CASE STUDY

Doing Business in
Ho Chi Minh City,
Vietnam
BUSINESS ENVIRONMENT
 OVERVIEW

Vietnam is a long, narrow, and S-shaped country located on the eastern margin
of the Indochinese peninsula.
It covers approximately 331,211.6 square kilometers (about 128,000 square miles).
Vietnam borders China to the north, Laos and Cambodia to the west, and the South
China Sea and the Gulf of Tonkin to the east.
Vietnam's population was 98.2 million as of 2021, making it the world's 15th most
populous country.
Vietnam has undergone rapid urbanization in recent decades, with the urban
population increasing from 15% in 1960 to 38% in 2021.
 HISTORY
Chinese Rule and independence

French Colonialism and Resistance

The Indochina Wars and Reunification

Post- Unification and Modern Vietnam

EARLY CHALLENGES
Vietnam's Doi Moi reform(1986) marked a major shift from a planned economy to a "socialist-
oriented market economy”.
In 1994, the United States lifted its trade embargo against Vietnam, leading to the normalization
of diplomatic relations in 1995.
Vietnam joined the Association of Southeast Asian Nations (ASEAN) in 1995 and the World
Trade Organization (WTO) in 2007.
Vietnam has pursued assertive foreign policy to strengthen and protect its territorial claims in
the South China Sea.
Vietnam's response to the COVID-19 pandemic was effective, economy bounced back relatively
quickly due to increased integration into global value chains and growth spillovers from
neighbouring countries.
Modern Economy

Vietnam has transformed from one of the world's poorest nations to a middle-income economy in one
generation.
Economic growth has been inclusive, with poverty rates declining significantly and health outcomes
improving.
Trade liberalization has been a key driver of Vietnam's development success, with the country signing
various free trade agreements.
Domestic reforms, such as the issuance of the first Law on Foreign Investment, have complemented
external liberalization.
Vietnam has become a hub for foreign investment and manufacturing in Southeast Asia, with major global
players operating in the country.
The government has set ambitious goals for the future, including becoming a high-income country by
2045 and achieving net zero emissions by 2050.
PESTLE Analysis

Political Economical
Member of Association of SE Asian nation(ASEAN) and WTO in 2007.
Communist Party(CPV) - Centralized control over media, military,
Full diplomatic ties with China in 1991
state
Doi Moi economic reforms- planned economy to socialist oriented
Special unnerving powers with government
market economy
Improved relationship with neighboring countries.
SOE contributes significantly in GDP
Trade embargo lifted by US government in 1994 .
Significant contribution by private organisations
Amended Constitution 1992 recognized the role of private sector in
Expected high investment in coming years by Japan
the economy
Joined Asia-Pacific Economic Cooperation (APEC)
Bureaucracy

Social Technological
Economically efficient labor force
Major industrial growth in Oil &Gas, Power,Real Estate, Hotels
High literacy rate
and telecommunication
Attraction towards western brands
Lack of communication channels
Young population Lack of distribution network
Hard working entrepreneurs Lack in capacity and equipment for increasing imports.
Socialist oriented market economy
High corruption
PESTLE Analysis

Environmental Legal

Restrictions in FDI
Shallow water harbors
100% ownership approved only for large &
Lack of infrastructure and transportation complex organisation as rare case
Developing tourist industry due to rich Benefits of re-exports
natural and cultural heritage Foreign companies operating through local
Long coastal area and opportunity of marine dealer can establish office only for
transport promotion of international trade or
technical support.
Equidistantly located from emerging markets
Trading / marketing / investment is
viz. Malaysia, Indonesia, China, Thailand,
prohibited for such offices
Singapore & Hong Kong Build-operate-transfer ventures allowed
Business Cooperation contract-Freedom to
design own contract
 GDP GROWTH RATE

The GDP growth rate iof Vietnam has been steadily incresing over past few years ,with the
exception of 2020- when Covid-19 pandemic caused slowdown
 GDP SECTOR BREAKDOWN

Service sector contributed the most to Vietnam’s GDP in 2021 followed by industrial and construction
and agriculture.
Agriculture Industry
OVERVIEW

Agriculture accounted for over 12.6% of Vietnam's GDP and employed 38% of the total workforce in
2021.
48 billion export revenues despite Covid 19.
Vietnam is a major exporter of agricultural products, including rice, coffee, pepper, cashew nuts, and
rubber.
The aquaculture sub-sector has expanded rapidly, making Vietnam the fourth largest seafood
exporter worldwide in 2020.
Forestry primarily serves the domestic market in Vietnam.
Climate change poses a challenge to Vietnam's agriculture sector, particularly in the Mekong Delta.
The Vietnamese government provides training and loans to help farmers transition to shrimp
farming.
Energy & Natural Resources
OVERVIEW

Vietnam's energy sector has experienced significant growth in recent years, particularly in coal, oil,
gas, and electricity production.
Vietnam has become the third largest oil producer in Southeast Asia.
Petro Vietnam, Vietnam's state-owned oil and gas company, achieved record profits of $3.48
billion.
Vietnam has a diverse mineral resource base with over 5,000 mines and ores of approximately 60
different types of minerals.
Coal production is the most important mining sector in Vietnam.
International loans have enabled Vietnam's coal production to expand rapidly in recent years.
Manufacturing
OVERVIEW

Vietnam's manufacturing sector grew steadily in 2020, despite the impact of COVID-19.
25% of Country GDP.
Foreign- Directed Investments(FDIs) played a crucial role in Vietnam's manufacturing growth,
accounting for almost 60% of the total FDI in 2020.
High-tech products, such as smartphones and electronic machinery, were major contributors
to Vietnam's export earnings.
The food processing industry was also a significant contributor to Vietnam's economy,
employing three million people and generating $17 billion in GDP in 2020.
The Vietnamese government aims to make the country the world's leading food processing
center by 2030.
 Manufacturing

China's manufacturing sector experiences rising labour cost and due to the increasing US - China trade tension, Vietnam
is well-positioned to be Asia's new manufacturing centre, particularly in the electrical and electronics sector.Vietnam has
been shifting gear into high technology, represented by around US$43 billion of high-tech export value in 2016 which is
higher than its peers including Thailand (US$34 billion), Philippines (US$32 billion) and Indonesia (US$3.9 billion).
Construction
OVERVIEW

Vietnam's construction industry remained resilient despite COVID-19 challenges, driven by a

growing urban population and public infrastructure investments.
The construction market was valued at around $60 billion in 2021 and is projected to grow at
a CAGR of over 8.71% from 2022 to 2027.
High-end condominiums in cities remained in demand, while increased business activity and
e-commerce growth fueled demand for warehousing.
Industrial real estate grew, with many developers investing in industrial park projects.
Major infrastructure projects, such as the North-South Expressway, were underway to
enhance domestic transportation capacity.
Services
OVERVIEW

The services sector is the largest sector in the Vietnamese economy, accounting for 41.6% of
GDP and employing 35% of the workforce.
Tourism is a major sector in Vietnam, but it was severely impacted by the COVID-19
pandemic, which led to an 80% decrease in international tourist arrivals.
The COVID-19 pandemic also affected other service industries, such as aviation, food
service, and traditional retail.
As a result of the pandemic, the services sector recorded growth rates of 2.3% in 2020 and
1.2% in 2021, much lower than the average of 7% from 2015 to 2019.
However, Vietnam's e-commerce sector expanded as a result of the pandemic, with an
estimated growth rate of over 20% in 2021.
Vietnam plans to restructure the services sector with modern digital technologies,
especially in transportation, trade, and tourism.
Export Partners EXPORT PARTNERS
OVERVIEW

Yt

The pie chart shows that the United States was Vietnam's largest export partner in 2021, accounting for
28.6% of all exports. China was the second largest export partner, accounting for 16.6% of all exports.
Exports & Imports
OVERVIEW

Trade drove much of Vietnam's success: In 2021, Vietnam's total exports increased 19% to $336.31
billion, while imports rose 26.5% to $312.23 billion, resulting in a trade surplus of $4.08 billion.
Vietnam had been a net exporter of services since 2018.
Vietnam showed a trade surplus with Western countries, but a series of deficits with some of its Asian
neighbors.
In 2020, the country's top export destinations were the United States (27%, $77 billion), China, Japan,
and South Korea; its main import sources were China (32%, $84 billion), South Korea, Japan, and the
United States.
The top exports were electronics, electrical machinery, footwear, clothing, and accessories.
Vietnam's main imports by value were electrical equipment, machinery, plastics, iron, and steel, as well
as optical, technical, and medical apparatus.
 The image shows the export value of
Vietnam's 10 largest commodities in US
dollars. Vietnam has a diversified export
sector with a wide range of products.
However, the top three export
commodities account for a significant
portion of total exports.
Financial Services & Capital
Markets
OVERVIEW

Vietnam's banking system did not start until 1976, with the establishment of the State Bank of
Vietnam.
In 2022, the share of Vietnamese adults with a bank account reached 66%.
As the value and volume of non-cash transactions increased during the COVID-19 pandemic, the
country recorded one of the highest digital payment values in Southeast Asia.
Vietnam had a diverse mix of banking models, including state-owned banks, joint-stock
commercial banks, and joint venture or fully foreign-owned banks.
As part of its aim to become a fully developed nation, Vietnam was committed to reforming its
financial system with plans to strengthen transparency, boost accountability, and clean up bad
debts.
Financial Services & Capital
Markets
OVERVIEW
 Inflation Rate at Vietnam

The graph shows that Vietnam's inflation rate has been declining over the past decade, from 13.62% in 2011 to
1.84% in 2021.
BUSINESS
ENVIRONMENT
Vietnam's location - its proximity to China and South East Asia, and its good sea links - makes
it a good base for foreign companies to export to the rest of Asia, and
beyond

A low manufacturing cost with low and medium skilled labour

Foreign Direct Investment strongly supported by government.

Political Stability

Foreign Trade Regime

Impact of TPP
SWOT Analysis
Strength Weaknesses
Having a large, low-cost workforce, which has made the
Vietnam's infrastructure is still weak. Roads, railways
country attractive to foreign investors.
and ports are inadequate to cope with the country's
Vietnam's location - its proximity to China and South
economic growth and links with the outside world.
East Asia, and its good sea links - makes it a good base
Vietnam remains one of the world's most corrupt
for foreign companies to export to the rest of Asia, and
countries.
beyond.

Social Technological
Increasingly attracting investment from key
Asian economies, such as Japan, South Korea and Trade disputes with the US, and the general threat of
Taiwan. This offers the possibility of the transfer of
American protectionism, which will remain a
high-tech skills and know-how.
Vietnam is pressing ahead with the
concern.
privatization of state-owned enterprises and the
liberalization of the banking sector. This should offer
foreign investors new entry points.
Workforce Composition
OVERVIEW

The unemployment rate in Vietnam remained low, despite an increase

from 1.2% in 2018 to 2.4% in 2021.
Around 79% of women aged 15 to 68 years old were in the labor force,
compared with 86% of men, a rate that eclipsed most of the OECD
countries and China's.
Labor costs were around 50% of those in China and 40% of those in
Thailand and the Philippines.
Produce low-skilled, labor-intensive mass-manufactured products and
generate massive quantities of agricultural commodities for exports,
Therefore, the Vietnamese government had invested heavily in upskilling
its workers.
WORKFORCE COMPOSITION
Foreign Direct Investments
OVERVIEW
Vietnam ranked third amongst ASEAN members for its attractiveness to foreign investors.
Factors that attracted foreign investment included political and social stability, ongoing economic reforms, the
government's commitment to expanding global trade, a young and increasingly urbanized and educated population,
and competitive labor costs.
By the end of 2021, Vietnam had cumulatively received $241.6 billion in FDI.
Of the 2021 FDI, which was $19.74 billion in total, 59% went into manufacturing, especially electronics, textiles,
footwear, and automobile parts industries; 8% in utilities and energy; 15% in real estate; and smaller percentages in
other industries.

Restrictions on FDI
There were statutory restrictions on foreign investment, such as foreign ownership limits and joint partnership
requirements for projects in banking.
For example, total foreign ownership could not exceed 50% for Vietnamese non-bank credit institutions, 34% for
aviation services, and 49% for sea transportation.
The new decree issued in 2021 provided a list of 25 business categories in which foreigners could not invest and 59
other business categories that were subject to market access requirements.
Vietnamese law allowed overseas investors to own 100% of their company and its assets, with the exception of land,
which was owned collectively by the Vietnamese people and governed by the State.
Political Overview
Vietnam is a socialist country operating under the single-party leadership of the Communist Party.
The legislative power in Vietnam is vested in the National Assembly of Vietnam. The implerentation and
administration of National Assembly legislation is delegated to 63 municipal and provincial bodies based on
geographical location.
The President of Vietnam is the head of the State, and the Prime Minister of Vietnam is the head of the
Central Government.
The Central Government is assisted by various ministries in charge of specific sectors in the management of
the country.
Ease of Doing Business Score
Vietnam, India, China, USA
 Challenges Of Doing Business in Vietnam

The main challenges of doing business with Vietnam are:

Corruption Taxation

Bureaucracy Resolving Insolvency

Lack of Intellectual Property Rights (IPR) enforcement Trading Across Borders

Inadequate infrastructure Road Quality & Traffic Congestion

Lack of skills Starting a business

Language barrier (so translators and interpreters are often needed) Enforcing Contracts
Vietnam Targets through 2030