Difficulties and advantages of FDI businesses in Vietnam

Khó khăn và thuận lợi của doanh nghiệp FDI tại Việt Nam

Investing abroad is the way to expand the size of many multinational companies, and Vietnam is one of the most popular destinations recently. If your business is wondering whether or not to choose this “destination”, this article shares the challenges and benefits of FDI business in Vietnam written by Ms. Uptalent’s summary below will be a useful guide that your business research.

2.1. Favorable
2.2. Hard

3. Change to adapt in times of competition to attract FDI capital
3.1. Synchronous integration in all its aspects
3.2. Deploying the fourth industrial revolution
3.3. Promote three strategic advances
3.4. Improving law enforcement capacity
3.5. Modernize agriculture

1. Some details about FDI companies

FDI (foreign direct investment) companies are organizations that do business, produce and invest in the country, but they are not domestic companies nor do they have the nationality of the host country.

These are foreign organizations and individuals with capital, technology, modern facilities… They bring these resources to invest in other countries to benefit from many aspects such as cheap resources, good labor market, simple legality…

The forms of investment by FDI companies are very diverse:

  • Buy shares of an existing company

  • Creation of subsidiaries and branches

  • Joint venture, association with a company in a country attracting FDI…

FDI companies

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2. Advantages and disadvantages of operating as an FDI company in Vietnam

Attractive jobs

When choosing to invest in Vietnam, FDI companies will always fully consider all aspects that the Vietnamese government applies to this economic model, generally the following factors:

2.1. Favorable

2.1.1. Political stability

National policy is very important because each political institution has different economic development directions, which have a direct impact on the interests of FDI businesses. Vietnam is a country with a stable political regime, run under the sole leadership of the Vietnamese Communist Party, so FDI investors are very sure of their long-term development.

2.1.2. Privileged geographical location

Vietnam has a favorable trade position, has a long coastline, an international port system and is able to connect to many economic gateways across the world, especially the economies of the western region of the Indochina Peninsula.

2.1.3. An abundant workforce

The large and young population, in addition to providing important consumption resources to many industries, also constitutes a potential workforce to meet the need to optimize labor costs of which companies operate. ‘FDI in Western countries need.

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2.1.4. Diversified international trade

Vietnam is currently a member of the ASEAN Economic Community (AEC), having successfully signed 12 new generation international free trade agreements, as well as bilateral and multilateral cooperation and numerous potential global markets. All of them bring a great competitive advantage in the consumption of products manufactured and exported from Vietnam.

2.1.5. Preferential tax policy

Compared to domestic companies, the tax policy of FDI companies is always more favorable from the Vietnamese government. Typically, profits tax, import-export tax, corporate tax on investments in areas encouraged by the State such as high technology, environmental protection, education, health, sport, the environment, energy savings…

Benefits for FDI businesses

2.1.6. Various industrial fields

The goods and services allowed for FDI investment in Vietnam are very diverse, companies have many choices to invest in many sectors in the same field for mutual support. This is a great advantage for multi-industry companies, with products from one industry being raw materials for another.

2.2. Hard

2.2.1. Raw material costs are increasing

The country’s natural resources are no longer as abundant as before, so they must be preserved and licensing for exploitation has become more difficult. The cost of raw materials, minerals, etc. serving certain manufacturing industries therefore tends to increase.

2.2.2. The technical level is not high

Although the labor supply is large, most of them are unskilled workers or short-term trained workers. Recruiting skilled and highly skilled workers to meet modern technological production lines is also a challenge. To resolve this situation, many companies or educational institutions have chosen to train on an order-by-order basis, thereby minimizing the need for retraining after recruitment.

2.2.3. Strict control of foreign workers

The recruitment of foreign workers in Vietnam to work for FDI companies is strictly regulated by the state, somewhat strict regarding personal conditions, technical skills and personnel management procedures. This is to ensure the provision of jobs for Vietnamese workers, but this sometimes also results in a lack of foreign human resources with high technical expertise for FDI companies.

2.2.4. Infrastructure is not high

The quality of Vietnam’s infrastructure and public services is relatively poor compared to other Asian countries such as China, Thailand, Singapore, Indonesia… Which makes the process of building factories and installation of machines. Equipment, transportation of goods/materials… cost overruns. . Therefore, although Vietnam generates a lot of investment savings, in return, the financial advantages of FDI businesses in Vietnam compared to neighboring countries are not much different.

Difficulties for FDI companies

2.2.5. Inadequate administrative procedures

Despite the preferential policy, when applied in practice, many problems with administrative procedures remain, causing many inadequacies in the process of implementing and maintaining operations of FDI companies in Vietnam. In terms of time alone, it costs on average 4 times more than neighboring countries.

2.2.6. Limited supply chain

Most large companies will not produce all the parts and components of the product, they will only focus on the essential, high brand value parts. For other small details, they will cooperate with the investment site companies. Vietnam is seriously lacking in companies capable of producing these small parts that meet international standards, so the FDI sector is not really “diversified” according to the government’s attraction orientation.

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3. Change to adapt in times of competition to attract FDI capital

Many Asian countries encourage the attraction of FDI capital. In addition to the context of deep integration with global economic cooperation standards, many of Vietnam’s competitive advantages are no longer as remarkable as before.

Faced with this challenge, the Vietnamese government has established early transformation directions to adapt to new competitive conditions:

3.1. Synchronous integration in all its aspects

To develop, the Vietnamese economy cannot be separated from the global economy. And as a member of global economic associations and treaties, Vietnam’s integration process must be highly synchronized, with a close link between international commitments and economic policies, between international trade law and the legal and management apparatus of the state, between commercial development trends and the domestic market. infrastructure system.

3.2. Deploying the fourth industrial revolution

Also known as Industry 4.0, which focuses on the development of digital technology through the Internet, creating rapid and convenient commerce on a global scale. In this trend, Vietnam must strive to innovate the national growth model associated with industrial revolution 4.0 by perfecting digital infrastructure, improving security and maximizing the convenience of information connection, reducing costs of use of the Internet… in a spirit of cooperation, of learning. and rapid application of all 4.0 technological improvements

Attracting business capital FDI

3.3. Promote three strategic advances

Include:

  • Institutions: Changes in the international business environment should be quickly studied and adjusted in laws, regulations, rules, regulations… in Vietnam so that FDI companies can easily grasp and understand them. does not create much difference between investment activities in their country and Vietnam. Train and strengthen the work capacity of the system of managers and civil servants, avoiding overlap, fear of responsibilities, pressure on work or negligence in orientation.

  • Human Resources: Gone are the days of competition based on cheap human resources, we must now aim to build a team of competent human resources with high technical qualifications to learn and respond effectively to all the needs of FDI companies from developed nations. Training students according to the orders of FDI companies is a good direction that should be encouraged.

  • Infrastructure: Not only in terms of roads and transportation, but even the supply chain system needs to be improved. In fact, Vietnam’s capacity and technology are fully capable of meeting strict international standards, but we have not updated and prepared in advance, only when FDI companies refuse and state their reasons . For this reason, we simply started looking for a solution. so we are already behind other countries.

3.4. Improving law enforcement capacity

The e-government application allows FDI companies to learn and complete administrative procedures quickly, easily and transparently. Save time and costs for investors, especially new FDI companies operating in Vietnam.

3.5. Modernize agriculture

The construction of new rural areas will help Vietnam leverage its large land fund, solve the problem of surplus labor and increase local budget revenues. Workers will no longer need to leave their hometowns to find work, land will no longer be wasted, thus optimizing investment costs for FDI companies.

Through today’s article, Ms. Uptalent shared in detail the difficulties and advantages of FDI businesses in Vietnam. Although difficulties remain, with a strong orientation towards attracting foreign investment, the Vietnamese government strives to minimize the remaining disadvantages, creating a favorable, stable and secure investment environment for all long-term cooperation needs international friends.

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