Doing Business in Vietnam vs China

More and more companies are setting up offices and moving production to Vietnam as the cost of doing business in China increases and Vietnams labour costs are as much as 50% lower

The Vietnam government has proved itself very stable and its officials very welcoming and helpful. The government has been creating modern business parks and Hanoi has quickly caught up with Ho Chi Minh (Saigon) as a good place to do business. Hanoi also benefits from its closeness to China and having a port close by at Haiphong

The Vietnamese labour force is young and plentiful but is not so overtime hungry as China as there is less migrant labour. Rather than building a dormitory you will need to create parking spaces for the motorbikes of your labour force!

Vietnam has large and efficient ports in Ho Chi Minh, Da Nang and Hanoi (Haiphong). Rent, rates and utility costs are low.

Vietnam is also less susceptible to the anti dumping duties that have been imposed on China. For the apparel industry China suffers a 12% anti dumping duty that Vietnam does not. Add this to the payroll saving of 50% then you can already see a significant cost advantage. However as in China you need to take account of Social Security costs, which are also lower than China. Social Security costs 45-49% in China, and 21.5% in Vietnam. For 2018 it has been announced that these costs will also apply to Expatriates

Setting up a Representative Office is very similar to China. The RO can be 100% foreign owned and just like China this cannot be involved in commercial activity or manufacturing. The main permitted activities are market research and promotion of the business. You cannot sign contracts or issue invoices

If you want to sell, trade or manufacture you will need to set up a “Wholly Foreign Owned LLC” just like China’s “Wholly Foreign Owned Enterprise”. You only need one shareholder who can be a foreigner, open a local bank account and inject capital proportional to your intended business operations. If it’s a service business it could be as little as US$10,000, but for trading US$100000 or manufacturing US$250,000.

So what are the downsides? Recruiting experienced management. Having a young labour force and only becoming significantly industrialised over the last 10 years Vietnam has a significant shortage of experienced middle and senior management. Most companies have had to import middle management from China, Taiwan, Malaysia, Philippines. Senior management have often been western expatriates

 

If you need further help or advice please contact: mark@asianetconsultants.com

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