BUSINESS CUSTOMS IN VIETNAM
Business customs in Vietnam: 1) The Vietnamese are punctual and expect others to be so to. 2) Handshakes are used upon meeting and departing. Handshakes only usually take place between members of the same sex. 3) Some Vietnamese use a two-handed shake, with the left hand on top of the right wrist. 4) Always wait for a woman to extend her hand. If she does not, bow your head slightly. 5) Business gift giving is fairly common at the end of a meeting or during a meal in honour of your business associates. Gifts should be small but not expensive. Something with your company logo or something typical from your country both make excellent gifts.)
6) Presenting business cards is an important ritual in the Vietnamese business world. Business cards are exchanged on initial meetings and should be presented with both hands to the oldest person first. When giving or receiving business cards do so by holding it with both hands and ensure you show proper respect to it by looking at it carefully. Do not simply glance at it and put it on the table. Ideally, present business cards in Vietnamese and English.
7 ) Dress conservatively in nice clothes. Suits for men and dresses or suits for women. During the warmer months, you can leave the suit jacket at home. Business attire in the southern part of Vietnam is more casual, and suit jackets are not required. 8) Address colleagues by Mrs./Mr. and then the given name. Vietnamese names start with the last, then middle and then first. Use a title if applicable. 9) Please use both of your hands when passing items to people. Never reach over another person’s head when passing items. 10 Allow the most senior member of the company to be the first to enter a room. In addition, it’s the oldest member of a party who is first to be seated at restaurants. If you are invited to a colleague’s home for dinner, please wait to be shown where you are to sit.
Hand stamps (chops) with a name and address are used in business.
Greetings in Vietnam
Vietnamese people generally greet each other by joining hands and bowing slightly to each other. However, in big cities, some men have adopted the Western practice of shaking hands. Hugging is reserved for relatives only. Vietnamese women generally do not shake hands with each other or with Vietnam War men but the custom is acceptable between a Vietnamese woman and non-Vietnamese man. Vietnamese also often refrain from shaking hands with a senior or someone of higher rank.
When greeting one another, men gently shakes hands and bow slightly. When greeting women they bow slightly and nod. In rural areas some people bow in traditional style by clasping their hands above their waist and bowing. In urban areas, modernized young men and women shake hands. When saying goodby, Vietnamese often shake hands or bow slightly.
When greeting someone of authority clasp both hands. When introducing yourself to a group address yourself to older people first. People are often introduced with an explanation of their relationship in the family. To address people formally, use Mr. or Ms. or a title plus the first name. There are also several other honorific forms when addressing people of different relationships in Vietnamese, but they are not used in English. Thua (meaning please) is added in front of the honorific name to show respect to elders. To show respect, more traditionally minded Vietnamese bow their heads to a superior or elder. The depth of the bow is not a factor as it is in Japan.
Business Styles and Management Relations in Vietnam
"Whatever works," is a common toast these among Vietnamese businessmen in Saigon. Auspicious days are taken seriously when doing business. Shopkeepers consider their first customer on auspicious days to be good luck, and they put heavy pressure on these customers to buy something.
Keep in mind that Confucianism has flavored Vietnamese society. Confucianism stresses the relationships that people have with each other. Each of these relationships dictates a Vietnamese person’s actions. Remember that Vietnamese business people also emphasize relationships.
Business Styles and Management Relations in Vietnam: 1) Hierarchy and face manifest in different ways within business meetings. For example, the most senior person should always enter the room first. 2) Silence is also common in meetings where someone disagrees with another but remains quiet so as to not cause a loss of face. 3) Relationships are critical to successful business partnerships. Always invest time in building a good relationship based on both personal and business lines. Any initial meeting should be solely used as a "getting to know you" meeting.) The spoken word is very important. Never make promises that you can not keep to as this will lead to a loss of face. 4) 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.
5) Decisions often made by consensus or by the most senior person after a long discussion. Decisions are made by committee. Consensus is important in Vietnam. Any and every person holds veto power. Everyone must be in agreement about a decision, or the decision will not go through.
See Character and Personality and Society Under People and Life
Tips on Doing Business Successfully in Vietnam
Business tips: 1 ) Don't be late and set up meetings before arriving in Vietnam. Appointments are required and should be made several weeks in advance. Avoid holiday like Tet. 2) Present documents in Vietnamese and hire a Vietnamese translator. The best means of doing business is through a local representative who can act as a reference and also translator/interpreter. 3) Exchanging gifts and having tea or a drink is important before sitting down to business. 4) Contacts are important and build relationships — The first meeting is used as an opportunity for your Vietnamese colleagues to get to know you and for you to get to know them. 5) Start with small talk and enquire about their families and personal life before discussing any business matter. The Vietnamese need to know more about you, in a casual way, before they discuss business.
6) Respect Asian ideas about face. Face is the equivalent of a Vietnamese person’s reputation or sense of dignity. Never insult or scold a Vietnamese colleague. If a contact loses face because of an error on your part, you lose the contact. 7) Have third party introductions if possible. Your Vietnamese colleagues will be more likely to conduct business with someone they trust. Business is win or lose to the Vietnamese. Your Vietnamese colleagues may try to get the best deal for their interests, even if it means slowing down the decision making process.
Things to Consider When Doing Business Vietnam
Pricing strategy: You should tell a sole distributor to ask retail shops to sell your product at the same price. Incentives should be offered to shopowners who have managed to meet the sales target. Selling the same product at different prices will confuse buyers and cause them to lack faith in the products. Should you want to stimulate sales, you should offer the shops incentives such as an overseas package tour if they manage to meet the sales target. You should also promote sales by holding product-display contests, a strategy that many people find useful. [Source: Wittaya Supatanakul, Bangkok Post, December 22, 2007, Wittaya Supatanakul was the general manager for Bangkok Bank's Ho Chi Minh City branch before becoming the adviser on the bank's Vietnam strategy ***]
“Procurement : In Vietnam, it is common for vendors to offer commissions or benefits to buyers. But this practice adds to the cost of the buying company because the commissions are generally included in the selling prices. The more the purchasers seek the commissions or benefits, the higher the prices they pay. Therefore, you should come up with a policy to prohibit your employees from accepting these commissions or benefits, or appoint your own people as the purchasers. ***
Trading in cash or through letters of credit: In Vietnam, almost all trade transactions are done in cash. Credit is given only to persons with a long history of successful transactions because debt collection is very difficult. Legal action is also very complicated and costly. Frequently, litigation expenses exceed the compensation sought in court. The process is also more complicated if the plaintiff is a foreigner. To avoid these undue risks, you should trade in cash or ask your trade partners to open letters of credit (L/C) for purchase orders. Avoid trading through T/T transactions because the risks are rather high. For local trade, if you do not entirely trust your sales staff, you could ask buyers to transfer money through banks. For international trade, you could state in the contracts that purchasers or the trade partners will pay in advance in full or deposit a certain amount and pay the rest through L/Cs. ***
Understanding Vietnamese laws governing labor and taxes: Since Vietnamese laws are quite different from Thai laws, you should study and understand them thoroughly to avoid being cheated or making innocent mistakes. The key rules and regulations that you should study include: 1) The minimum labor wages are US$45, $50 or $55 per month of 48-hour weeks, depending on factory zones, welfare and fringe benefits. 2) For night shift (9 pm to 5 am or 10 pm to 6 am), you must pay wages that are 30 percent more. Overtime payments are 1.5, two or three times the regular rates depending on the occasion, as in Thailand. The special annual bonus is at least one month's salary. 3) Female staff can take maternity leave without pay for four months. After that, they will be working one hour less each day so they can look after their babies until they are one year old. ***
Also realize: 4) Foreigners need not seek work permits if they come to work for less than three months. 5) Foreigners, who earn incomes and stay in Vietnam for less than 183 days in a tax year, have to pay 25 percent income tax. Should they stay for more than 183 days, they are to pay a progressive worldwide income tax. 6) Monthly incomes earned by Vietnamese are non-tax deductible. Vietnamese with a monthly income of less than five million dong (around US$300) are not subject to income tax while those who earn more shall be taxed at a progressive rate. 7) Foreigners with monthly incomes of less than eight million dong are not subject to income tax while those who earn more shall be taxed at a progressive rate. 8) The standard tax rate on corporate income is 28 percent. For companies that are granted investment promotional privileges, the rate will be 10 percent, 15 percent or 20 percent with a tax break for two to four years and a reduction to half the normal tax rate for three to nine years. 9) After paying the corporate income tax, a company may remit its profit on a quarterly basis without having to pay more taxes. Annual losses can be spread over five years. ***
Cellphones and Business in Vietnam
Malcolm Foster of Associated Press wrote: “Nguyen Huu Truc's trusty cellphone has revolutionized his small embroidery business — and his life. When he bought his first mobile phone in 1995, Vietnam had just one fixed-line phone for every 100 people, and cellphones were a pricey novelty. Communication was difficult, forcing Truc to make time-consuming trips to suppliers and buyers. [Source: Malcolm Foster, Associated Press, January 29, 2007 ^/^]
“But these days, Vietnam has 33 telephones per 100 people — and two-thirds of the phones are mobile. Now Truc can make calls on his cellphone from virtually anywhere in the country for about 10 cents a minute, saving him time and money and providing quicker access to information. "I cannot imagine what it would be like if I didn't have my mobile phone for a day," he says. "It's no longer just something that only the rich can afford. Now, it's a basic means of communication." Truc's experience provides a glimpse into how wireless communication is helping fuel Vietnam's rapid growth — and transforming dozens of other developing nations from the ground up. ^/^
“In Vietnam, where the economy is growing 8 percent a year, the communist government has spent heavily to expand coverage to all 64 provinces. "The more people who have cellphones, the more the economy will grow, and vice versa," says Bui Quoc Viet, a spokesman for the state-run Vietnam Post & Telecommunications, the country's largest telecom company. The government has also promoted competition: Vietnam now has six mobile carriers, two with foreign partners. The development has driven down service charges, a key factor in the tripling of cellphone subscribers over the past two years to 18 million. Mobile phones provide a good way for the younger generation to seek new business opportunities and cash in on Vietnam's move toward a market economy, says Paul Ruppert, managing director of consultancy Global Point View LLC, who has extensive experience in Asia. "It's all micro-activity — tailors, small repair shops, textile producers, grocery stores," Ruppert says. "Even though they're small, they're allowed to get an idea of the market via the cellphone." Text messaging, or SMS, is another application that's particularly popular in Asian nations like Thailand, Vietnam and the Philippines. It's considered a cheap, unobtrusive way to stay in touch with friends, connect to the Internet and conduct business. ^/^
"It's a good way to save costs, but more importantly I can use SMS services as evidence for my business transactions," says Truc, the embroidery business owner. Carriers have adapted to the needs of poorer customers by selling prepaid airtime cards, often for as little as 35 cents per card. This eliminates the need for a contract, credit history check or even an address. Once you register for a phone number and buy an airtime card, you're in business. Handset makers, meanwhile, are offering ultra-cheap phones. Motorola, under the GSM Association's emerging market handset program, has produced cellphones with a wholesale price of less than $30. Retail prices vary depending on taxes and local market conditions. But even those phones are still too expensive for many who live on one or two dollars a day. That's given rise to communal phone use and a cottage industry made up of people who resell phone service for a living.” ^/^
Remittances and Informal Funds Transfer in Vietnam
In the late 1990s more than $3 billion a year flowed into Vietnam from the 2 million or so Vietnamese living abroad. One woman told the New York Times, “When you see middle class people with much money, they probably came from overseas. The people from abroad come here to live cheaply."
Informal funds transfer (IFT) systems are widely used for remittances (sending money overseas). They operate in the main markets in Vietnam. According to a World Bank report IFT operators were easy to find in Ho Chi Min City and Hanoi. The study team found them in the second shop they visited. Ho Chi Min City ( Ben Thanh market) The operator owns a jewelry shop located approximately 10 meters from a Western Union agency. Members of the study team pretended to be conducting a transfer operation between Canada and Vietnam. A fictitious transaction was described in the amount of $600,000. The IFT operator made a few phone calls to her contacts in Canada. She asked for a telephone number in Canada where the sender could be reached and received instructions from her correspondent in Canada. The commission was to be 6 percent. This system is part of a network connecting senders and recipients in Canada and the United States. [Source: World Bank ]
The following steps are required to complete the money transfer operation. A sender deposits money in a designated bank account in the originating economy. An IFT system operator in Canada confirms the deposit and provides a code to the remitter. The IFT system operator in Canada calls an IFT system operator in Vietnam to transmit the code; The sender calls the recipient to convey the code. The recipient receives the money in exchange for the code from the IFT system operator in Vietnam. The money is available in Vietnam as soon as the deposit of money in Canada is confirmed by the IFT system operator in Canada. This type of system could be classified as informal value transfer because there is no actual transfer of funds, but rather offsetting entries to separate accounts. Hanoi: ( Hang Bac Street) IFT operators were identified in Hanoi. However, they said that they had temporarily halted trans- fers because of pressure from authorities. They asked the study team to come back in a week.
Starting a Business in Vietnam After the War
Roger Cohen wrote in the New York Times, “After the war and failed flight overseas, after her father’s persecution and the knowledge of hunger, it was the miracle of the crispy pancake that changed things for Trinh Diem Vy. That pancakes save lives is not sufficiently known. That Vy’s family pancake — a savory rice-flour creation turned a warm yellow by turmeric and stuffed with shrimp, pork, bean sprouts, star fruit, mixed herbs, green banana — can reconcile a war-ravaged nation like Vietnam is a truth this woman has lived. [Source: Roger Cohen, New York Times, January 4, 2010 *]
“Hurt still inhabits her eyes. Vy’s father worked with U.S. forces during the war. When America lost, retribution came for him in the form of Communist "re-education." Unable to put food on the table, he would bang his head against the wall in frustration. Attempts to flee in 1975 and 1978 failed. "The second time we got as far as a fishing village and there was this woman with blackened teeth, spooky-looking," Vy tells me. "She offered us clams in a broth with sweet potatoes, and I did not want to eat it but my mother made me. And the comfort of it spread through me. I guess I learned early that when I feel a deep stress, the only place that brings me back is the kitchen." *
Her renewal “began with that crisp pancake, the signature dish of the tiny restaurant her family opened in 1980. From the first, it was about balance of taste and texture. For Vy, there are five essential elements of taste — sweet, sour, hot, bitter and salty. But they demand the five elements of texture: crispy, crunchy, chewy, soft and silky. In their marriage lies the harmony that reconciles. Locals came. They chewed and talked. So did occasional visitors. The yin-yang pancake was deemed good. Former foes agreed on that. Vy liked the feel in her hands of the mangos blotchy from the sun, the coarse-skinned pomelos, the turmeric root gnarled as ginger, the crinkly rice paper and crisp-stemmed morning glory. *
“She mused on her future — and took a practical romantic step. He was from the North, of "clean background," and so he opened party-controlled doors. "My husband gave me space, I was able to do things," she says. Was it a loveless marriage? "Let’s say we are modern friends." So it was that the daughter of a man who fought with the Americans married into a family that fought against the United States: of such compromises has Vietnam’s fast-growing prosperity been built. And so it was that Vy got authorization to open her own restaurant, "Mermaid," in 1990, about the time that the Communists were deciding socialism was really whatever made the people happy. *
“Vy now has four restaurants. She’s a successful entrepreneur in a country where communism is capitalism. She dreams of the quiet life but "is riding the tiger" for now. That takes balance, which is what her food is about. She explains texture. A pear or bean sprout is crunchy. Deep-fried is crispy. Chewy is, well, Vietnamese meat. Good rice is soft and silky. American food, by contrast, tends toward uniformity of texture and instant, illusory satisfaction. *
“Vietnam induces wonder. All the French blood, American blood, Vietnamese blood, the decades of war, has been conjured away. Nations where women are succeeding and compromise is prized are capable of that. Vy has balanced out the past. Women do that a lot better than men. She worries about the speed of development now, tells me "we are selling the young rice" (a Vietnamese metaphor for being impatient), losing the life of the spirit to globalized material things. Prospective daughters-in-law need no longer prove their worth by preparing a good "pho" — the national broth. "People want shortcuts, but in cooking there are no short cuts," she says. With that Vy offers me a wonderful banh mi op la, that marriage of the French baguette, eggs, chili, fresh herbs and spices that in itself seems almost worth a colonial war. The banh mi is an act of balance like Vy’s inspiring life. *
Problems Doing Business in Vietnam
One Hong Kong consultant group labeled Vietnam as the "most stressful" place to do business. An analysts told Time: "in the medium and long term, Vietnam is extremely exciting. The short term is full of frustrations." Some American companies have packed up and left. Businessmen that stay swear by the adage 'the dog that hangs on the longest gets the bone."
Problems with doing business in Vietnam included few commercial banks, non-existent legal system, price gouging on telephones and office space, bankruptcy laws but no regulations to support it. "There's no comprehensive system of law covering investment, taxes, mortgages, bankruptcy, insurance or other cornerstones of a free-market economy. Most of all this country needs law. And it needs the means of enforcing laws."
Commenting on the Vietnamese economy, an American businessman told Karnow, "the head of the dragon knows where it's going but I'm not sure the tail does." An executive at General Electric told the Washington Post, "the country lacks basic laws about how you run companies, how you reward shareholders—very basic things that as a businessman you want to have in place before you put in serious money.
The cost of doing business is often higher than China because of corruption. "You can get away with almost anything in Vietnam if you have a few dollars to pay a tiny fine or pay someone off," an American businessman told the New York Times. "That's got to stop if this country wants to make real progress."
Nepotism, Corruption, See Corruption
Red Tape in Vietnam
There is a lot of red tape in Vietnam. An investment license requires the approval of at least a dozen ministries and committees. In the 1990s the paperwork and approval process for even the most straight-forward investment often took more than two years. An American businessman told the New York Times, "in this country you have to go strictly by the book, and the book is very thick." Businessmen frustrated by the fact it seems they need authorization from every layer of the thickly layered bureaucracy. One man told Time it is "better than the old days. then, if you were dying and needed a blood transfusion, you'd have to get prime Minister Phan Van Dong to sign off."
There are a multitude of regulations and laws affecting taxation, trade, banking and other activities. The firmly-entrenched bureaucracy is hard to dismantle and as a result the government often moves at "glacial speeds" to make reforms, One American businessman told the New York Times: "There are laws that come out every week, and you're not sure how they are going to be implemented. Even when you read the laws, you're not always immediately aware what they mean."
The World Bank's 2010 "Doing Business report" says it takes on average 44 days and nine administrative procedures to start a business in Vietnam, compared with an average of 39 and eight in the rest of Asia.The American Chamber of Commerce had to cancel a big bash in 1994 celebrating the end of the U.S. trade embargo on Vietnam when it was informed by party cadres shortly before the party was to begin that meetings of 10 or people required a license. Twenty years many foreign business people in Vietnam complain things haven’t improved much.
In February 2001, The Star reported: "Vietnam has the most red tape in Asia with India a close second, according to a survey published in Hong Kong Monday. At the other end of the scale, Hong Kong and Singapore were rated as the locations where businessmen ran up against the fewest regulations. Businessmen in 13 Asian countries were asked to rate the bureaucracies where they worked on a scale of one to 10 with the lower the score meaning the less red tape. Vietnam scored 9.5 and India 9, with China close behind with a score of 8.9. Thailand, Indonesia and the Philippines all scored 8. In the middle range for red tape, Taiwan scored 6.57, Malaysia scored 6.5, South Korea 6.3 and Japan 6. The least red tape was encountered in Hong Kong, which scored 3.29; Singapore, 3.6; and Australia, 4.The annual survey by the Hong Kong-based Political and Economic Risk Consultancy described civil servants in Vietnam as "some of the most difficult to work with in Asia.'' [Source: The Star (Malaysia), February 27, 2001]
Secrecy and Corruption Make It Difficult for Outsiders to do Business in Vietnam
AFP reported: “Corruption and vast, overlapping layers of bureaucracy are often considered the main barriers to continued market reforms in a country that is rich in natural resources and has a cheap, hard-working labor force. However, the secrecy of the system is also a major hindrance to foreign investors as well as to Vietnamese themselves. Information is extremely difficult to obtain. [Source: Agence France Presse, March 3, 2003 ~|~]
"I am disconcerted by the question of knowing who is in charge. It is a collective system, but that means no one ever really takes responsibility," said one foreign diplomat. Other diplomats based in the political capital Hanoi and the southern commercial hub of Ho Chi Minh City have many different interpretations about how the system works and who decides what. "Everyone has their own theories or analysis, but everyone is wrong. The reality is that no one knows how it works," says another envoy. "The Vietnamese hardly know any more than us. One day I had a meeting with someone who I considered was very reliable. "He assured me that it was out of the question that Vietnam would sign a trade agreement with the United States. However, a few days afterwards, the agreement was signed," he said, referring to the July 2000 US-Vietnam trade pact. ~|~
“No one really knows what lies behind the public face of unanimity of the communist regime. Decision No 28 of November 2002 theoretically obliged all foreign embassies, companies and institutions based in Vietnam to present their public documents, statements and reports to the Ministry of Culture and Information for approval. Not surprisingly, the directive has been widely ignored, but nevertheless it remains in force. ~|~
"The habits of secrecy die hard in the Vietnamese system. If something has not been explicitly cleared to share with foreigners, in effect, it's a state secret," said Raymond Burghardt, US Ambassador to Vietnam, last month. His views are widely held among foreign community within Vietnam. A flow chart of the power structure in Vietnam can produce surprises. In the government or a state-owned company, the number two is some-times more powerful than his supe- rior. For investors, this can often prove a crucial issue. "In certain public enterprises, one does not know who is responsible," said one lawyer for an overseas firm. "I saw a Hong Kong company signing a contract with a state company before realising that the document was invalid. It had not signed it with the correct person. The legal concept of ‘appearance' does not exist in Vietnam." ~|~
Running Afoul with the Law Trying to Do Business in Vietnam
A police raid deprived Nguyen Gia Thieu of both his business and his liberty. The state says he's a tax cheat. But others fear he's just a victim of local jealousies. Reporting from Ho Chi Minh City, Barry Wain wrote in The Far Eastern Economic Review, “ Nguyen Gia Thieu had reason to step cautiously into Vietnam. After all, two previous generations of his family had lost fortunes there. In the 1940s, his wealthy grandfather surrendered his vast land holdings as communist-led guerrillas advanced into northern Vietnam. Thieu's father was even more unlucky: In 1954, he had to abandon his business in Hanoi when Ho Chi Minh assumed power. After partially rebuilding the business, he lost it all again with the fall of South Vietnam in 1975. Still, until fairly recently, it looked like the 39-year-old Thieu, who fled Vietnam in his teens, and his brother and business partner, Nguyen Trong Thang, had beaten the family curse. Their company, Dong Nam, held the main Nokia, Samsung and Swatch franchises in Vietnam. Using aggressive promotion and Western advertising techniques, the brothers built a dominant position for their brands in Vietnam's booming mobile-phone market. [Source: Barry Wain, The Far Eastern Economic Review, May 8, 2003 \^]
“Then, in January, it all went wrong. In a scene that could have come from a bad TV show, dozens of rifle-wielding, camouflage-wearing police officers raided Dong Nam's headquarters in Ho Chi Minh City. Thieu and a number of other company officials were later arrested. Police carted off boxes of phones, cash and records. Other Dong Nam offices and outlets were raided too. The reason? Tax evasion, said the authorities. Dong Nam, claimed officials, was smuggling cell phones into Vietnam and declaring others at artificially low prices to save more than $6 million in taxes. The company's owners deny the accusations. But whether they're true or not, critics point out there's hardly a grocery store in Vietnam that gets by without fudging the numbers to get round the country's onerous tax laws. \^\
“Instead, say critics, Dong Nam was targeted for another reason: Local companies with powerful connections to the communist party resented the success of an overseas-Vietnamese concern and wanted a slice of its fast-growing business. Such suspicions have chilled the investment climate and raised a raft of troubling issues about the rule of law and the country's willingness to permit a level playing field for business. Noting that foreign investment is falling anyway, one Western professional who advises foreign clients says, "These things don't help." The impact has been particularly felt among overseas Vietnamese who typically compete in the domestic market, where they often encounter politically connected, entrenched local interests. Summing up his community's fears, one Vietnamese-American executive says of Thieu, "They waited until he became rich and took everything away." \^\
“Thieu and his brother Thang both escaped Vietnam by boat as part of the great refugee exodus in the late 1970s. Thieu was just 16 at the time and Thang was 23. They both wound up in France, acquired educations, and ran their own companies in Europe. In 1991, the older brother formed Dong Nam Associates in Hong Kong. Then, in 1997, Thieu, who had returned to Vietnam four years earlier, bought a company he was working for there and renamed it Dong Nam Telecom Services. Thieu's company was soon dazzling Vietnam with its modern showrooms, distribution network and service centers, turning the country into Dong Nam's second-biggest market. Thieu was dazzling Vietnam in other ways, too. He was active on the social scene and made a splash last year when he married Ha Kieu Anh, a former Miss Vietnam. \^\
“Dong Nam Vietnam focused on Nokia and Samsung mobile phones, for which it was the sole authorized distributor, helping the two brands to grab a combined 80 percent share in a market estimated to be growing by 50 percent-60 percent annually. Company sources say that Dong Nam' sales in Vietnam rose to $40 million last year from about $25 million the previous year and that the company employed 700. \^\
“And then, on January 2, came the raid. It was clear that this was no ordinary police swoop: State-owned TV crews were already in place well before the police arrived, which journalists in Vietnam say usually only happens if the authorities arrange it. Thieu, his deputy, the company's chief accountant, a shipping clerk and a warehouse employee were later accused of tax evasion or smuggling — or both. Thieu, the clerk and the warehouse staffer were arrested and remain in custody. An independent Nokia dealer in Ho Chi Minh City, who was also accused of tax evasion and smuggling, allegedly told police that Thieu paid him to smuggle phones into Vietnam for Dong Nam, according to local press reports. Dong Nam's top dealer in the Hanoi area was also implicated. A third dealer was to have been formally accused, but police couldn't locate him. The prosecutor's office hasn't announced yet if any of the accused will stand trial. \^\
“The names of Thang and his 44-year-old wife, Bui Thien Kim, both of whom are French nationals, along with Thieu's 27-year-old wife, Anh, who is Vietnamese, were circulated to border police to prevent them leaving the country. Thang (who had retired back to Vietnam but was still involved in Dong Nam) and Anh remain in Vietnam. But when police tried in early April to formally accuse Kim, a director of Dong Nam Hong Kong, they found she was no longer in the country. Few in the business community were shocked by the claim that Dong Nam might be trying to minimize its tax burden. After all, as one Western expert puts it, Vietnam's tax laws are no more than "negotiating tools" for underpaid tax officials, who actively connive with companies to reduce their taxes in return for under-the-table pay-offs. Further, most private companies are evading taxes on 90 percent-95 percent of their profit, according to another Western specialist who has studied the accounts of many local companies. \^\
Reasons Why Overseas Vietnam Have Trouble Doing Business in Vietnam
Reporting from Ho Chi Minh City, Barry Wain wrote in The Far Eastern Economic Review, “What has shocked the Viet Kieu, or overseas Vietnamese, is the realization that they are still easy targets in a system that fails to guarantee due process. Thieu has been denied access to a family-retained lawyer, while officials apparently are invoking an old policy to insist he isn't really French because he never officially renounced his Vietnamese citizenship. Capping it all, government-controlled newspapers have published dozens of articles presuming Dong Nam's guilt and have given sordid details about his alleged philandering. His family's persistent denials are ignored. More than anything, the case is a reminder that not much has changed since the early 1990s, when the high-profile overseas-Vietnamese company Peregrine Capital Vietnam, which distributed cars and had stakes in banking and property, collapsed after it was accused, like Dong Nam, of smuggling and under-invoicing. "The more things change, the more they stay the same," says a person with intimate knowledge of the Peregrine episode. "It's the same media campaign, the same accusations — all that." [Source: Barry Wain, The Far Eastern Economic Review, May 8, 2003 \^]
“Not that some Viet Kieu aren't guilty of cutting legal corners and trying to take advantage of Vietnam's weak administration. But overseas Vietnamese looking to the Dong Nam case for reassurance that they and the government are closer to genuine understanding and reconciliation will be disappointed. Hanoi insists there's no problem. It has wooed the Viet Kieu by gradually giving them the same legal status as citizens. Indeed, with Vietnam's trade deficit widening, Viet Kieu remittances of about $3 billion a year are more critical than ever. \^\
“Yet, despite official policies, the Dong Nam crackdown seems to reinforce a key lesson learned by the Viet Kieu a decade earlier: Their best approach to doing business in Vietnam is to stay small, keep quiet and avoid attracting the attention of well-connected locals. Dong Nam is hoping it still has a future in Vietnam. In the past, some multinationals accused of tax evasion have negotiated fines with the authorities and continued functioning. But Viet Kieu companies lack the muscle of multinationals, and the word has gone out in the business community that it's all over for Dong Nam, as far as the authorities are concerned. Dong Nam now is restricted to servicing a trickle of old customers. Rival firms have poached some of the 200 engineers, 200 sales staff and 50 managers Dong Nam trained and once deployed. That leaves Dong Nam with little more than a few security guards to watch over empty shops. \^\
“Why was Dong Nam targeted for a crackdown? The official explanation — tax evasion — doesn't convince everyone. Instead, say critics, it was picked on because rivals resented its success and well-connected local companies wanted a slice of its business. To bolster that argument, sceptics point to the political credentials of the companies that are taking over its business. One is the Corporation for Promoting and Financing Technology, or FPT, which has picked up the Samsung phone business it lost to Dong Nam less than two years ago. The company is headed by Truong Gia Binh, a former son-in-law of the legendary Gen. Vo Nguyen Giap, and is backed by the conservative Ministry of Science and Technology. The ministry sold a 49 percent holding in the then-state corporation last year, but retains a controlling interest. Binh also has a small personal stake in FPT. \^\
“Samsung confirms it has re-engaged FPT, despite dropping it in August 2001 in favor of Dong Nam. In their 18 months together, Dong Nam partnered Samsung to a 28 percent market share in the hand-phone business from about 7 percent. Another beneficiary is Tran Thu Thao, who owns and runs the obscure Lucky Producing Trading and Import Export Company. It has won Nokia's lucrative phone sales and distribution business, even though it has no track record in the field. The choice of Lucky startled many business people in Ho Chi Minh City. "This company came out of the blue," says a foreign businessman. "There are more-established industry operators." Thao, who has a revolutionary family background, has friends at the very top of the communist party and is related to the Nokia dealer apparently prepared to testify against Dong Nam and its general director, Nguyen Gia Thieu. Thao declined to comment. \^\
“Tai San Tao, general manager of Nokia in Vietnam, defends the selection of a company formed only last year. Experience in distributing hand-phones isn't necessarily the most important criterion, Tao says. "The Lucky team and distribution channel bring valuable knowledge and experience gained through distribution of high-value lifestyle branded products, such as motorcycles and cosmetics," he says. \^\
Land Regulations in Vietnam
No is allowed to own land in Vietnam. There is no private land ownership. Instead there are land-use leases. Foreigners are limited 50-year leases. In 1995, the government banned of conversion of agricultural land to industrial land, and confiscated legal title to all land and prohibited borrowing against land. In a study by Jones Kand LaSalle Vietnam ranked last in real estate transparency.
Land Use Rights and Land Use Right Certificate: Private ownership of land is not permitted in Vietnam and the people hold all ownership rights with the State as the administrator. However, the laws of Vietnam allow ownership of a right to use land. This right is called the Land Use Right ("LUR"). LUR to foreign investors allows title holders to conduct real estate transactions, including mortgages. There are three main regimes for investors to acquire LURs from the States: 1) Allocation: The State can allocate LURs by administrative decision to national entities only. Allocated LURs can be subject to a land use fee or not, depending on the cases. 2) Recognition: The State can "recognize" LURs to national entities only, in which case no fee is applicable. 3) Leasing: The State can lease LURs on the basis of a contract to both national and foreign entities. LURs leases are subject to a land use rent and are the only form of land ownership available to foreigners. Foreign investors in Vietnam obtain LURs (a) by way of a JVC to which a local Vietnamese partner contribute LUR as capital contribution, or (b) by way of land leased directly from certain permitted lessors such as the State. [Source: U.S. Embassy in Vietnam ^]
Land Lease: A foreign investor may lease the land directly from the Government after he/she establishes an FIC in Vietnam. Lessors permitted to lease land to FICs. Previously, FICs in Vietnam could only lease land from the Government or sublease land from an infrastructure developer. In addition to these lessors, the current Land Law has allowed FICs, which are set up by foreign investors in Vietnam, to lease land from: 1) Vietnamese economic organizations (including State-owned companies), private joint stock companies, and limited liability companies; 2) overseas Vietnamese citizens; or an existing FIC which leases land from the Government and develops infrastructure facilities on the land, provided that this existing FIC has paid the land rental for the whole land lease term. ^
The Land Law only allows the lessor who has obtained the land under the "allocation" regime (as opposed to the land "lease" regime) to lease his or her land to FICs. The one exception where the land obtained by the lessor under the "lease" regime can be subleased to FICs is when: 1) the Vietnamese Party has leased the relevant land before the effective date of the current Land Law, i.e., 1 July 2004; and 2) the land lease has been prepaid in full for the whole or for the majority of the lease term and the remaining prepaid term is at least 05 years. ^
Land Contribution by Local Parties to Joint Ventures: It is a matter of practice that Joint Ventures in Vietnam have local partners contribute their portion of capital in the form of the LUR value. In this case, the local partner’s land payment must not be sourced directly from the State budget. Under the Land Law, the Vietnamese party to a Joint Venture may make capital contributions in the form of the LUR only after it has received a land "allocation", rather than a land "lease", and where a payment in full for the land "allocation" has been made. Where the land usage fee payment is deferred, the contribution of the LUR into foreign investment projects is still permissible as far as the deferment is allowed in writing by the relevant People's Committee. There is one exception under the Land Law where a Vietnamese party which "leases" land from the Government can make its contribution in the form of the LUR to a Joint Venture. This exception requires the two conditions as explained above to be satisfied. After the Joint Venture is incorporated as a result of the issuance of the investment certificate by the Licensing Authority, the LURC will be issued to and in the name of the Joint Venture. ^
The lease term must be consistent with the duration of the approved project provided that it must not exceed 50 years or, in some special circumstances, 70 years.The extension of the lease term may be allowed by the Government upon expiry if the lessee wants to continue to use the land, provided that: 1) the lessee has complied with the land regulations during its use period; and 2) the use of land is consistent with the approved land plan. Foreign investors wishing to extend their lease term must obtain approval to do so. Foreign investors must apply for an extension 06 months before expiration of their LURs and include in their applications an amended business or production plan approved by the relevant authorities. ^
Rights of foreign investors to the land leased: The LUR of foreign investors shall vary depending on the payment arrangement of land rentals. Where land is being leased from the Government, the Land Law contemplates two payment arrangements of land rental: 1) annual rental payment (the "Annual Arrangement"); and 2) one-off payment of rental for the entire lease term (the "One-off Arrangement"). ^
Under a land lease for the Annual Arrangement, the FIC could use the land only and is not allowed to transfer, sub-lease, or mortgage the LUR.In addition to the LUR given under the Annual Arrangement regime, FICs adopting the One-off Arrangement regime have the additional rights as follows: 1) rights to transfer LURs and assets attached to the land (foreign investors with an Annual Arrangement may only transfer assets attached to the land); 2) rights to sublease land and assets attached to the land; 3) rights to contribute LURs and assets attached to the land as capital of joint ventures; and 4) rights to mortgage LURs and assets to credit institutions in Vietnam during the term of the lease. ^
Land Rent Incentives: Land and water surface rent exemptions and reductions apply to a number of investment projects which satisfy certain conditions such as investment in encouraged sectors or certain fields of business and/or encouraged geographical locations. FICs and foreign parties to BCCs may enjoy land and water surface rent exemptions between 03 years to the whole operation period and land and water surface rent reduction in some cases. ^
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Vietnamtourism. com, Vietnam National Administration of Tourism, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, Fox News and various websites, books and other publications identified in the text.
Last updated May 2014