Why the Middle Class is Vietnam’s Future

By: City Pass Guide

It’s no secret that the middle class carries the economic stability of a country more than any other demographic. The recent growth of exactly this group of consumers, who have left the constraints of poverty and have reached a new quality of life, is a very good sign for all businesses in the country. Simply put, the growing middle class is the motor of Vietnam’s rapidly growing economy.

Vietnam GDP

According to the Boston Consulting Group (BCG), the “Middle and Affluent Class” (MAC) is experiencing a significant increase from 12 million people as of 2014, up to a projected 33 million people three years from now. This will be around a third of the country’s total population, which is forecast to reach 97 million by 2020.

A member of the middle class is defined by a monthly income of VND 15 million or more, which gives them significant purchasing power. Keep in mind, however, that these numbers should be taken with a grain of salt. According to the Singapore-based Institute of Southeast Asian Studies, reliable data is difficult to obtain, since the discrepancy between a worker’s official salary and their unofficial income can be quite significant.

The Implications of Change

The influence of the growing middle class can be seen in many fields already, from restaurant businesses to office buildings and nice apartments; another good sign of increased purchasing power is the high quality of imported goods flowing into the country.

The change is evident everywhere and the Vietnamese are optimistic about their wealth increasing in the future.

According to the BCG, a staggering 92 percent of Vietnamese believe that they live a better life than their parents, and 93 percent believe that their own children will live in better conditions than they do now. This optimism contributes to the stable economic growth Vietnam is experiencing at the moment.

Vietnam middle class

It’s not all good, however. One problem with the rapid development is the lack of consumer goods and distribution channels. While the real estate sector can easily keep up with the trend, shopping for suitable goods is sometimes a pain. The retail environment is simply not ready for the changing consumer behaviour, which creates occasional price and quality problems.

Resourceful business owners like Carey Zesinger of Havang prefer to see this problem as an opportunity to tap into the market.

Technology plays a part in this story as well. Vietnamese are avid internet users – a whopping 43 percent of members of the MAC are using the web on a daily basis; however, just 16 percent shop online. This may be due to a significant lack of trust and the low quality of many available online stores.

On the other hand, many businesses already know how to attract customers: by offering deals and discounts! There are few countries in the world where people are more actively hunting for deals than in Vietnam. Income class does not matter in this case: everybody loves a discount.

Trending to the Future

Of course, economic status doesn’t just affect retail businesses. Middle class families are also tending to invest in proper education for their children, which will in return increase their children’s chances of finding quality, good-paying jobs. This will help them support their own middle class family in the future. Moreover, good education increases awareness of social and health issues, which will in turn lead to responsible consumer behaviour. It’s a good cycle to start.

The demand for healthy food and high-quality, affordable goods and services ultimately drives our economy. Vietnam’s movers and shakers are beginning to realise that producing goods and services in the country will more effectively tap into the increased mass purchasing power. This, in turn, will create more and better jobs. We’re experiencing a period of economic transition in Vietnam, and this is driven in large part by the rising middle class.

When it comes to business, the window of opportunity is wide open. Of course, it comes with obstacles, risks and drawbacks. The competition is huge from both foreign investors and Vietnamese entrepreneurs. But there is rarely an opportunity without risk, so we wish you Chuc mung nam moi! May you dare and grab the rooster by the neck!


Tips on Starting a Business in Vietnam

By: City Pass Guide

Whether you want to start an LLC, JSC, franchise or any other sort of local entity in HCMC, there are myriad problems – from cultural precautions to transparency to taxes – that ultimately drive away the uninitiated.

How do you even begin to enter this exciting, yet wild territory?

LLC or JSC?

For the purposes of brevity, we’ll look at two particular local entities: the jointly-owned foreign-Vietnamese LLC, and the JSC. The following information has been gathered with the aid of the Healy Consultants PLC website.

Joint-venture LLC – There are two shareholders in a joint-venture limited liability company: a foreigner and a local. This entity allows entry into many industries and foreign ownership can range from a maximum of 49% to 99%. These companies are required to have an appointed local legal representative, a capital account at a local bank, and a Foreign Investment Certificate (FIC).

Also required is a registered local address, a certificate of deposit from a local bank for the share capital ($50,000), and yearly audited financial statements.

This entity is best for foreign business owners who want access to partially restricted industries, and when the business owner has a local partner they trust. It takes about three months to set up.

JSC – For a joint stock company, there must be three shareholders of any nationality, although one of them must be appointed as the legal representative of the business. If that representative is a foreigner, they will be required to get a work permit and show proof of at least one year of management experience.

In addition, requirements include a bank certificate as proof of the funds available for investment ($10,000), the opening of a capital account with a local bank, an FIC, and annual submission of audited financial statements.

A JSC is a useful entity for anyone looking to start a business with more than two partners. The lower investment requirements are also a plus. It takes about two months to set up.

Labour and Tax

Kenneth Atkinson, the Executive Chairman at Grant Thornton Vietnam, pointed out two big factors to keep in mind:

The tax regime and labour laws are the two most important things to keep in mind. Both are quite complex. In the context of taxes, structuring your investments from a tax-planning perspective is very important. You have to ask yourself questions like, are you investing from your personal name? Are you investing through a corporate structure? What double tax treaties exist that make it beneficial to invest from, say, Singapore, instead of Hong Kong or the U.K. What is the impact of those regulations if you exit the business through a sale?

A thorough read of the Labour Code (vietnamlegal.com.vn is a useful resource) is a must, and when it comes to local taxes, Grant Thornton’s 2016 Doing Business in Vietnam report has a great overview of tax requirements.

 

Cultural Mindfulness

If you’re coming from an Asian country, you’re likely to understand the cultural ways here better than Westerners. Gone are brash negotiations, rapid-fire contracts and cutting to the chase. Vietnam in general is a long-term game that requires patience above all else.

The client meetings at karaoke bars (now slowly being overtaken by beer club meetings), the formal business cards exchange, the contract-over-drinks approach, the sheer politeness of it all – it’s all part of getting to know you as a person. People do business with whom they trust, and foreigners here seem to like these practices enough to uphold the local business culture. As Mr. Atkinson points out: “I actually prefer being handed a business card rather than some American guy flicking it across a table at me.” A final story from Mr. Atkinson:

In 1999, we had a fairly big project with the Asian Development Bank and the Ministry of Finance. I first went to dinner with these guys at the introduction of a Vietnamese friend. We had an enjoyable dinner and a few bottles of wine. Once it ended, my friend said they liked me, but they didn’t know Grant Thornton. So I said to one of the guys, What football team do you support? He said, Manchester United. I said, That’s great because we’re the auditors to Manchester United. Then two bottles of brandy appeared on the table and we stay there for another hour and a half. In the end we actually got the job.


The Advantage of Having a Powerful Business Network

By: Victor Burrill

Go some years into a corporate career and you may notice that the reality of climbing the executive ladder is - the further up you go, the less direct feedback you tend to receive, and the more difficult it can become to ask for support from your peers. You might also find that there is nobody you know who has the know-how to guide you towards making the right strategic decisions and effectively run your organization. Nobody is brilliant enough to go the distance alone and this became the inspiration for Vietnam’s very own executive group, The Business Executive Network (BEN). This young organization was established in 2017 as a support system for executives leading both local and multinational companies in Ho Chi Minh City. 

Business Executive Network

The network operates by holding monthly functions for its members, where they meet together to discuss current topics, share their professional challenges, and even meet informally at events such as lunches and social gatherings. The majority of these meetings are held confidentially and when necessary, are professionally chaired. 

There are three primary reasons why members join this network... 

- Some come looking to build strong business relationships.

- Others seek peer support in managing their companies. 

- And some come to receive insight for their own personal development. 

Whatever the reason, each session is designed to be relevant and applicable to all members. On top of this, it is the diverse community of ethnicity, industry, and experience that really gives BEN its unique edge.

Business Executive Network

To meet BEN’s requirements of membership, applicants should be business leaders who are operating companies in Vietnam with teams of 30 or more staff. In contrast, there are some members leading teams of thousands in Vietnam alone. These requirements can be flexible however, as the group can make, and has made in the past, exceptions through internal approval. This will often happen if an applicant has a particularly strong experience in management, ambition to develop his/her business in Vietnam, and shows good rapport with other members. 

Business Executive Network

The current vision for BEN is to be the first choice for executive development and support for business leaders in Vietnam, with goals to significantly grow their number of members in 2020. With more members come more meetings, larger peer groups, and a greater, more inspiring atmosphere at leadership gatherings.

The world over, there are businesses being run, and behind each business is a leader trying to make it succeed. It is not often that these leaders have a tightly knit group of fellow leaders that they can regularly meet and confide in. As part of the Ho Chi Minh City community we are always excited to see organizations like this one grow. We really look forward to seeing the Business Executive Network grow and reach new heights over the next few years. Will you come and join us on this exciting journey?

Are you interested in joining as a member of the Business Executive Network?

Contact us:
M: (+84) 969 645 653
E: tim.andre@businessexecutivenetwork.com
W: www.businessexecutivenetwork.com

Image source: Business Executive Network


Tourism in Vietnam: The Past and Future

By: Mark Gwyther

American presidents usually give a “State of the Union” speech to the legislature around this time, discussing the past year and what their goals for the future are. While I don’t have orange skin, here is my address about the state of tourism in Vietnam and a few predictions for 2017.

travel in vietnam

Looking Back at the Monkey

Chinese and Koreans All Around...

By any measurement, last year was an excellent year for tourism in Vietnam. Out of 29 countries, only Cambodia showed a drop in international visitors to Vietnam. In fact, the number of inbound foreigners increased by nearly 50 percent in the last four years.

Those of you in Saigon reading this English-language newspaper and working in the hospitality or tourism industry may be surprised or sceptical about the numbers. That is because Vietnam has been experiencing a tremendous shift in markets. Nearly 70 percent of this growth has come from China and South Korea alone, the two largest and fastest-growing inbound markets in 2016.

This shift accelerated in 2016 at a staggering rate. Between 2012 and 2016, the number of international arrivals to Vietnam grew by 3,165,000 people. Of that increase in visitors, 2,230,000 came from China and South Korea.

The reason for the increase is pretty simple: China and South Korea have large populations with a rising average income which is creating a larger middle class. People typically begin travelling internationally when their family income reaches about $1,500 per month. The first trip is usually to a country nearby with a familiar culture. Vietnam is a close, warm-weather destination with a familiar Asian culture.

 

growth in arrivals

 

… and Also More Westerners

You might think all this growth is great, but not really relevant to your business if you rely on American, European and Australian tourists. Sorry, those markets haven’t grown significantly. That is why on 1 July 2015, Vietnam’s government waived visa fees for five European countries for a 15-day visit.

So, did it work? Apparently it did.

Granting a few months for word to spread, from November 2015 through the end of 2016 each month saw a significant improvement over the same month the year before.

However, while the chart may look fantastic, the actual increase in 2016 for these five countries averaged about 9,700 more tourists per month. Even if the fee exemption was expanded to North America and Oceania, a similar jump in tourists would result in only an average monthly increase of about 25,000 visitors this year. China and South Korea combined to grow an average of 119,000 visitors per month in 2016 and this coming year will see an even larger increase.

Just how much larger, you ask?

foreign visitors

Looking to the Rooster

Here are a few predictions for 2017:

  1. The new electronic visa system will grow eligible markets by over 50 percent.

At this time, it is not clear who will be eligible, but this may have a greater positive effect on tourism than waiving the visa fee. It seems more likely that the current system of travellers sending their passport to a Vietnamese consulate is a greater barrier than the visa fee.

  1. The number of Russians travelling to Vietnam will double in the second half of 2017.

The number of Russian travellers to Vietnam increased by 28 percent this year from last year, though the number is only up 19 percent over a two-year period. However, with U.S. sanctions likely to be lifted, the Russian currency will rise in value. Political problems in Egypt and Turkey make Vietnam a safe choice for chasing the sun.

  1. The number of Chinese tourists will grow faster than in 2016.

Chinese citizens embarked on an estimated 60 million outbound trips last year, yet only

2.6 million were to its southern neighbour. Despite China already being far and away Vietnam’s largest market, there is plenty of room to grow.

  1. Total number of international visitors to Vietnam will surpass 13 million.

See #1, #2, and #3 above.

  1. A domestic Vietjet flight will leave Ho Chi Minh City on time.

Just joking!

Let’s not get too crazy with these predictions.


Choosing the Right Web Design for Your Business

By: City Pass Guide

A website is the base for all online activities of your business. However, having a badly designed website can be worse than having no site at all. To maintain a successful online presence in Vietnam’s competitive environment, you need to adhere to the one and only commandment of design:

Form Follows Function

The online environment in Vietnam is often colourful, confusing, cluttered and chaotic. Don’t fall into that trap. To set up a profitable website for your business, you need to think about the purpose first. What do you want to use your website for? Or rather, what will your customers want to do on your website?

Case 1: My customers just want my contact information.

In theory, a Facebook profile is enough for this purpose, but your own digital business card looks more professional. And when you own your own domain name, you can and should use it for your email address.

 

Case 2: My customers want some information about my company and our products/services.

A small website with a short introduction and one page per service or product, held together by an easy-to-use navigation system, should be enough.

 

Case 3: I want to keep my customers up to date with promotions, events and company news.

This calls for a small content management system, or CMS. A CMS is where you log in and change pages or add new posts. Usually people have a section of fixed pages on their website and an extra “blog” section, where customers can follow their updates. This is the best option for restaurants.

Case 4: I want to sell my products online.

Shop plugins are available for every major CMS. These are easy to use, cheap and versatile. However, often it is not exactly what you imagine, remember that you can hire a developer to customise the product. Be careful! Customers are entering sensitive data like credit card information, so make sure the security is top-notch. Nothing ruins your online reputation faster than a security leak.

Case 5: I want to be Number One and dominate the search results.

Now we’re talking! The design still follows the function of your project, but create a code as slim as possible to make the pages load quickly and efficiently. It is also imperative to follow the prime online commandment here: Content is King. Effective SEO is necessary as well, to keep on top of Google.

In the past it was easy to fool search engines into ranking your site higher – all you had to do was list your keywords a hundred times per page. Nowadays, programs like Google are much smarter and spamming will harm your business beyond repair. Your only chance is to create content your visitors love to read and pass on to others. For quality content creation, you either have to be multi-talented, hire somebody, or buy content from a third party. But beware, many companies are still stuck in 2005 and will sell you generic content that gets you nowhere. Choose wisely!

 


Vietnam’s Labour Laws: What You Need to Know

By: Keely Burkey

Are there any legal differences between hiring an expatriate and a Vietnamese worker?

An expatriate worker must have a work permit to work in Vietnam (although there are some exceptions). Also, if an expatriate works with a contract of longer than three months, they must have statutory health insurance. All local workers are subject to social, health and unemployment insurance.

Has the increase in foreign businesses and workers affected labour laws?

The government has made it harder for expatriates to obtain work permits and work visas. The process is generally longer than it used to be, too. Theoretically, expats are only supposed to be doing jobs that Vietnamese people wouldn’t be able to do.

What’s the biggest issue employers face when it comes to labour laws?

Most labour disputes are centered around wrongful termination. In other countries, like the United States, it’s easier to fire an employee for poor performance. In Vietnam, if an employer gets angry at an employee and fires them on the spot, that’s unlawful termination. There’s a specific set of procedures that needs to be followed. It’s always best if both parties agree to amicably part ways if possible. If you’re an employer and want to terminate a labour contract, it’s safest to discuss it first with a lawyer.

If an employee believes he or she has been wrongfully terminated, what can they do?

Generally, when a labour contract is breached by an employer, the employee may directly send his or her contract-related demand to the employer for remedy or request help from the trade union. The employee may also terminate the labour contract, make a complaint against the employer to the labour authorities or bring the dispute to a labour mediator or to the court. An employer who breaches a labour contract will be, depending on the seriousness of the situation, subject to paying compensation and reinstatement of the rights and benefits of the employee, and may face an administrative penalty.

What advice would you give to somebody starting a new company in Vietnam?

The most important thing is to have a good labour contract that clearly outlines the rights of both the employee and the employer. And how well do you really know someone when you hire them? If the business relationship doesn’t work out, the legal ramifications can be severe. It’s best to start with a probationary period and then a one-year fixed term contract before signing a permanent contract.

Just the Facts

Working Hours

– Usually 8 hours per day, 48 hours per week.

Overtime

– Should not exceed 50 percent of regular working hours per day.

– The worker is paid 150 percent of salary on normal working days,

200 percent on scheduled days off, and 300 percent on public holidays.

Minimum Wage

– Depends on the region. As of 1 January 2017, the minimum wage in HCMC is VND 3.75 million per month.

Vacation Time

– An employee in normal working conditions is entitled to at least 12 vacation days per year.

Sick Leave

– A local employee is entitled to sick leave allowance from the social insurance fund if the employee provides documentation from the healthcare provider proving just cause.

Maternity Laws

– The mother is entitled to six months of maternity leave.

– If she gives birth to more than one child at a time, she can take one additional month for each additional child.

– If a woman is in her third trimester of pregnancy, she is not permitted to work at night, work overtime or take business trips.

– A female employee can’t be subject to labour discipline while pregnant, during maternity leave or while nursing a child under 12 months old.

As with most laws and regulations, loopholes and exceptions abound. Be sure to consult a lawyer before making any legal decisions.


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