Doing Business in Vietnam: A Friction Analysis

Overview

Vietnam’s economy has been one of the fastest-growing in Asia for the better part of a decade. GDP growth averaged 6.5% from 2015 to 2023, and the country has become a major beneficiary of the “China plus one” diversification trend. With a population of nearly 100 million, a young and increasingly urban workforce, and aggressive trade liberalization through agreements like CPTPP and EVFTA, Vietnam looks compelling on paper.

But market entry is not just about growth potential. Companies that expand into Vietnam without understanding the operational friction often find themselves navigating an opaque regulatory environment, complex labor laws, and infrastructure bottlenecks that erode the cost advantages they came for. This guide uses Nexus’s five-dimension friction framework to give you a structured view of what to expect.

Friction Score Summary

Based on Nexus’s composite scoring methodology, Vietnam scores in the moderate-to-significant friction range for most foreign companies, particularly those headquartered in Western markets.

The composite score of 52.4 places Vietnam in the “Moderate Friction” band (36–55), though individual dimensions like Legal and Cultural push into the Significant range. This means market entry is feasible but requires careful planning and local partnerships.

Key Risks

Regulatory unpredictability. Vietnam is a single-party state, and while the government is generally pro-business, regulatory changes can be sudden and inconsistently enforced across provinces. The legal framework for foreign investment has improved significantly since the 2020 Investment Law revision, but interpretation gaps remain, particularly around technology licensing and data localization.

Corruption and informal costs. Vietnam scores 41 on Transparency International’s Corruption Perceptions Index (2023), indicating that bribery and facilitation payments remain prevalent, particularly in land acquisition, customs clearance, and construction permitting. Companies need robust compliance frameworks.

IP enforcement. While Vietnam has signed TRIPS and joined WIPO conventions, enforcement remains weak. Counterfeiting is widespread, and patent litigation timelines can stretch beyond three years.

Infrastructure strain. Ho Chi Minh City and Hanoi face chronic congestion. Port throughput at Cat Lai and Hai Phong has improved but still lags behind Singapore and Malaysian ports. Cold chain logistics outside major cities remain unreliable.

Regulatory Environment

Vietnam’s regulatory landscape is governed by three key frameworks for foreign investors: the Investment Law (2020), the Enterprise Law (2020), and sector-specific regulations. Foreign companies can establish wholly-owned subsidiaries in most sectors, though certain industries—banking, telecommunications, media, education—have foreign ownership caps ranging from 30% to 49%.

The tax environment is competitive: corporate income tax is 20%, with incentive rates of 10–17% available in designated economic zones and for prioritized industries. VAT is 10% standard. Transfer pricing regulations have tightened considerably since 2017, following OECD BEPS guidelines.

Data localization requirements under Decree 13/2023 require companies handling Vietnamese user data to store copies domestically. This affects SaaS providers, fintech companies, and any business processing personal data of Vietnamese citizens.

Cultural Considerations

Vietnam scores high on Hofstede’s power distance index (70) and relatively low on individualism (20), which means hierarchical decision-making and group consensus are deeply embedded in business culture. Western companies accustomed to flat organizational structures should expect longer decision cycles and be prepared to engage senior stakeholders early.

Relationship-building (“quan he”) is not optional—it is the foundation of business in Vietnam. Cold outreach has extremely low conversion rates. Companies that invest in local partners, attend industry events, and build face-to-face relationships before pushing for contracts see dramatically better outcomes.

Language remains a significant barrier. While English proficiency is improving among younger professionals in major cities, most legal, regulatory, and government communications are in Vietnamese only. Budget for translation and local counsel.

Getting Started

Vietnam represents a compelling market for companies willing to invest in understanding the local context. The friction is real but manageable—and the growth opportunity is substantial. Here is how to begin your evaluation:

1. Benchmark Vietnam against alternatives. Use Nexus’s bilateral comparison tool to score Vietnam against Thailand, Indonesia, and the Philippines from your HQ country’s perspective.
2. Set up watchlist alerts. Add Vietnam to your Nexus watchlist with alerts on the Legal and Political dimensions, where scores are most volatile.
3. Run a simulation. Model potential tariff changes or regulatory shifts using Nexus’s what-if simulation engine to stress-test your entry assumptions.
4. Generate a Country Risk Report. Pull a comprehensive PDF report to share with your board or advisory team.