It is highly recommended that companies build a local presence in Vietnam by establishing a representative office to understand the dynamics of the market. Successful business in Vietnam means establishing relationships with key industry leaders and government officials and this can be accomplished locally. A foreign company with a representative office is allowed to negotiate and sign contracts with local firms or apply for an investment license from the government. However, a representative office cannot conduct commercial activities and earn revenue. Its sole purpose is to allow a company to research and prepare for a more formal investment project. The Ministry of Trade issues representative office licenses that are usually valid for five years. The current fee is just 1 million dong (approximately $71).
ODA-Funded Projects
In the foreseeable future, the best opportunities for environmental equipment and services will be projects financed with overseas development assistance (ODA). Therefore, it is essential to maintain contact with ODA sources to remain abreast of project opportunities and status.
Tracking ODA projects includes establishing relationships with implementing ministries, agencies, and offices that will be responsible for project management on a local level. Successful bidding on ODA projects depends upon meeting the detailed qualifications set out in bidding documents and establishing relationships with key local decision makers.
ODA projects funded by the World Bank and the Asian Development Bank usually require that foreign contractors partner with local companies to promote transfer of technology/expertise. For example, in the case of large water supply, sewerage, and drainage projects, foreign companies often try to partner with the Vietnam Consultancy for Water Supply, Sanitation and Environment (VIWASE). VIWASE is owned by the Ministry of Construction.
Imports
All imported equipment must be through a company with an import/export license. Every shipment of goods must have an import permit from the Ministry of Trade.
In general, government authorities frown upon imports of used or outdated equipment, even when such equipment may be more appropriate for Vietnam's low level of infrastructure development.
Industrial water pumps, water filters, liquid filters, and air or gas purifying machinery is exempt from import duties. Equipment imported for use at a foreign-invested company and in ODA projects may also be imported duty free. However, local customs officials are occasionally unaware of national import policies. In the past, imports of equipment for ODA projects have been delayed until these policies could be clarified for local officials.
Household pumps and filters are subject to a 20 percent import tax. Import duties change often, especially since the introduction of the value added tax in Vietnam in January 1999, so rates should be checked before contracts are signed.
Vietnam tends to grant import licenses only to large, state-owned firms. If one is distributing product via a smaller local agent that does not have import rights, this company then signs an import contract with the firm that owns an import license. The larger trader then earns a commission, ranging from 1 to 2 percent of the contract value.
Distribution
Vietnam does not grant distribution rights to foreign companies. They are only allowed to manage distribution legally if they enter into a joint manufacturing venture with a local firm.
Distribution of environment-related equipment - such as pumps, filters, valves, motors, etc. - tends to be managed through local companies, both state-owned and private. Again, vendors should confirm that the agent either has an import license or a relationship with a licensed trading company.
Common distribution channels for vendors include:
Local companies that import products for their own use. These may be environmental service companies which sell pollution prevention or treatment equipment but that need to import parts.
Manufacturers that import under consignment.
Import-export companies that import on behalf of other agents or to serve as an agent themselves.
Local companies provide marketing and promotion services and can be more effective in navigating distribution channels than would a foreign company establishing a new presence in the market. They can be invaluable for their contacts and relationships with equipment buyers, such as provincial, municipal, and district government officials.
It is important to provide local agents/distributors with adequate training so that they are able to provide after-sales services to buyers.
Payment
The Vietnamese dong is not a convertible currency. Moreover the state bank imposes strict controls on foreign-exchange transactions. While some foreign-invested firms may have convertibility rights, it does not mean that the needed foreign currency will be available, as the market may fluctuate wildly. Convertibility rights are generally issued to import substitution manufacturers and other "important" industries.
Letters of credit are the most common method of payment for importing goods. Vietcombank, Vietnam's largest state-owned bank, is the most active bank in issuing letters of credit. However, it is often reluctant to allow confirmation of its letters of credit by overseas banks. Also, Vietnamese banks do not always accept that a letter of credit constitutes a commitment on their part to meet obligations, and some banks have walked away, claiming that the importer is unable or unwilling to pay.
It is advisable for foreign exporters to open a letter of credit with a foreign bank branch in Vietnam. There are more than 20 foreign banks with branches in either Hanoi or Ho Chi Minh City. It is fairly standard for foreign companies that do not have a legal presence in Vietnam, such as a representative office, to import and sell goods through a state-owned enterprise that has import licenses and convertibility rights.
Consignment sales are not recommended unless the distributor's performance and reliability can be verified. Once a proven track record is established, distributors often ask for payment terms of 30 to 180 days.
