Vietnam: Asia’s Rising Star for U.S. Trade & Investment
Vietnam: Asia’s Rising Star for U.S. Trade & Investment
Market Overview
On a September 2023 state visit to Vietnam, a historic new phase of cooperation by elevating the bilateral relationship to a Comprehensive Strategic Partnership (CSP) was announced. Since the two sides agreed to enter a Comprehensive Partnership in 2013, bilateral trade between the United States and Vietnam grew from USD30 billion to more than USD139 billion, a 360% increase. The Joint Leaders’ Statement announcing the CSP upgrade reaffirmed the importance of trade and investment collaboration and highlighted innovation-driven economic growth as a foundation of the bilateral relationship. On the heels of this momentous occasion, U.S. businesses should have much to be excited about in the Vietnam market.
Previously, U.S. firms were slow to take advantage of the growing opportunities that Vietnam presented; however, U.S. firms are increasingly looking towards this market as a key component to their growth strategy in Asia. This Country Commercial Guide is intended to introduce U.S. exporters to doing business in Vietnam and provide the foundation necessary for an American firm to take the initial steps needed to pursue business here.
Top five reasons why U.S. companies should consider exporting to Vietnam:
- The fastest growing middle and affluent classes in the region, providing the right demographics for growth and receptivity to U.S. products and services.
- Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world.
- Strong GDP growth expected to continue for the medium-term.
- Large population of almost 100 million consumers (#15 globally), half of which are under the age of thirty.
- Political stability.
The U.S.-Vietnamese commercial relationship has grown dramatically since the United States lifted its trade embargo against Vietnam in 1994 and the two countries renewed diplomatic relations in 1995. Twenty-eight years after normalizing relations, the United States is now Vietnam’s largest export market and the United States is a major source of foreign direct investment in Vietnam, helping fuel Vietnam’s remarkable economic growth. The United States has also benefitted from stronger trade ties. Over the past five years, Vietnam’s export revenue to the United States surged 230%, while its import value grew by more than 175%. This country of almost 100 million consumers, with an overwhelmingly positive view towards the United States, exhibits the demographics needed for continuous growth over the next 20 years, a rising star among Asia’s bustling economies.
The 1986 launch of a series of economic reforms collectively referred to as Doi Moi helped Vietnam move from a subsidiary economy to a globally integrated, socialist-oriented market economy. In fact, since 1990 Vietnam’s average economic growth rate of 5.5% ranks second only to the People’s Republic of China (PRC) in Asia. In 2022, Vietnam’s GDP growth was approximately 8%. Additionally, the shift of manufacturing operations from the PRC to neighboring nations is also contributing to Vietnam’s economic growth and increasing importance in global supply chains.
The 2001 U.S.–Vietnam Bilateral Trade Agreement (BTA) transformed the bilateral commercial relationship between the two nations and accelerated Vietnam’s entry into the global economy, with Vietnam joining the World Trade Organization (WTO) in January of 2007. Since the BTA, bilateral trade increased from USD 2.9 billion in 2002 to over USD 139 billion in 2022, transforming Vietnam into the sixth largest source of U.S. imports and 28th largest destination for U.S. exports.
Vietnam is one of 14 member countries comprising the Indo-Pacific Economic Framework for Prosperity (IPEF) that seeks to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness across the Asia region. Since its launch in May 2022, the IPEF members countries have engaged in intense negotiations to scope out each of the four IPEF pillars, including trade, supply chains, clean economy, and fair economy. Vietnam plays a central role in IPEF which promises to facilitate increased trade and investment in the region for American companies. Vietnam has emerged as an important market for U.S. agricultural exports in Southeast Asia. U.S. agricultural exports have grown from USD2.4 billion in 2013 to USD3.9 billion in 2021 and Vietnam is now the ninth largest market for U.S. agricultural exports.
Market Challenges
While the opportunities in Vietnam are promising, the Foreign Commercial Service acknowledges that doing business in Vietnam remains challenging. We are concerned about across-the-board bureaucratic delays as well as the lack of progress in accelerating the clean energy transition and the threat in the years ahead this could pose to Vietnam’s security, sustainability, affordability, and ability to attract foreign direct investment,
A recent AmCham member survey regarding the trade and investment outlook in the ASEAN region revealed the following areas of concern in Vietnam:
- Corruption
- Laws and regulations
- Legal system and contract sanctity
- Tax structure
- Infrastructure
The evolving nature of regulatory regimes and commercial law in Vietnam, combined with overlapping jurisdictions among government ministries, often results in a lack of transparency, uniformity, and consistency in government policies and decisions on commercial projects. Project timelines often exceed initial projections, especially when financed using official development assistance (ODA). “Tied ODA”, which must be used to procure goods or services from the country of the aid provider, in addition to corruption, continues to be a significant challenge for U.S. firms bidding on infrastructure projects. Some companies have successfully collaborated with Japanese firms to be eligible to bid on Japanese ODA funded projects, which represents the largest source of foreign ODA in Vietnam.
Vietnam has a comprehensive anti-corruption legal framework in comparison with other Asian countries. Especially since 2017, the anti-corruption efforts in Vietnam have witnessed some new milestones, with several updates to laws, regulations, and measures to strengthen the anti-corruption legal framework. In 2019, the Vietnamese government issued Resolution 02, which focuses on improving business integrity by providing measures that reduce corruption, aiming to bring Vietnam into the top four countries in ASEAN in terms of business competitiveness. The past several years have seen significant improvements in Vietnam’s anti-corruption legal framework, with the implementation of more anti-corruption actions, and the prosecution of high-ranking officials involved in corruption cases. However, corruption and administrative red tape within the government is still a vast challenge for governmental consistency and productivity and for foreign companies doing business in Vietnam. Vietnam ranked 77 (out of 180) on Transparency International’s 2022 Corruption Perceptions Index (10 spots better compared to 2021), showing that it has made some improvements since it was ranked 104 in 2020. By comparison, regional neighbors ranked as follows: Malaysia at 61, PRC at 65, Indonesia at 110, Thailand at 101, Philippines at 116, Lao PDR at 126, Myanmar at 157, and Cambodia at 150.
Many firms operating in Vietnam, both foreign and domestic, found ineffective protection of intellectual property to be a significant challenge. Online piracy is rampant in Vietnam, and increasingly, Vietnam is host to some of the most egregious piracy sites and services in the world with no clear or effective enforcement path available against these sites or their operators. Illegal content generally can be accessed via online and mobile network piracy such as download sites, peer-to-peer networks, linking sites, streaming sites, search engines, cyber lockers, apps and on social media networks.
While Vietnam has reduced tariffs on many products in line with its WTO commitments, high tariffs on selected products remain. The U.S. industry has identified a range of products, which include agricultural products, processed foods, and nutritional supplements, which have significant export growth potential if Vietnam’s tariffs could be reduced further.
Vietnam plays a critical role in strengthening diverse and secure U.S. supply chains. With its strategic location, young and tech-savvy workforce, welcome approach to foreign investment and a broad network of free trade agreements, the country has become a top destination for global manufacturing, as firms seek to increase supply chain resilience and decrease reliance on China. As a result, Vietnam is a key node in U.S. supply chains for apparel and footwear, furniture and electronics, including critical goods like semiconductors.
Furthermore, investors often run into poorly developed infrastructure, high start-up costs, unexpected tax assessments, arcane land acquisition and transfer regulations and procedures, and a shortage of skilled personnel.
Market Opportunities
In its 2022 ASEAN Business Outlook Survey, AmCham Singapore members indicated Vietnam is the top APAC country companies are considering expansion in (30%), followed by Malaysia (25%), Thailand (24%) and Indonesia (23%). Continued strong economic growth, ongoing reform, and a large population of almost 100 million – half of which are under the age of thirty – have combined to create a dynamic and quickly evolving commercial environment in Vietnam. Sales of equipment, technologies and consulting and management services associated with growth in Vietnam’s industrial and export sectors and implementation of major infrastructure projects continue to be a major source of commercial activity and interest for U.S. firms. In terms of infrastructure, the Asian Development Bank (ADB) released figures in April 2017 that mark Vietnam’s public and private infrastructure investment as the highest in Southeast Asia, accounting for an average of 5.7% of the country’s gross domestic product (GDP).
In 2022, Vietnam’s per capita GDP was USD 4,086. The Vietnamese government’s stated goal is to increase this to at least USD 18,000 by 2035. With disposable income levels in major urban areas four to five times the national average, significant opportunities in the consumer goods and services sectors are fast emerging. This is evidenced by strong growth in the number of Vietnamese students attending university in the United States, and the growing number of middle-class Vietnamese that are choosing the United States as a vacation destination.
Telecommunications, information technology, power generation, transportation infrastructure construction, environmental project management and technology, aviation, defense, and education will continue to offer the most promising opportunities for U.S. companies over the short term as infrastructure needs continue to expand with Vietnam’s pursuit of rapid economic development. Healthcare will also be a growing sector as the government expands programs and an increasingly wealthy population spends more on medical treatment.
The Government of Vietnam (GVN) plays a significant role in the economy, with state-owned enterprises (SOEs) making up 29% of GDP. The GVN strategy to “equitize” (partially privatize) SOEs in all sectors of the economy is slowly moving forward. While the GVN will maintain majority ownership in the largest and most sensitive sectors of the economy – including energy, telecommunications, aviation, and banking – the equitization process could present opportunities for U.S. companies.
Key U.S. agricultural inputs to production such as hardwood lumber, cotton, hides, skins, and feed ingredients will also continue to play a key role in helping to fuel Vietnam’s export led manufacturing strategy and as noted earlier, are responsible for U.S. agricultural products accounting for nearly half of total exports to Vietnam. Demand continues to also grow for consumption of products such as meat, dairy, and fresh and dried fruits.
Market Entry Strategy
Vietnam is not a market for inexperienced exporters or firms that do not have a well-established export department or business development unit. U.S. companies preparing to enter the Vietnam market must plan strategically and be persistent and consistent with face-to-face follow-up. It can take up to two years to make a successful sale in this market. Building relationships is important.
Depending on the sector, U.S. companies entering the Vietnam market may need to consider two marketing efforts; one for targeting the northern part of the country, which has a higher concentration of government ministries and regulatory agencies, and one for the south, which is the dominant industry hub. The two markets also differ in terms of consumer behavior and preferences.
To enter or expand in Vietnam, U.S. businesses may do so indirectly through the appointment of an agent or distributor. U.S. companies new to Vietnam should conduct sufficient due diligence on potential local agents/distributors to ensure they possess the requisite permits, facilities, workforce, and capital. Firms seeking a direct presence in Vietnam should establish a commercial operation utilizing the following options: firstly, a representative office license; secondly, a branch license; and lastly, a foreign investment project license under Vietnam’s revised Foreign Investment Law.
U.S. companies doing business in transportation, telecommunications, energy, environmental/water, civil aviation, financial services, and other infrastructure sectors are advised to develop core strategies and capabilities for bidding on ODA (World Bank, Asian Development Bank, USAID) projects. Vietnam spent about USD 128 million in the first six months of 2022 on ODA projects. Sectors prioritized for ODA funding are primarily in infrastructure construction and modernization and human resource development.
Market Overview
On a September 2023 state visit to Vietnam, a historic new phase of cooperation by elevating the bilateral relationship to a Comprehensive Strategic Partnership (CSP) was announced. Since the two sides agreed to enter a Comprehensive Partnership in 2013, bilateral trade between the United States and Vietnam grew from USD30 billion to more than USD139 billion, a 360% increase. The Joint Leaders’ Statement announcing the CSP upgrade reaffirmed the importance of trade and investment collaboration and highlighted innovation-driven economic growth as a foundation of the bilateral relationship. On the heels of this momentous occasion, U.S. businesses should have much to be excited about in the Vietnam market.
Previously, U.S. firms were slow to take advantage of the growing opportunities that Vietnam presented; however, U.S. firms are increasingly looking towards this market as a key component to their growth strategy in Asia. This Country Commercial Guide is intended to introduce U.S. exporters to doing business in Vietnam and provide the foundation necessary for an American firm to take the initial steps needed to pursue business here.
Top five reasons why U.S. companies should consider exporting to Vietnam:
- The fastest growing middle and affluent classes in the region, providing the right demographics for growth and receptivity to U.S. products and services.
- Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world.
- Strong GDP growth expected to continue for the medium-term.
- Large population of almost 100 million consumers (#15 globally), half of which are under the age of thirty.
- Political stability.
The U.S.-Vietnamese commercial relationship has grown dramatically since the United States lifted its trade embargo against Vietnam in 1994 and the two countries renewed diplomatic relations in 1995. Twenty-eight years after normalizing relations, the United States is now Vietnam’s largest export market and the United States is a major source of foreign direct investment in Vietnam, helping fuel Vietnam’s remarkable economic growth. The United States has also benefitted from stronger trade ties. Over the past five years, Vietnam’s export revenue to the United States surged 230%, while its import value grew by more than 175%. This country of almost 100 million consumers, with an overwhelmingly positive view towards the United States, exhibits the demographics needed for continuous growth over the next 20 years, a rising star among Asia’s bustling economies.
The 1986 launch of a series of economic reforms collectively referred to as Doi Moi helped Vietnam move from a subsidiary economy to a globally integrated, socialist-oriented market economy. In fact, since 1990 Vietnam’s average economic growth rate of 5.5% ranks second only to the People’s Republic of China (PRC) in Asia. In 2022, Vietnam’s GDP growth was approximately 8%. Additionally, the shift of manufacturing operations from the PRC to neighboring nations is also contributing to Vietnam’s economic growth and increasing importance in global supply chains.
The 2001 U.S.–Vietnam Bilateral Trade Agreement (BTA) transformed the bilateral commercial relationship between the two nations and accelerated Vietnam’s entry into the global economy, with Vietnam joining the World Trade Organization (WTO) in January of 2007. Since the BTA, bilateral trade increased from USD 2.9 billion in 2002 to over USD 139 billion in 2022, transforming Vietnam into the sixth largest source of U.S. imports and 28th largest destination for U.S. exports.
Vietnam is one of 14 member countries comprising the Indo-Pacific Economic Framework for Prosperity (IPEF) that seeks to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness across the Asia region. Since its launch in May 2022, the IPEF members countries have engaged in intense negotiations to scope out each of the four IPEF pillars, including trade, supply chains, clean economy, and fair economy. Vietnam plays a central role in IPEF which promises to facilitate increased trade and investment in the region for American companies. Vietnam has emerged as an important market for U.S. agricultural exports in Southeast Asia. U.S. agricultural exports have grown from USD2.4 billion in 2013 to USD3.9 billion in 2021 and Vietnam is now the ninth largest market for U.S. agricultural exports.
Market Challenges
While the opportunities in Vietnam are promising, the Foreign Commercial Service acknowledges that doing business in Vietnam remains challenging. We are concerned about across-the-board bureaucratic delays as well as the lack of progress in accelerating the clean energy transition and the threat in the years ahead this could pose to Vietnam’s security, sustainability, affordability, and ability to attract foreign direct investment,
A recent AmCham member survey regarding the trade and investment outlook in the ASEAN region revealed the following areas of concern in Vietnam:
- Corruption
- Laws and regulations
- Legal system and contract sanctity
- Tax structure
- Infrastructure
The evolving nature of regulatory regimes and commercial law in Vietnam, combined with overlapping jurisdictions among government ministries, often results in a lack of transparency, uniformity, and consistency in government policies and decisions on commercial projects. Project timelines often exceed initial projections, especially when financed using official development assistance (ODA). “Tied ODA”, which must be used to procure goods or services from the country of the aid provider, in addition to corruption, continues to be a significant challenge for U.S. firms bidding on infrastructure projects. Some companies have successfully collaborated with Japanese firms to be eligible to bid on Japanese ODA funded projects, which represents the largest source of foreign ODA in Vietnam.
Vietnam has a comprehensive anti-corruption legal framework in comparison with other Asian countries. Especially since 2017, the anti-corruption efforts in Vietnam have witnessed some new milestones, with several updates to laws, regulations, and measures to strengthen the anti-corruption legal framework. In 2019, the Vietnamese government issued Resolution 02, which focuses on improving business integrity by providing measures that reduce corruption, aiming to bring Vietnam into the top four countries in ASEAN in terms of business competitiveness. The past several years have seen significant improvements in Vietnam’s anti-corruption legal framework, with the implementation of more anti-corruption actions, and the prosecution of high-ranking officials involved in corruption cases. However, corruption and administrative red tape within the government is still a vast challenge for governmental consistency and productivity and for foreign companies doing business in Vietnam. Vietnam ranked 77 (out of 180) on Transparency International’s 2022 Corruption Perceptions Index (10 spots better compared to 2021), showing that it has made some improvements since it was ranked 104 in 2020. By comparison, regional neighbors ranked as follows: Malaysia at 61, PRC at 65, Indonesia at 110, Thailand at 101, Philippines at 116, Lao PDR at 126, Myanmar at 157, and Cambodia at 150.
Many firms operating in Vietnam, both foreign and domestic, found ineffective protection of intellectual property to be a significant challenge. Online piracy is rampant in Vietnam, and increasingly, Vietnam is host to some of the most egregious piracy sites and services in the world with no clear or effective enforcement path available against these sites or their operators. Illegal content generally can be accessed via online and mobile network piracy such as download sites, peer-to-peer networks, linking sites, streaming sites, search engines, cyber lockers, apps and on social media networks.
While Vietnam has reduced tariffs on many products in line with its WTO commitments, high tariffs on selected products remain. The U.S. industry has identified a range of products, which include agricultural products, processed foods, and nutritional supplements, which have significant export growth potential if Vietnam’s tariffs could be reduced further.
Vietnam plays a critical role in strengthening diverse and secure U.S. supply chains. With its strategic location, young and tech-savvy workforce, welcome approach to foreign investment and a broad network of free trade agreements, the country has become a top destination for global manufacturing, as firms seek to increase supply chain resilience and decrease reliance on China. As a result, Vietnam is a key node in U.S. supply chains for apparel and footwear, furniture and electronics, including critical goods like semiconductors.
Furthermore, investors often run into poorly developed infrastructure, high start-up costs, unexpected tax assessments, arcane land acquisition and transfer regulations and procedures, and a shortage of skilled personnel.
In its 2022 ASEAN Business Outlook Survey, AmCham Singapore members indicated Vietnam is the top APAC country companies are considering expansion in (30%), followed by Malaysia (25%), Thailand (24%) and Indonesia (23%). Continued strong economic growth, ongoing reform, and a large population of almost 100 million – half of which are under the age of thirty – have combined to create a dynamic and quickly evolving commercial environment in Vietnam. Sales of equipment, technologies and consulting and management services associated with growth in Vietnam’s industrial and export sectors and implementation of major infrastructure projects continue to be a major source of commercial activity and interest for U.S. firms. In terms of infrastructure, the Asian Development Bank (ADB) released figures in April 2017 that mark Vietnam’s public and private infrastructure investment as the highest in Southeast Asia, accounting for an average of 5.7% of the country’s gross domestic product (GDP).
In 2022, Vietnam’s per capita GDP was USD 4,086. The Vietnamese government’s stated goal is to increase this to at least USD 18,000 by 2035. With disposable income levels in major urban areas four to five times the national average, significant opportunities in the consumer goods and services sectors are fast emerging. This is evidenced by strong growth in the number of Vietnamese students attending university in the United States, and the growing number of middle-class Vietnamese that are choosing the United States as a vacation destination.
Telecommunications, information technology, power generation, transportation infrastructure construction, environmental project management and technology, aviation, defense, and education will continue to offer the most promising opportunities for U.S. companies over the short term as infrastructure needs continue to expand with Vietnam’s pursuit of rapid economic development. Healthcare will also be a growing sector as the government expands programs and an increasingly wealthy population spends more on medical treatment.
The Government of Vietnam (GVN) plays a significant role in the economy, with state-owned enterprises (SOEs) making up 29% of GDP. The GVN strategy to “equitize” (partially privatize) SOEs in all sectors of the economy is slowly moving forward. While the GVN will maintain majority ownership in the largest and most sensitive sectors of the economy – including energy, telecommunications, aviation, and banking – the equitization process could present opportunities for U.S. companies.
Key U.S. agricultural inputs to production such as hardwood lumber, cotton, hides, skins, and feed ingredients will also continue to play a key role in helping to fuel Vietnam’s export led manufacturing strategy and as noted earlier, are responsible for U.S. agricultural products accounting for nearly half of total exports to Vietnam. Demand continues to also grow for consumption of products such as meat, dairy, and fresh and dried fruits.
Market Entry Strategy
Vietnam is not a market for inexperienced exporters or firms that do not have a well-established export department or business development unit. U.S. companies preparing to enter the Vietnam market must plan strategically and be persistent and consistent with face-to-face follow-up. It can take up to two years to make a successful sale in this market. Building relationships is important.
Depending on the sector, U.S. companies entering the Vietnam market may need to consider two marketing efforts; one for targeting the northern part of the country, which has a higher concentration of government ministries and regulatory agencies, and one for the south, which is the dominant industry hub. The two markets also differ in terms of consumer behavior and preferences.
To enter or expand in Vietnam, U.S. businesses may do so indirectly through the appointment of an agent or distributor. U.S. companies new to Vietnam should conduct sufficient due diligence on potential local agents/distributors to ensure they possess the requisite permits, facilities, workforce, and capital. Firms seeking a direct presence in Vietnam should establish a commercial operation utilizing the following options: firstly, a representative office license; secondly, a branch license; and lastly, a foreign investment project license under Vietnam’s revised Foreign Investment Law.
U.S. companies doing business in transportation, telecommunications, energy, environmental/water, civil aviation, financial services, and other infrastructure sectors are advised to develop core strategies and capabilities for bidding on ODA (World Bank, Asian Development Bank, USAID) projects. Vietnam spent about USD 128 million in the first six months of 2022 on ODA projects. Sectors prioritized for ODA funding are primarily in infrastructure construction and modernization and human resource development.
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