~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

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Doing business successfully in Vietnam

n the third of a three-part series, Bangkok Bank adviser Wittaya Supatanakul outlines more issues investors in Vietnam need to be aware of before making their investment decisions.Over the previous two weeks we looked at some of the key issues that prospective investors needed to understand about starting and sustaining a successful business in Vietnam. They included:

- Patenting your product before it becomes a local brand in the country.
- Understanding the culture and traditions of a people who were under the Chinese rule for more than 1,120 years and have a thinking process similar to the Chinese.
- Being patient and understanding the Vietnamese people.
- Not rushing into selecting distributors, for geographical as well as business culture reasons.

Today we will look at pricing strategy, procurement, trading and labour issues. 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.

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 labour 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:
- The minimum labour wages are US$45, $50 or $55 per month of 48-hour weeks, depending on factory zones, welfare and fringe benefits.
- For night shift (9 pm to 5 am or 10 pm to 6 am), you must pay wages that are 30% 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.
- 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.
- Foreigners need not seek work permits if they come to work for less than three months.
- Foreigners, who earn incomes and stay in Vietnam for less than 183 days in a tax year, have to pay 25% income tax. Should they stay for more than 183 days, they are to pay a progressive worldwide income tax.
- 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.
- 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.
- The standard tax rate on corporate income is 28%. For companies that are granted investment promotional privileges, the rate will be 10%, 15% or 20% with a tax break for two to four years and a reduction to half the normal tax rate for three to nine years.

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.

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.

By Wittaya Supatanakul - The Bangkok Post - December 22, 2007.