Last updated: 18 May 2012
Doing business
Current business situation
On 1 January 2010 the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) came into force. Australian businesses are urged to take a close look at the opportunities created by the agreement, as it will deliver real commercial benefit for Australian exporters and investors doing business in Vietnam. More information on AANZFTA.
In response to the economic slowdown, the government introduced a range of measures to loosen monetary policy and stimulate the economy. This included a four per cent subsidy on commercial loans. The capacity of the government to deliver a large fiscal stimulus to the economy, however, was limited by a large trade deficit and low foreign exchange reserves.
The main deterrents to trade and investment are:
- the lack of a comprehensive and transparent legal system
- restricted land usage rights
- complex foreign investment laws
- continued corruption in infrastructure projects
- the poor state of the financial system
Business culture
Business practices
- One of the keys to business success in Vietnam is understanding that local customs and behaviours have a significant effect on business relationships. While there are few formal limitations to doing business in Vietnam, there are some informal barriers and practices that differ from Western norms.
- Bureaucratic difficulties are not uncommon, particularly in relation to customs and documentation. However, patience, persistence and sound business advice can help in overcoming these obstacles.
- The exchange of business cards is important. If you have a business card that is in English and Vietnamese, it is good etiquette to present the card with the Vietnamese side facing up. Receive cards with both hands and carry a large supply even for short visits.
- Establishing contacts and networks is easier if the first meeting is through introduction from a known Vietnamese business contact or friend, or through an official channel such as Austrade.
- Personal business introductions are a fundamental way of doing business in Vietnam and ‘cold calling’ is not recommended.
- Bureaucracy and corruption are significant issues but the Vietnamese Government is making a concerted effort to streamline bureaucracy and stamp out corruption.
- Gift giving is widely practiced in business, usually at the end of meetings or during a meal in honour of your guests. Small gifts, such as a company tie or a book on Australia, are suggested. It is customary to send gifts and cards to all of your business associates and contacts just before Vietnamese Lunar New Year, or ‘Tet’.
- Wear business attire similar to what you would wear in Australia, although suit jackets for men are not always required in Southern Vietnam and in the summer months in Hanoi. Women should avoid wearing halter neck tops, or shorts in the more traditional areas.
Language
- Most of your business contacts in the foreign invested companies will be able to speak English but this may not be the case with government ministries and state owned enterprises. You will need to speak slowly and concisely.
- Make sure your interpreter or local business partner has knowledge of the northern or southern language. The Vietnamese accent and pronunciation is quite different in the north and the south. A number of the better-educated older Vietnamese speak French and/or Russian.
- It is impolite to undermine the authority of a more senior Vietnamese person by directing questions or responding to a more junior person whose English skills may be better.
- When using interpreters, talk to the person you are dealing with and maintain eye contact, talking through your interpreter, not with them. If possible, try to have a Vietnamese-speaking team member. It is also advisable to employ an interpreter who has a good knowledge of your industry.
- The Vietnamese are very polite people and will often smile and agree with you when in fact they may not have fully understood what you have said.
- It is advisable to have bilingual sales literature, including business cards and product manuals, for more complex negotiations.
Business entertainment
- Eating and drinking are a major part of doing business in Vietnam. Dinners with local agents and customers help to develop networks and give the local agent ‘face’.
- Vietnamese men often smoke during the meal.
- Toasting at banquets and after-dinner activities such as singing are common practices. When cognac or whisky is served at a meal, the custom is for individuals to drink only after a toast is made. The glass should be held in the right hand supported by the left. Returning a toast is standard practice. Common toasts are ‘Tram phan tram ('chum fun chum' = empty your glass - 100 per cent) and ‘Chuc Suc Khoe’ ('chook sook hue' = good health).
- Seating should be arranged so that the Australian host’s party is interspaced with the Vietnamese guests.
- The guest of honour will be expected to leave the dining table first at the conclusion of the meal.
Negotiations
- The most important quality in negotiations with Vietnamese is patience.
- Outward displays of anger are interpreted as a sign of personal weakness, and will invariably be met with a stony response and increased resistance in negotiations.
- You should focus on transaction details as well as cultural factors. More often than not, this means price, as the formative Vietnamese market is extremely price-conscious.
- Vietnamese buyers have a preference for stable and well-proven products, turnkey solutions, and a strong reliance and expectation on the supplier to provide after-sales service support.
- Do not feel compelled to fill silences that may occur during business negotiations. Being silent is particularly useful if the Vietnamese have made an unreasonable demand or proposal.
- The pace of negotiations may be slower than expected with informal conversation at the beginning of the meeting.
- As business decisions are not usually made during an initial meeting, it is often beneficial to send a written proposal well before the meeting if an immediate response is required.
- Negotiations will usually continue after an agreement is executed. Have your lawyer operate behind the scenes rather than taking part in the negotiations as most Vietnamese companies prefer a less legalistic approach to negotiations.
Correspondence
- Prompt response to faxes from business associates in Vietnam indicates professionalism, commitment and an interest in the market. However, you may find that the Vietnamese company may not reciprocate.
- Telephone charges are very high in Vietnam and the company may expect you to call them.
- Internet access should not be taken for granted, and is also expensive.
- Other problems can occur with the telephone service and it is our experience that many barriers to concluding deals are caused by very simple communications misunderstandings.
- Correspondence to government ministries and departments should be written in Vietnamese if possible.
Forms of address
- It is normal practice in Vietnam to put the surname first, followed by a middle name and then the given name, eg. Nguyen Hong Lan. In this case, the person should be addressed as Ms Lan. The full name is only used on a formal occasion.
- The Vietnamese will often address Australians by their first name preceded by their title, eg. Mr. Greg.
- Vietnamese will often ask you how old you are at the beginning of a conversation because there is no universal word for ‘you’ in the Vietnamese language and people need to classify you as either older or younger than themselves in order to determine the correct form of address.
Banking and finance
Business security
In Vietnam, payment risk can be minimised by only doing business after receipt of a confirmed letter of credit (LC). It is better to accept only those LCs that have been issued by one of the four major state-owned commercial banks in Vietnam, and by centrally located branches of those banks.
Communication is not always good within the network and LCs issues by small provincial banks may not always be honoured. Having a foreign bank such as the ANZ confirm the LC where possible is also recommended.
Vietnamese importers may need to wait two to three weeks to get approval from the State Bank of Vietnam to open an LC. Exporters should make some allowance for payment delays in their cash flow projections.
The general risk of non-payment in Vietnam has reduced considerably in recent years, provided that exporters are dealing with qualified importers and buyers. Prior due diligence is important in this respect.
The Vietnamese banking system still operates very slowly and Vietnamese companies can often have difficulties in getting quick access to foreign currency. Foreign currency payments abroad by banks can be temporarily stopped on decree for various reasons.
The Australian Government’s Export Finance Insurance Corporation (EFIC) offers a range of export credit and insurance products, although its credit rating for Vietnam is not very high. EFIC also provides a country risk analysis and regular updates on countries around the world through its market watch service.
Links and resources
Government, business and trade
Australian Agency for Development and Cooperation – www.ausaid.gov.au
International Finance Corporation – www.ifc.org
Ministry of Foreign Affairs – www.mofa.gov.vn/en
UN Vietnam – www.un.org.vn
Vietnam Chamber of Commerce and Industry – http://vccinews.com/
Vietnam Customs – www.customs.gov.vn/default.aspx?tabid=454
Vietnam Trade Promotion Agency – www.vietrade.gov.vn
News and media
Vietnam Economic News – http://vneconomy.vn
Vietnam Investment Review – www.vir.com.vn
Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.
Top Business Risks
OECD Guidelines for Multinational Enterprises
Multinational Enterprises should be aware of the OECD Guidelines for Multinational Enterprises that provide voluntary principles and standards for responsible business behaviour in a variety of areas, consistent with applicable domestic laws. These Guidelines are endorsed and promoted by the Australian Government. For more information, go to the AusNCP website.
Extractive Industries Transparency Initiative
The Extractive Industries Transparency Initiative (EITI) is a voluntary mechanism which promotes and supports improved governance in resource-rich countries through the full publication and verification of company payments and government revenues from oil, gas, and mining.
The EITI is supported by governments, industry, and non-government organisations around the world. The Australian Government supports the EITI and encourages Australian companies operating internationally to comply with its recommendations.
APEC Business Travel Card Scheme
Managed by the Department of Immigration, the APEC Business Travel Card Scheme was developed to make travelling within the 21 APEC member countries much simpler and more efficient.