six months of establishing a company, a requirement many employers fail to meet. All labor unions must be members of the Vietnam General Confederation of Labor; a state‐run organization under the Communist Party‐affiliated Fatherland Front that labor experts note has particularly weak capacity at the provincial and enterprise level. (2011 Investment Climate Statement‐Vietnam) Unemployment rate (%) Vietnam has consistently maintained low unemployment levels in the country. The global economic crisis affected the country’s GDP and has increased unemployment from 2.3% in 2007 to 4.7% in 2008. However, the country’s unemployment went up to 6.5% in 2009 according to Datamonitor. Vietnam’s increased unemployment rate is a cause for concern in the medium term. (Vietnam’s Labor Market Update) Productivity Labor productivity, defined as GDP per worker, has been increasing in Vietnam at a rate of approximately 5 percent per year and stood at VND 34.7 million (US $1,830) per worker in 2009. Although the growth in Vietnam’s labor productivity is relatively high compared with other ASEAN economies, productivity is still low because Vietnam started from a very low base. As of 2008, labor productivity was only approximately half of China’s level, and approximately one ninth of Singapore’s. So Vietnam still has a very large gap to close. The low level of productivity is therefore a concern for Vietnam’s future competitiveness in the context of enhanced market integration and the process of moving up the value chain in regional and global production systems. (Vietnam’s Labor Market Update)
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Wage structure The Government of Vietnam sets minimum wages depending on the ownership structure and location of the company. Beginning in January 1 2010, state‐run and domestic private workers’ minimum monthly wages increased (see Table 4) in four different geographic zones2. Minimum wages for workers of foreign direct investment enterprises also increased in four different zones (see Table 5). By 2012, all businesses, foreign and domestic, will pay a single nationwide minimum wage. (2011 Investment Climate Statement‐Vietnam) Table 4: State‐run and domestic private workers’ minimum monthly wages/increase
Zone Minimum wages/per month increase to 1 2 3 4
VND 980,000 (US $54.5) VND 880,000 (US $48.8) VND 810,000 (US $45) VND 730,000 (US $40.5)
Table 5: Foreign direct investment enterprises workers’ minimum wages/per month increase
Zone Minimum wages/per month increase to 1 2 3 4
VND 1.34 million (US $74.4) VND 1.19 million (US $66.1) VND 1.04 million (US $57.7) VND 1.0 million (US $55.5)
Below the poverty line (%) According to indexmundi.com, Vietnam’s population below the poverty line was 10.6% in 2010. It has been decreasing over the years (see Table 6). Table 6: Vietnam’s population below the poverty line 2009‐2011
Year
Population below poverty line
Rank
Percent Change Date of Information
2009
14.8
117
2007 est.
2010
12.3
126
‐16.89%
2009 est.
2011
10.6
124
‐13.82%
2010 est.
PROFIT REPATRIATION On 18 November 2010, Vietnam tightened profit repatriation rules. The Ministry of Finance issued Circular No. 186/2010/TT‐BTC (Circular 186), providing guidance for profit repatriation by foreign investors. The following are the most important changes: • Circular 186 only applies to the remittance of profits earned from direct investment and does not cover indirect investment activities in Vietnam; 2
For more information about the four geographic zones, look at: http://en.baomoi.com/Info/Vietnam‐raises‐minimum‐salary‐ requirements‐for‐labourers/3/79242.epi
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•
Circular 186 only allows the repatriation of profits on an annual basis, or upon termination of investment in Vietnam. To complete the repatriation of profits, audited financial statements and Corporate Income Tax finalization returns for the year of the Vietnamese entity where the investment is made, must be submitted to the local tax office; • The Circular is silent as to whether provisional profit remittance during the year (e.g. quarterly or semi‐annual) is still possible; and • No profit remittance abroad is permitted if the Vietnamese entity where the investment is made is in an accumulated loss position after loss offset. This requirement was provided for in various tax rulings and imposed by many local tax offices. With the issuance of Circular 186, this requirement becomes official. In terms of documentation, at least seven working days prior to the profit remittance, a “Notice” of profit remittance abroad must be sent to the tax office. It is not clear at this stage whether such a Notice must be approved by the tax authority before the remittance can take place. Circular 186 comes into effect after 45 (forty five) days from the date of signing, i.e. from 2 January 2011.With the issuance of Circular 186, the repatriation of profits now requires planning, both in terms of timing for profit remittance and profit and loss accumulation of the Vietnamese investment. (Tax Alert December 2010) CURRENCY Vietnam’s official currency is the Dong (VND). Exchange rate and exchangeability The State Bank of Vietnam (the central bank) has adjusted the Dong’s peg to the U.S. dollar from VND 18,932: US $1 to VND 20,693: US $1, and has also tightened monetary policy by increasing two key interest rates. Rate of inflation Maintaining stability in the exchange rate between the Dong and the U.S. dollar will remain a challenge for policymakers. In the face of strong downward pressure on the Dong, the State Bank of Vietnam (the central bank) has devalued the currency on four occasions since November 2009, most recently in February 2011. The devaluations have resulted in a cumulative drop of almost 14% in the currency’s value against the U.S. dollar. Further, such measures are likely to be necessary in the coming years as the Dong will remain under pressure until there are clear signs that the trade deficit is narrowing and inflationary pressures are receding. Moreover, Vietnam’s lack of foreign‐exchange reserves means that the central bank will not be able to stem any downward pressure by intervening in the currency markets. (Country Profile‐Vietnam)
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Political POLITICAL SYSTEM(S) AND INSTITUTIONS Vietnam is a communist state. The most important powers within the Vietnamese Government‐ in addition to the Communist Party of Vietnam (CPV)‐are the executive agencies created by the 1992 constitution: the offices of the president and the prime minister. The Communist Party remains the dominant political force and sole political party. Other important forces, the government, the army and the bureaucracy, are subordinate to the CPV. The party secretariat issues directives to party members and plays an important role in directing government policy. The party is entrenched in state institutions and mass organizations that are grouped under the Vietnam Fatherland Front, which exists to mobilize support for the party’s goals and to ensure the Communist Party of Vietnam’s subordination to the party line. (Background Note: Vietnam) MAIN POLITICAL PARTIES/FIGURES The Socialist Republic of Vietnam (SRV) is a one‐party state run by a collective leadership comprising the Communist Party general secretary, Nong Duc Manh, the prime minister, Nguyen Tan Dung, and the president, Nguyen Minh Triet. RECENT POLITICAL DEVELOPMENTS On January 18, 2011, the 11th National Congress of the Communist Party of Vietnam elected 175 official members and 25 alternate members to CPV Central Committee (CPVCC) for the 11th tenure. Of particular interest are planned changes in the method of choosing top leaders of the party with efforts that are aimed at increasing the accountability of top officials, an issue of growing concern following some high‐profile corruption cases. Reformist elements in the party are also pushing for enhanced influence for the country’s burgeoning private sector by allowing business owners to join the party. (11th Party Congress announces CPVCC members) POLITICAL RISK Political stability, historical perspectives Vietnam’s human rights record is gradually improving. Vietnam’s government monitors and controls all facets of political, social, economic and religious life. Satellite television and the internet are now available, although the latter is monitored. Religious and media freedoms are closely controlled, and political pluralism has yet to be accepted. Political stability, current assessment There is strong asymmetry between the Vietnamese markets that are being opened up and the country's centrally controlled political system. Vietnam remains a communist one‐party state, ruled by President Nguyen Minh Triet, Prime Minister Nguyen Tan Dung and a close circle of others within the CPV. The CPV tolerates little criticism and restricts the basic civil and political
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freedoms of its citizens. Thus., Vietnam's transition has proceeded at a rapid pace in the economic realm, having even joined the WTO in January 2007, but is proceeding much more slowly in the political realm. MILITARY CAPABILITY Vietnam maintains an active military force. In addition to a mainly conscript army of 412,000 (two years of military service is, in principle, required of all men), there is a navy of 13,000, an air and air defense force of 30,000, a border defense corps of 40,000, and reserves of approximately 5 million in the urban People’s Self‐defense Force and the rural People’s Militia. Government expenditure on the armed forces is believed to amount to approximately2.5% of GDP, although the actual numbers are a state secret. Vietnam’s armed forces personnel numbers 484,400 which is ranked 9th/149 countries, while army personnel numbers 412,000 which is ranked 7th/149 countries. (Background Note: Vietnam, nastionmaster) RELATIONSHIP WITH THE U.S. On July 11 1995, President Bill Clinton announced the formal normalization of diplomatic relations with the Socialist Republic of Vietnam. Subsequent to President Clinton's normalization announcement, in August 1995, both nations upgraded their Liaison Offices that opened in January 1995, to embassy status. U.S. relations with Vietnam have become increasingly cooperative and broad‐based in the years since political normalization. A series of bilateral summits have helped drive the improvement of ties, including President George W. Bush’s visit to Hanoi in November 2006, President Triet's visit to Washington in June 2007, and Prime Minister Dung's visits to Washington in June 2008 and April 2010. The two countries hold an annual dialogue on human rights, which resumed in 2006 after a 2‐year hiatus. Vietnam and the U.S. signed a Bilateral Trade Agreement in July 2000, which went into force in December 2001. In 2003, the two countries signed a Counternarcotics Letter of Agreement (amended in 2006), a Civil Aviation Agreement, and a textile agreement. In January 2007, the U.S. Congress approved Permanent Normal Trade Relations (PNTR) for Vietnam. In October 2008, the U.S. and Vietnam inaugurated annual political‐military talks and policy planning talks to consult on regional security and strategic issues. In August 2010, the U.S. Department of Defense and Vietnam’s Ministry of Defense held the first round of annual high‐level defense talks, known as the Defense Policy Dialogue. Bilateral and regional diplomatic engagement has expanded at ASEAN, which Vietnam chaired in 2010, and continues through Asia‐Pacific Economic Cooperation (APEC). Relations with the U.S. have improved over the past decade. Beginning in 2001, the U.S. accorded normal trade relations (NTR) status to Vietnam, allowing it access to the U.S. market at the low tariff rates applied to most countries, and permanent NTR status was granted in January 2007. Vietnam’s NTR status is no longer subject to an annual renewal. (Background Note: Vietnam)
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Legal CONSTITUTION Vietnam’s current constitution was adopted on 15 April 1992, reaffirming the central role of the Communist Party of Vietnam (CPV) in politics and society, and outlining government reorganization and increased economic freedom. (The World Factbook) JUDICIAL STRUCTURE The court hierarchy of Vietnam has three tiers: at the top is the Supreme Court, next are the Provincial Courts, and finally there are District Courts. The highest court in Vietnam is the Supreme People's Court, whose members are appointed for five‐year terms by the National Assembly on the recommendation of the president. In addition, there are local people's courts at each administrative level; military courts; and "special courts" established by the National Assembly in certain cases. Law enforcement is handled by the People's Organs of Control which act as watchdogs for the state: they monitor the performance of government agencies, maintain vast powers of surveillance, and act as prosecutors before the People's Courts. The president, or procurator‐general, of this body is appointed by the National Assembly. Although the constitution provides for the independence of judges and jurors, there is close control of the entire governmental system by the CPV and a judicial selection process which favors appointment of jurists supportive of the VCP. Prison sentences are frequently imposed through administrative procedures without the protections of procedural due process or judicial review. Trials are generally open to the public. Defendants have the right to be present at their trial, to have an attorney, and to cross‐examine witnesses. The legal system is based on communist legal theory and French civil law. In the cities, rising crime, including violent robbery, and extortion plus endemic corruption and smuggling provide challenges for under‐funded law enforcement agencies and the criminal justice system. (Vietnam ‐ Judicial System) Influential religion/culture practice Popular religions, these are Buddhism and Roman Catholicism, have also been seen as a political threat. Most Vietnamese are nominally Buddhists, but the government now tightly controls their community. The Buddhists could regain some influence, possibly by organizing a political party. International donors, who pledged $2.4 billion for development support during 2002, in order to induce economic reform, also expressed concern over limitations on freedom of expression and religion. For its part, the Vietnamese government denied that there was such a problem. Nonetheless, donors indicated that making progress on such issues will directly affect the volume of aid. Despite its small size of approximately 2.5 million adherents, located mostly in the south, the Roman Catholic community could develop into a political force. (Background Note: Vietnam, Politics‐ Country Profile, Vietnam) TRADE AGREEMENT Please see discussion under Economy, economic policy section, on page 13.
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INTELLECTUAL PROPERTY RIGHT, PATENT, COPYRIGHT, TRADEMARK, AND SECRET PROTECTION Based on the successful completion of the bilateral trade agreement with the U.S., followed by the gaining of WTO membership, the authorities of Vietnam have updated Intellectual Property Right (IPR) regulations to comply with the Trade Related Intellectual Property Rights (TRIPS) agreement, adding to Vietnam’s potential for attracting further investments. New laws on investments and enterprises were implemented during 2006 in an attempt to synchronize the investment scenario for domestic and foreign investors. However, Vietnam still has to deal with a huge challenge because of high rates of piracy, which could deter investment in Research and Development intensive areas. The International Intellectual Property Alliance3 (IIPA) has put Vietnam on its watch list for allowing IPR violations that cause huge losses to companies. According to IIPA estimates, business software losses came to $123m in 2008 up from $120m in 2007. The Business Software Alliance (BSA) and International Data Corporation (IDC) Global Software Piracy Study covers the pirated software that runs on personal computers (PC), including desktops, laptops, and ultra‐portables. (Country Profile, Vietnam)
3
International Intellectual Property Alliance (“IIPA”) is a private sector coalition formed in 1984 of trade associations representing U.S. copyright‐based industries in bilateral and multilateral efforts. Its function is to improve international protection and enforcement of copyrighted materials and open up foreign markets closed by piracy and other market access barriers (http://definitions.U.S.legal.com).
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Demographics Characteristics
POPULATION DEMOGRAPHICS
Size and growth According to the CIA world fact book, as of 2011 Vietnam’s population was recorded at 90.55 million persons, which ranked 14/237 countries in the world. The Vietnamese population is growing at 1.2% annually. By 2015, the population is projected to reach 93.68 million persons. The implementation of Vietnam’s two‐child policy introduced in the 1960s was eliminated in 2003, although the one‐party state's rulers encouraged couples to have small families so they could adequately care for them. Facing a new baby boom, communist Vietnam is planning to reintroduce the policy to prohibit couples from having more than two children. (Nationmaster)
Ethnic groups and societal make‐up Vietnam is a multi‐nationality country with 54 ethnic groups. The majority ethnic group, which is Vietnamese (Kinh), comprises approximately 73.594 million, or 85.7% of the Vietnamese population. Other significant ethnic groups are: Tay (1.89%), Thai (1.8%), Muong (1.47%), Khmer (1.46%), Chinese (0.95%), Nung (1.12%), and Hmong (1.24%). Age distribution According to 2010 estimates, approximately 26.1% (male 12,069,408/female 11,033,738) of the Vietnamese population was between the ages of 0 and 14 years ; 68.3% (male 30,149,986/female 30,392,043)of the population was between 15 and 64 years; and citizens over the age of 65 constituted only 5.6% (male 1,892,505/female 3,039,078) of the population. According to CIA World Factbook estimates, Vietnam had a median age of 27.4 years in 2010, which means that 50 percent of the population was younger than 27.4 years old. The infant mortality rate in the country is approximately 21.57 deaths per 1000 live births. Gender distribution As of 2010, Vietnam’s male population was approximately 44,731,398.66 or 49.4% of the total population, while its female population was approximately 45,817,991.34 or 50.6% of the population. The gender ratio in Vietnam is approximately 1.02 females for every male. (Nationmaster) Urban vs. rural distribution According to the census in 2009, there were over 25.4 million people living in the urban areas, accounting for 29.6 percent of the population, and 60.4 million people (or 70.4 percent) in the countryside. During the period 1999‐2009, the urban population grew 3.4 percent annually while population growth was only 0.4 percent for the countryside. Urban areas such as Ho Chi Minh City, Hanoi, Da Nang, and the Central Highlands have attracted the most migrants. Furthermore, a steady stream of migrants continues to move from the northern part of the country to the southern region. (Nationmaster)
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Health As of 2009, life expectancy in Vietnam was 74.92 years for women and 69.72 years for men. The average life expectancy of the total population is approximately 72.18 years. In 2001, Vietnam spent approximately 5.1% of its GDP on healthcare (both public and private expenditures), which is twice as much as its neighbor Laos. In Vietnam, only approximately one fourth of health spending comes from the public sector, with the rest coming from private sources. Compared to Vietnam, only Cambodia has a lower share of public/private healthcare spending in this region. Despite higher operating costs in remote areas, most healthcare spending in these places has benefited richer households, according to an IMF report. The low percentage of healthcare spending by the government is a cause for concern in the country. Given Vietnam witnessed more than 7% GDP growth since 2002, the rich have been able to bear out‐of‐pocket healthcare expenditures, while the poor continue to lack access to medical services. (Datamonitor) Major religion(s) Approximately 80.8% of Vietnam’s population is atheist. The top religion in Vietnam is Buddhism with a following of 9.3% of the population, next is Roman Catholicism at 6.7%, followed by other religions such as Hoa Hao 1.5%, Cao Dai 1.1%, Protestantism 0.5%, and Islam 0.1%. However Vietnam has continued to make progress on expanding religious freedom. In 2005, Vietnam passed comprehensive religious freedom legislation, outlawing forced renunciations and permitting the official recognition of new denominations. However, the government continues to deny Vietnamese citizens the right to practice their religion therefore there is still a problem for religious freedom in Vietnam. (Word bank‐Vietnam, Political Risk Yearbook: Vietnam Country Report)
Income distribution (per capita) Vietnam's GDP per capita income (in real terms) has increased at an average annual rate of 5.9% during the period 2001–06. But income inequality remains high; the country's Gini coefficient4 rose to 0.432 in 2006 from 0.345 in 1990. Income variation is also wide across regions. Data from national statistics show that during 1999–2004, the average monthly income per capita rose by VND 45,500. However, the Central Highlands registered the lowest increase, while the Southeast Region recorded the highest increase at VND 305,200 per capita income. (Word bank‐Vietnam)
LANGUAGES Vietnamese is the official and most widely‐spoken language (approximately 90% of the population) in Vietnam. English is increasingly favored as a second language in Vietnam. Other less common languages include French, Chinese, Khmer and mountain‐area languages. EDUCATION Although five years of primary school education are considered compulsory and 92% of eligible children were enrolled in primary school, only two‐thirds completed the fifth grade in 2000. The cost of tuition, books and uniforms and the need to supplement family income are the two main reasons for students dropping out. A huge disparity exists in primary school enrollment between 4
The Gini coefficient is a measure of the inequality of income distribution, with a value of 0 expressing total equality and a value of 1 maximal inequality.
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the cities and rural areas of Vietnam. In some rural areas, only 10 to 15% of the children progress beyond third grade, whereas almost 96% of pupils in Ho Chi Minh City complete fifth grade. The Ministry of Education and Training (MOET) estimated the budget for education and training at VND 76,200 billion (US $4,762 million) for 2008, an increase of 14.1% over actual spending in 2007. Vietnam’s education expenditure is 5.3% of its GPD. Literacy (%) When defined as those aged 15 and over who can read and write, 90.3% of Vietnam’s population is literate (93.9% of males and 86.9% of females). Average years of education The average educational attainment in Vietnam is 14 years. School life expectancy (primary to tertiary education) is an average of 10 years (11 years for males, and 10 years for females).
TECHNOLOGICAL PENETRATION Vietnam’s Technology index5 is 2.92 (ranked 89th among 101 economies by the World Economic Forum).Vietnam is slowly moving into high‐tech production, as manufacturing costs have been increasing rapidly in southeastern China. Due to the increasing cost of Chinese production, high‐ tech production facilities are moving to northern Vietnam from southeastern China. However, Vietnam still needs to address the challenge of low IT usage: According to the Ministry of Information and Communication, approximately 68% of employees in central government agencies had access to a computer in November 2008. In provinces and small cities, meanwhile, computer access is approximately 40%. In November 2008, six provinces out of 64 did not have a website: Quang Ninh, Dak Nong, Lai Chau, Yen Bai, Hoa Binh and Dien Bien. Two ministries of the Vietnamese government are also without a website. The government is encouraging IT usage as a key part of its administrative reforms to connect the government with the people; however, it has to do a lot more to increase the use of computers. (Nationmaster‐Technology Index) RECEPTIVE TO THE U.S. AND OTHER FOREIGN PRODUCTS Vietnam has a large population with a growing middle class that is receptive to American products. Vietnamese consumers have a strong affinity for American products, especially those manufactured and marketed for American consumers. Because the Vietnamese are receptive to U.S. products, Vietnam creates a potential growing market for U.S. exports. Consumer products in Vietnamese stores tend to be no cheaper and yet of lower quality than similar products in American department stores. American companies that offer quality products, even if relatively expensive, are likely to find an eager market throughout Vietnam. (Update: Business Opportunities in Vietnam)
5
The technology index denotes the country's technological readiness. This index is created with such indicators as companies spending on R and D, the creativity of its scientific community, personal computer and internet penetration rates (Nationmaster.com).
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Culture PEOPLE Collectivism vs. individualism In general, the Vietnamese are collectivists. This means that people put heavy emphasis on residing in social groups rather than individually. These social groups often consist of immediate and extended family, and close friends. The individual is seen as secondary to the group ‐ whether the family, school or company. As a result there are strict guidelines for social interaction that are designed to protect a group's face (an individual's public image). In Vietnam, the ultimate goal of all personal interactions is harmony, not discord. Like many Asians, Vietnamese will try to avoid conflict and direct confrontation. (Hofstede) Power distance In Vietnam, Power Distance is quite high. This means that society accepts and expects an unequal distribution of power and wealth within the population. In other words, social inequality is sanctioned by both the followers and the leaders of society. As with most group‐ oriented societies, there are also hierarchical structures. In Vietnam these are very much based upon age and status. This derives from Confucianism, which emphasizes social order. Everyone is seen as having a distinct place and role within the hierarchical structure, be it the family or the workplace. An obvious example is seen in social situations where the oldest person in a group is greeted or served first. Within the family, the head would be responsible for making decisions and approving marriages. (Hofstede) Gender roles Masculinity is highly valued in Vietnam. Public displays of heavy affection are not common and can be construed as rude behavior. Vietnam follows the Confucianism dyad of the father to son relationship and this signifies that the father is always head of the household. Even though constitutionally women are equal to men, it is a male‐dominated society with more opportunity and respect given to men vs. women. (Typologies‐DePauw University) Uncertainty avoidance Compared to the U.S., Vietnam is a low uncertainty‐avoidance country. Although the Vietnamese have had decades of invasions to their country, they choose not to dwell on this and do not live in fear. They are welcoming to outsiders and are less tense and more relaxed. Furthermore, Vietnamese are confident in their country and comfortable with the uncertainty that tomorrow may bring. (Typologies‐DePauw University) High vs. low context Like other Asian countries, Vietnam is a high context nation. High‐context cultures, according to Hall's framework, have a strong "in‐group" identity. They are more family‐bound, and less permeable to outsiders. Because they operate on the basis of face‐to‐face interactions, rules tend to be situational, and many "understandings" are left unspoken. High‐context cultures take
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time to contextualize the business in some kind of social framework. Vietnamese often use non‐ verbal cues as a means of getting a message across. (Datamonitor)
Long vs. short term orientation Vietnam scores 80/118 in the Long‐Term Orientation category. Countries with high Long‐Term Orientation scores indicate more contemplative cultures that adapt their traditions to a modern context, with limited social demands and status pressures while cultures with low Long‐Term Orientation scores respect traditions, and prefer to solve problems as soon as possible. (Trade Culture Time Horizons) Religious influences on culture Vietnam has a diverse mix of major religions with a large number of followers, religious figures, and monks. All the world's great religions can be found in Vietnam. At least four major beliefs (Animism, Buddhism, Confucianism, and Taoism) have had a profound impact on Vietnamese people and their culture and are reflected subtly or obviously in behavior and customs. (Datamonitor) Prohibited goods and services Vietnam currently prohibits the commercial importation of the following products: arms and ammunition; explosives (not including industrial explosives); military equipment and facilities; narcotics; certain toxic chemicals; “depraved and reactionary” cultural products; firecrackers; certain children’s toys; second‐hand consumer goods; right‐hand drive motor vehicles; used spare parts for vehicles; asbestos materials under the amphibole group; specialized encryption devices and software not destined for mass market consumption; polluting waste and scrap; and refrigerating equipment using chlorofluorocarbons. This list is not exhaustive and is subject to change from time to time. BUSINESSS Business culture and practices Drinking tea used to be one of the few rituals observed at business meetings in Vietnam. But while the basic idea of treating your guests to refreshments has remained, companies now tend to invite their business partners to dine in fancy restaurants instead. The change happened approximately at the turn of the 21st century and reflects a greater influence of Korean and Japanese business culture (dining in fancy restaurants) rather than Chinese business culture (drinking tea). A Confucian orientation towards connections and relationship building are crucial to successful business ventures in Vietnam. The Vietnamese look for trust and relationships before they do business. Therefore, U.S. businesses will have to develop relationships and a network before they can make progress in business. This is naturally quite time consuming. The Vietnamese have a saying that goes: “If you want good tasting food, then boil it well.” The same can be said of doing business in Vietnam. The saying highlights the difference between a Vietnamese “slow‐cook” business culture and an American “fast‐food” business culture where time is money, and meetings are for getting down to business. (Esmond D. Smith, Jr. Doing business in Vietnam: a cultural guide)
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Business etiquette Meetings in Vietnam are generally relaxed affairs, but small talk is also used to establish a sense of familiarity and of the relative status among the participants. As Vietnam is a very hierarchical society, Vietnamese in general feel uncomfortable if they do not know the status of the people with whom they interact. It is discouraged from touching your business partners in Vietnam (except for handshakes). People tend not to look at other people’s eyes when they are speaking. Especially Vietnamese tends not to look at older people’s eyes (avoiding eye contact) when speaking to them. (Katrine Syppli Kohl) The following are business etiquettes suggestions for doing business in Vietnam: Appointments are required and should be made several weeks in advance; The best means of making appointments is through a local representative who can act as a reference and also translator/interpreter; The Vietnamese are punctual and expect others to be so too. Dress conservatively. Handshakes are used upon meeting and departing; Handshakes only usually take place between members of the same gender; Some Vietnamese use a two‐handed shake, with the left hand on top of the right wrist. Always wait for a woman to extend her hand. If she does not, simply bow your head slightly; Business cards are exchanged on initial meetings and should be presented with both hands. When receiving a business card ensure you show proper respect to it and do not simply glance at it and put it on the table; Hierarchy and face manifest in different ways within business meetings. For example, the most senior person should always enter the room first; Silence is also common in meetings where someone disagrees with another but remains quiet so as not cause a loss of face. The spoken word is very important; Never make promises that you cannot keep as this will lead to a loss of face. Negotiations can be slow so it is important to bear in mind that decisions have to go through a lot of red tape and also group consultation. Be patient; and Business gift giving is fairly common at the end of a meeting or during a meal in honor of your business associates. Gifts should be small but not expensive. A gift with your company logo or a gift typical from your country would be appropriate. (Vietnam‐Language, Culture, Customs and Etiquette) Relationship building In Vietnam, propriety and courtesy play a major role in personal relationships. Vietnamese are generally more interpersonally formal than are Americans. This formality decreases the uncertainty surrounding interpersonal contacts in Vietnamese society and is carried over into the business realm for the same reason. During initial meetings with Vietnamese officials, it is normal to have little real business to be accomplished. The Vietnamese will concentrate on getting to know the person who they will work with. Given Vietnam’s high‐context communication culture, the Vietnamese will depend heavily on non‐verbal clues to assess meaning. By becoming acquainted and establishing a personal relationship with their business partners, Vietnamese are merely trying to understand them better. Vietnamese society is an interconnected network of personal relationships, all of which carry obligations on both sides. These mutual obligations are the underpinnings of social order in Vietnam, so they are taken very seriously. U.S. business representatives need to understand and
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be sensitive to the serious nature of what may seem to be casual business relations. Failure to do so could easily result in a loss of trust or credibility, with obvious implications for longer‐term relationships. (Esmond D. Smith, Jr. Doing business in Vietnam: a cultural guide)
Bribes Vietnam has high levels of corruption. Corruption within the government has led to a lack of transparency and has been a significant challenge for governmental consistency. In November 2005, The National Assembly approved the Anti‐Corruption Law, which came into effect in June 2006. To tackle corruption at the highest levels, the National Steering Committee for Corruption Prevention and Control, headed by the prime minister, was created. However, the committee lacks full independence, which has raised questions about the impartiality of investigations. The committee will be in a difficult situation with regards to cases involving politicians from the CPV. Transparency International’s 2009 Corruption Perceptions Index6 is 2.7, ranking Vietnam in the 120th place out of 180 nations, a marginal improvement from its 121st position in 2008. Corruption is perceived as being widespread in Vietnam. Also, Vietnam is well behind other nations in the region on the Corruption Perception Index (CPI), such as Malaysia (56th), China (79th), Thailand (84th) and India (84th). Vietnam has to take measures to alleviate corruption, because it can act as an impediment to potential foreign investors. (Country Profile‐Vietnam, Political Risk Yearbook: Vietnam Country Report) Timeliness Like most Asians, the Vietnamese have a more extended concept of time than that of most Americans. The agrarian nature of their traditional society focuses on seasons rather than days or weeks. This tradition is reinforced by the Confucian tradition of respect for earlier generations. Americans measure time by the clock, Vietnamese by the seasonal monsoons. Although this is changing somewhat, Vietnamese can still be expected to take a longer view of time and be suspicious of the need for urgency in making decisions or culminating a business deal. Patience remains the ultimate Confucian virtue in personal life as well as in business. (Esmond D. Smith, Jr. Doing business in Vietnam: a cultural guide)
OVERALL CULTURAL IMPLICATIONS FOR IMPORTING Guidelines for the Vietnamese business culture include: Pay special attention in relationship building to have a good business partnership; Avoid talking about the Vietnam War and Vietnamese politics; and Business people in Vietnam appreciate details; be prepared to answer in‐depth questions about the company when making business proposals.
6
The Corruption Perceptions Index (CPI) measures the perceived level of public‐sector corruption in 180 countries and territories around the world. The CPI is a "survey of surveys", based on 13 different expert and business surveys (transparency.org).
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Environment PROTECTION POLICIES A large part of Vietnam’s land is covered with forests. Rapid growth in industrial production has lead to increasing pollution, especially as most of the production units have poor environmental records. Vietnam does not have environmental integration at the planning and programmatic levels, a fact that can be clearly seen from the public investment planning process and in regional plans for land and resource use. Furthermore, a lack of awareness of the environmental damage caused by sustained economic growth is another cause for worry. For example, in early 2010, authorities in Hai Duong Province found that Chinese‐owned East Asia Aluminum, Ltd. discharged untreated waste into local waterways, destroying paddy fields. Sewage samples at the factory showed organic compounds nearly four times higher than allowed, while the amount of oxygen available in the local waterway was too low for aquatic and plant life. There are no means available for stakeholders to make government agencies accountable, which is another major challenge for the country. Industrial production has increased at a fast pace in Vietnam. However, the enterprises responsible have poor environmental records due to obsolete equipment and the inadequate treatment of wastewater and air emissions. Many industrial pollutants have the potential to do considerable damage to the health of the Vietnamese citizens. For instance, Vedan Vietnam Enterprise Corp., a unit of Taiwan's Vedan Group, makes monosodium glutamate. In 2008, the company was caught illegally discharging untreated wastewater from its monosodium glutamate factory in Dong Nai province into the Thi Vai River, affecting people living along the river. Vedan has agreed to pay VND 218.9 billion (US $11.5 million) as compensation to three provinces in southern Vietnam for the environmental damage it has caused to these provinces. The government of Vietnam introduced a penalty for water pollution in early 2007; however, enforcement continues to be inconsistent. (Asia Sustainable and Alternative Energy Program, Country Profile‐Vietnam) ENERGY CONSERVATION During the last decade, Vietnam’s government launched a series of efforts to expand its energy‐ efficiency promotion efforts. In 2003, the government issued the Decree on Efficient Utilization of Energy and Energy Conservation. In 2006, the prime minister approved the Vietnam National Energy‐Efficiency Program (VNEEP) for the period 2005–15, which was prepared by the Vietnam Ministry of Industry and Trade (MOIT). A draft energy conservation law is now under review by the National Assembly. Since the 1990s, the energy sector has been receiving support from a variety of international donors, for a wide range of activities, to promote energy efficiency. In addition to the government’s VNEEP, a number of parallel or supportive efforts have been initiated in direct cooperation with donor agencies. In October 2008, the MOIT and the World Bank co‐chaired an Energy‐Efficiency Donor Coordination Meeting, which included presentations from each participating donor agency on its programs and planned activities, as well as a roundtable discussion on ideas for coordination of efforts and further sharing of information. Japan Bank for International Co‐operation (JBIC), along with Sumitomo Mitsui Banking Corporation (SMBC), is funding new projects based on renewable sources of energy so that the company making the investments can acquire emission credits. (Asia Sustainable and Alternative Energy Program)
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RECYCLING AND WASTE DISPOSAL Rates of recovery and recycling in Vietnam are high. No information is available on the amount of waste recycled annually at the national level although it is known that in Hanoi, approximately one‐fifth of municipal waste is recycled, which is higher than in many Asian cities. In general, recycling practices at the household level are quite high due to the fact that many families will give away used items or sell them back to used/repair shops. As in many developing countries, the informal recycling sector – which includes waste‐pickers and scavengers in Vietnam, plays a significant role in waste management activities. At the open and controlled dumps, there are no operational procedures in place and thus, many waste pickers go there to sort through the trash for recyclables. (Thao Nguyen, Solid Waste Management in Vietnam) PACKAGING RESTRICTIONS The Ministry of Science and Technology has the primary responsibility for coordinating with specialized management ministries in amending and supplementing compulsory contents of goods labels. On September 30, 2006, the Vietnamese Government issued Decree 89/2006/ND‐ CP, which became effective on March 13, 2007 (Decree 89). For more details about packaging restrictions please refer to: http://www.globaltrade.net/international‐trade‐import‐ exports/f/business/text/Vietnam/Marketing‐Regulations‐Packaging‐and‐Labeling‐Labeling‐and‐ Marking‐Requirements‐in‐Vietnam.html
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U.S. Agencies Supporting Exports U.S. Export Development Agency (USEDA): the U.S. Export Development Agency is a comprehensive export services company which provides export consulting, training, and direct export management to small and medium sized U.S. companies, as well as entrepreneurs, that would like to start or expand export sales ‐http://www.american‐export‐ directory.com/index.html U.S. Commercial Service: market intelligence, trade counseling, business matchmaking, and Trade Advocacy ‐ http://www.trade.gov/cs/ Export‐Import Bank of the United States (Ex‐Im Bank): official export credit agency of the U.S. ‐ http://www.exim.gov/ USDA Foreign Agricultural Service (FAS): primary responsibility for USDA’s international activities ‐ http://www.fas.usda.gov U.S. Agency for International Development (USAID): supports long‐term and equitable economic growth and advances U.S. foreign policy ‐ http://www.usaid.gov/ Overseas Private Investment Corporation (OPIC): helps U.S. businesses invest overseas, and fosters economic development in new and emerging markets ‐ http://www.opic.gov/ Small Business Administration (SBA): offers loan guaranty programs that enable the small business exporter to obtain working capital and financing for the acquisition of long term fixed assets ‐ http://www.sba.gov/aboutsba/sbaprograms/internationaltrade/index.html U.S. Department of State Bureau of Economic, Energy and Business Affairs: it implements U.S. economic policy in cooperation with U.S. companies, U.S. Government agencies, and other organizations ‐ http://www.state.gov/e/eeb/ U.S. Trade and Development Agency (USTDA): funds various services that support the development of a modern infrastructure and a fair and open trading environment ‐ http://www.ustda.gov/ U.S. Department of the Treasury Office of Foreign Assets Control (OFAC): administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals ‐ http://www.treasury.gov/offices/enforcement/ofac/
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U.S. Trade Representative: negotiates directly with foreign governments to create trade agreements, resolve disputes and participate in global trade policy organizations ‐ http://www.ustr.gov For a complete list of U.S. Agencies Supporting Exports, please visit: https://www.fbo.gov/?s=agencyandmode=listandtab=list or http://www.export.gov/
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Information Source 11th Party Congress announces CPVCC members. Vietnamplus. Web. 19 April.2011 2011 Investment Climate Statement‐Vietnam. U.S. Department of State. Web. 10 June.2011 Asia Sustainable and Alternative Energy Program .2010. The World Bank. Web. 10 June.2011 Background Note: Vietnam. 2010. U.S. department of State. Web. 19 April.2011< http://www.state.gov/r/pa/ei/bgn/4130.htm > Chapter 2: Economic Outlook. Vietnam Business Forecast Report [serial online]. 2011 1st Quarter 2011:13‐20. Available from: Business Source Complete, Ipswich, MA. Accessed February 24, 2011. Country Analysis Report: Vietnam. Datamonitor. August 2010. Economics‐Data Reactions. Vietnameconomic. 04 May 2011. Web. 10 April.2011 Esmond D. Smith, Jr. Doing business in Vietnam: a cultural guide. Business Horizons. FindArticles.com. 10 June. 2011. GIM Southeast Asia Final Report. 2007. TCKgroup Web. 15 May. 2011 Global edge. Michigan State University. < http://globaledge.msu.edu/about_globaledge.asp> Guidebook.2007. Khu cong nghiep. Web. June 10. 2011 Hofstede, Geert. Geert Hofstede cultural dimensions. Itim International. Web. 24 Feb. 2011 How to Market Your Products/Services. U.S. Commercial Services. Web. 15 May. 2011 Katrine Syppli Kohl. American Doing Business in Vietnam: Communication Differences. Fall 2007. Baruch College. Web. June 10.
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Map of Vietnam. Nationsonline. 2011. 3 April. 2011 Politics. Country Profile. Vietnam [serial online]. December 2008;:4‐8. Available from: Business Source Complete, Ipswich, MA. Accessed February 24, 2011. Tax Alert December 2010. KPMG Vietnam. Web. 15 May. 2011 Thao Nguyen. Solid Waste Management in Vietnam. Columbia University. Web. 23 April. The World Factbook. Central Intelligence Agency. Web. 23 April. 2011 Trade Culture Time Horizons. Suite101. Web. 19 April. 2011< http://www.suite101.com/content/trade‐ culture‐time‐horizons‐a42839#ixzz1PMIiiXNr> Typologies. DePauw University. Web. 19 April.2011. Update: Business Opportunities in Vietnam. Vietnomics. Web. 10 June.2011 Vietnam ‐ Judicial System. Encyclopedia of Nation. Web. 10 June.2011 Vietnam Data. The World Bank. Web. 19 April. 2011 Vietnam Economic Structure. Economy Watch. Web. June 10. 2011 Vietnam Ports of Entry. Your Vietnam Tour guide. Web. 3 March. 2011 Vietnam Rivers. Map of World. 10 February. 2011< http://www.mapsofworld.com/vietnam/rivers/> Vietnam Ministry of Foreign Affairs: Vietnam service sector. Ministry of Foreign Affairs. Web. 3 March. 2011
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Vietnam. Culture crossing. Web. 10 February. 2011 Vietnam. Political Risk Yearbook: Vietnam Country Report [serial online]. January 2011;PRI‐1‐20. Available from: Business Source Complete, Ipswich, MA. Accessed February 24, 2011. Vietnam’s Labor Market Update. Hoa Sao Group. Web. 10 June.2011 Vietnam‐Language, Culture, Customs and Etiquette. Kwintessential. Web. 10 February. 2011 WISERTrade. Wiser Trade database. Word bank‐Vietnam. Word bank. Web. June 10. 2011.
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