Economic justifications for export credit agencies in emerging market economies

Vietnam is the World’s 47^th largest economy which is measured by nominal GDP and it ranked 35^th in the world measured by PPP. Previously Vietnam is a member of Association of Southeast Asian Nations and Asia-Pacific Economic Cooperation, but when it became a member of World trade organization the foreign countries shows their interest more in the investing in Vietnamese economy. The topic for which is selected for this report is Expanding business in Vietnam because the economy is doing well in the world and attracting many developed nation to invest in the economy. 

Over past few years, Vietnam has become a best place for business expansion and investment. Many U.S investors and exporters are showing their interest in Vietnam market. Vietnam market considered to be the fastest growing market, it has the highest economic growth rate worldwide. The average growing rate of Vietnam is 7.2% annually. Vietnam is also experiencing amazing industrial production growth. In last decade the average industrial production was approx. 12% per year. All these contribute in raising GDP of the country. The U.S foreign direct investment flows in Vietnam, in 2013 the US foreign direct investment I Vietnam was estimated approx. $524 million which is 10.8% more than last year. The good infrastructure is a factor which has made Vietnam appealing for U.S firms to set up their business here in the country. In Vietnam, international business owners are allowed to own and operate their firms either through indirect or direct foreign investment. Indirect investment refers to acquiring shares in the Vietnamese firms that are either wholly foreign-owned or joint business venture with local business owners. Direct foreign investment refers to the business or operations conduct by foreign company directly with any collaboration with national company or firm and by establishing their own office or business in the country.   

Setting up a business in Vietnam is quite complex task in comparison to other companies for foreign business owners. The laws and procedures that are related to foreign direct investment are complicated and rising difficulties for international companies in setting up their business and operations in Vietnam. Therefore, it is recommended to a business who are interested in setting up their business and operations in Vietnam to experienced and understand the Vietnamese company set up laws and procedures. If the international entrepreneur were thinking of setting up their business in Vietnam, then there are two ways to enter the market of Vietnam. The international business owners have a discrete power to choose the most suitable way of entry in the country market. The first method of entering Vietnam market is direct investment, direct investment means the owners of business can invest directly in the market without any local support and the second way of investment in Vietnam economy is indirect investment.  In indirect investment the foreign investor have to take help or has to involve local company or firm to invest in the market.

Productivity of foreign direct investment in Vietnam

Setting up the business in Vietnam has a complex task because of its local regulations, for the foreign investors. The registration process of company is very time consuming, the process requires that each activity related to the registration of the company should be appropriately detailed and approved. The Vietnamese authorities are very particular about the paperwork and they do the paper work very carefully. In addition each business or company has to understand and follow requests and requirements under prevailing laws. The process further involve steps like pre-licensing to post-licensing, from initial registration through to accounting and human resource set up requirements. To start the company in Vietnam foreign investor must requires few things such as, an office address in Vietnam, at least one legal representative who is a resident of Vietnam or who generally resides in Vietnam, proper evidences that can prove that the investing company has the sufficient financial capacity to remit the approved chapter capital into Vietnam within 90 days from company establishment. All companies are limited to provide services in Vietnam. At each stage of incorporating of the company and post incorporation of company in Vietnam required certain licensing, tax and accounting procedures to be adhered to.   

Modern infrastructure, dramatic increase in foreign direct investment and increasing gross domestic product are the signs that the economy of Vietnam has transformed into an attractive investment destination, but still there are some barriers remain in the economy of Vietnam which are providing negative impact on the investors. There were 13544 foreign investment projects were established in Vietnam with the total registered capital of US $213 billion. Vietnam emerges as a large overseas investment country which has occupied about 43.4% industrial product value and 17% of GDP. The foreign companies are attracted toward Vietnam market because of 87 million strong population which include large number young workforce. Since 1990, Vietnamese economy emerge as a strong economy with high economic growth rate, even at time of global financial crisis the country with their effect economic strategies overcame the crisis pretty soon. Various sectors such as tourism development, real estate, and infrastructure and retail sector development in urban areas are attracting huge amount of foreign direct investment. When the economy of Vietnam move from centralized to market orientated economy, it attracts high amount of overseas firms. However, International Finance Corporation and the World Bank rank Vietnam 99 in the world for comfort of doing business, which means it is essential to seek local help for expanding in business in Vietnam. 

Trajectories of deforestation and shifting cultivation in Central Highlands, Vietnam

Large population of 93 million among which half is under thirty, ongoing reforms and continues strong economic growth have combined together to create a quick and dynamic evolving commercial environment in Vietnam. Technologies, sales of equipment, management and consulting services are associated with growth in Vietnam industrial and export sectors. In April 2017, The Asian Development bank released figures, and the figures states that Vietnam’s public and private investment sectors ranked highest in Southeast Asia. In 2018, the per capita GDP was estimated to be $ 2546 and the government of Vietnam has stated a goal to increase this figure at least $ 18000 by 2035. Sectors like power generation, education, defense, aviation, environmental project management, infrastructure construction, transportation, information technology and telecommunication will offer the most promising opportunities to the foreign companies to establish their business in Vietnam by including less time. These sectors need to expand continuously to pursuit a rapid economic development in Vietnam. Health care is also considered to be a growing sector as the increasing wealthy population is spending more money on treatment.

In the latest survey which is been conducted by Japanese External trade organization it is found that 65.1% Japanese businesses are operating in Vietnam and making huge profits. There are few firms which are incurring losses, report states that in 2016 19.4% companies has suffered loss in their business. Many economists said that the main reason due to which the Japanese companies are expanding or developing plan to expand business in Vietnam is increasing turnover of Vietnam based firms. The business environment of Vietnam has improved significantly over past few years, the survey pointed out that the complicated tax procedures and rising labor cost are the main reason because of which the Japanese companies want expand their business in Vietnam. The labor cost in Vietnam is rose by 3.1% and the complex tax procedures also rose by 3.5%. Beside all profits the company also facing difficulties. The Japanese External trade organization who has conducted this survey expects that the Vietnamese government will consider all risks and difficulties identified in the survey and will help Vietnam by improving its investment d business environment to become more attractive destination for the investors belong to Japan and the global investors.

Foreign direct investment has played a very essential role in the substantial development of Vietnam in recent years. The growth in Vietnam began with Doi Moi Reforms in 1980s and again it pick up in 2007 when the country sign an agreement and become a member of WTO. With the entry in WTO, the trade barriers were get reduced for entry of foreign investors. It is essential requirement that every member of WTO has to follow the international trade policies that are designed by WTO, after being the member of WTO Vietnam also bind to follow international trade policies. Foreign invests has found a various options for entry into the Vietnamese market. All market entry options are defined in Vietnam’s Law on investment and Vietnam’s Law on Enterprise implementation in 2015. The most common and best entry modes for foreign investors to invest in Vietnam market are hundred percent foreign owned enterprises, joint ventures, PPP agreements in Vietnam, and representative office. Vietnam is the fastest growing economies in South Asia and has priorities to become a developed nation by 2020 they have planned their activities accordingly. More than half of the foreign investment in Vietnam comes from manufacturing especially from mobiles phones. Around 70% of Samsung smartphones are made in Vietnam and majority were being exported.

Conclusion

To conclude, the economy is doing well in, the various developed nations like U.S, and Japan has established their business in japan. However, the international companies are facing various challenges while entering the country. Vietnam government needs to develop an easy mode of entry to attract international business and to increase FDI in the economy.     

References

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