I. Overview
Vietnam is holding its own as one of the world’s most dynamic economies, even in the midst of global challenges. For 2024, International financial organisations such as ADB, UOB, Standard Chartered and IMF provide forecasts for Vietnam’s GDP growth ranging from 5.8 to 6.7 per cent, securing Vietnam a place among the 20 fastest-growing economies in the world.
According to the City Momentum Index 2020 report, the two largest cities in Vietnam – Hanoi and Ho Chi Minh City, are listed as two of the top-10 most dynamic cities due to their low cost, rapid consumer market expansion, strong population growth, and transition towards activities attracting significant amounts of foreign direct investment (FDI).
The implementation of the EU Vietnam Free Trade Agreement (EVFTA) stimulated growth in bilateral trade between Vietnam and the EU with two-way trade turnover reaching USD 17.8 billion during the first four months of implementation (August-November 2020), reflecting an increase of 2.9 per cent compared to the same period of the year before.
II. Business etiquette
Knowledge and consideration of the country’s cultural rules and customs are essential for successful business relationships. In Vietnam, people address each other by their first names, and great importance is placed on seniority and hierarchy in personal interactions. This includes the polite forms of address ‘Anh’ for older male colleagues and ‘Chị’ for older female colleagues before their first names.
In business settings, it is also customary to shake hands with person who has the most authority first and give business cards or other important paperwork to them. Business cards should be written in both English and Vietnamese and should be handed over or received with both hands. Having all work documentation translated into Vietnamese is strongly advised.
Vietnamese businesspersons tend to reply to investors introduced to them via a mutual connection rather than cold calling. Also, in order to demonstrate respect for the language and desire to conduct business, it is advisable to learn a few Vietnamese phrases in advance.
III. International instruments: the EVFTA, EVIPA and the CPTPP
Between 2018 and 2020, Vietnam signed important strategic agreements, including the EU-Vietnam Free Trade Agreement (EVFTA), the accompanying Investment Protection Agreement with the European Union (EVIPA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These agreements facilitate Vietnam’s positioning as an attractive business and investment location. The EVFTA is intended to strengthen trade and investment ties between Vietnam and the EU through liberalisation and easier market access for European companies and is assisting Vietnam’s transformation into an Asian manufacturing hub. Regarding the trade in goods, the EVFTA also removed import duties for almost half of all customs tariff lines. EVIPA and CPTPP provide Investor State Dispute Settlement (ISDS) provisions, which are key to greater legal certainty, enforceability and protection for investors.
IV. Small-sized and Medium-sized Enterprises (SMEs) in Vietnam
Figures illustrate the crucial role of SMEs in Vietnam. According to the Vietnamese Ministry of Planning and Investment, Vietnam has approximately 900,000 operational businesses, of which more than 97% are SMEs. They contribute up to 45% of GDP and 31% of total budget collection and together employ more than 5 million people.
According to Article 6 of Decree No. 39/2018/ND-CP, a distinction is made between microenterprises, small enterprises and medium-sized enterprises. The determination of SMEs according to the Decree follows two sets of criteria: On the one hand, the sectoral group the enterprise operates in and, on the other, the average number of employees, its annual revenue and its total investment capital.
The majority of SMEs operate in the commerce, services and industrial sectors, especially in traditional handicraft, exploiting and producing raw products such as minerals, seafood, forest products, processing and assembly as well as manufacturing high-tech products (machinery, electronics, chemicals, measuring equipment, engines, etc.). In recent years, the trend of developing innovative business models (in the form of startups, which are considered SMEs) has been growing especially in the areas of construction, processing, manufacturing, automotives, air transport, finance and banking. Currently, there are more than 3,000 active innovative startups, most of which are financed by startup funds from the USA or Singapore.
However, despite their great importance for the Vietnamese economy, SMEs face challenges, especially when it comes to access to credit. Many financial institutions reject loans to SMEs due to the lack of profitability and acceptable collateral such as land. In contrast, the Vietnamese government has made efforts to improve SME’s access to credit, namely by setting up the SME Development Fund (SMEDF) and a Credit Guarantee Fund.
With a young and technology savvy workforce, increased connectivity and the presence of many large global technology corporations, rapid technology innovation and adoption is diffusing fast in Vietnam including its SMEs.
***
Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.