With Vietnam’s rapid economic growth and the continuous deepening of its open-door policy, an increasing number of Chinese enterprises are choosing Vietnam as their investment destination, especially in the manufacturing sector. Vietnam has become an important choice for overseas investment by Chinese enterprises due to its labor cost advantages, favorable geographical location, and relatively stable political environment. However, when selecting a factory location and engaging in investment cooperation in Vietnam, enterprises often face numerous challenges and risks. This article analyzes several real cases of investment failure, summarizes common pitfalls that enterprises face during their investment process in Vietnam, and provides specific strategies to help other enterprises interested in investing in Vietnam avoid risks and achieve sustainable development.
Case 1: Site Selection Failure of an Electronics Manufacturing Enterprise
Background: In 2018, a Chinese electronics manufacturing company decided to establish a production base in an industrial zone in northern Vietnam to reduce production costs and expand its market share in Southeast Asia. The company chose an industrial zone with low rent and seemingly complete infrastructure, but encountered serious problems during subsequent operations.
Reasons for Failure:
Inadequate Infrastructure: The enterprise overly focused on the low cost of land rent during site selection and neglected the actual conditions of the industrial zone’s power supply and transportation infrastructure. Since the site was located in a relatively remote industrial zone, the area frequently experienced unstable power supply issues. According to data from Vietnam Electricity (EVN), between 2018 and 2020, certain areas in the north experienced power outages 3-5 times per month, with each outage lasting more than 2 hours on average, severely impacting factory production.
Insufficient Understanding of Policies: The enterprise lacked in-depth understanding of Vietnam’s tax incentive policies and customs management policies and failed to apply for local government tax incentives promptly. Moreover, due to unfamiliarity with Vietnam’s legal requirements, the company failed to submit tax declarations on time, resulting in cumulative fines exceeding $100,000.
Mitigation Strategies:
Comprehensive Infrastructure Evaluation: When selecting a location, enterprises should comprehensively evaluate the infrastructure conditions of the target area, especially the stability of the power supply and the coverage of the transportation network. It is recommended that companies consult with Vietnam Electricity (EVN) in detail before making decisions (Contact: +84 24 66946789, Email: [email protected]) and arrange for on-site visits to understand the actual power supply conditions.
Enhanced Policy Understanding and Compliance Management: It is recommended that companies hire local professional legal and tax advisors before entering the Vietnamese market to conduct in-depth research on Vietnam’s Investment Law (Law on Investment No. 61/2020/QH14) and relevant tax policies. This will ensure that companies can maximize the benefits of policies and avoid fines caused by misunderstanding policies.
Case 2: Environmental Compliance Issues for a Textile Enterprise
Background: In 2020, a Chinese textile enterprise set up a factory in a central Vietnamese province, aiming to use it as a major production base for exporting garments to the European and American markets. The company performed well initially, but within less than a year, it was ordered by local environmental authorities to suspend operations due to environmental issues, resulting in direct economic losses exceeding $500,000.
Reasons for Failure:
Non-Compliance with Environmental Regulations: The enterprise failed to submit an Environmental Impact Assessment (EIA) report on time, as required by Vietnam’s Law on Environmental Protection (Law No. 55/2014/QH13), and did not install wastewater treatment facilities as required, resulting in excessive wastewater discharge from the factory. According to monitoring data from local environmental authorities, the heavy metal content in the factory’s wastewater exceeded the standard by more than three times.
Neglect of Community Relations: The factory’s wastewater pollution issue caused dissatisfaction among the surrounding communities. Local residents repeatedly complained and even organized protests, forcing the government to take action and impose penalties on the enterprise.
Mitigation Strategies:
Strict Compliance with Environmental Regulations: Enterprises should fully understand Vietnam’s environmental laws and regulations, particularly the relevant provisions in the Law on Environmental Protection, before setting up factories. It is recommended to hire a qualified local environmental consulting company to assist in conducting the Environmental Impact Assessment (EIA) and ensure project compliance. Enterprises can contact the Ministry of Natural Resources and Environment (MONRE) for detailed regulations and application processes (Contact: +84 24 37956868, Email: [email protected]).
Build Good Relationships with the Community: Enterprises should actively maintain good communication with local communities and establish a good corporate image. By carrying out environmental public welfare activities and community development projects, companies can increase community support and reduce conflicts.
Case 3: Labor Union Issues for an Auto Parts Manufacturing Enterprise
Background: In 2019, a Chinese auto parts manufacturing company established a factory in southern Vietnam, hoping to leverage local low-cost advantages and convenient transportation networks to expand production capacity. However, during the initial operation, the company failed to effectively manage relations with labor unions, leading to multiple strikes that severely affected production and delivery.
Reasons for Failure:
Lack of Understanding of Labor Laws and Union Regulations: The enterprise failed to fully understand Vietnam’s Labor Code (Labor Code No. 45/2019/QH14) and related regulations, neglecting workers’ rights such as overtime pay and working hours, leading to worker dissatisfaction. According to the Vietnam Labor Code, normal working hours are 8 hours per day and no more than 48 hours per week, with any overtime requiring a 150%-200% overtime pay.
Underestimating the Importance of Unions: The company lacked awareness of the role of labor unions in Vietnam and did not establish effective communication channels with the union, failing to promptly address workers’ reasonable demands, leading to intensified conflicts and multiple strikes.
Mitigation Strategies:
In-depth Study of Labor Laws and Union Regulations: Enterprise management should thoroughly study Vietnam’s labor laws and union regulations to ensure legal and compliant employment. It is recommended that companies hire local legal advisors to provide regular training for management and HR departments to avoid labor disputes due to legal non-compliance.
Establish a Communication Mechanism with the Union: Enterprises should establish regular communication mechanisms with labor union organizations to understand workers’ needs and suggestions and actively respond to workers’ reasonable demands. It is recommended to maintain contact with the Vietnam General Confederation of Labour (VGCL) (Contact: +84 24 38231895, Email: [email protected]) to ensure that the company remains proactive in union matters.
Conclusion and Recommendations
In the process of investing in and establishing factories in Vietnam, enterprises should pay great attention to local policies, cultural differences, and community relations. Through comprehensive market research, in-depth policy analysis, and meticulous on-site investigations, companies can better seize market opportunities in Vietnam and avoid potential risks. It is hoped that the analysis of these failure cases and the proposed countermeasures can provide valuable insights for enterprises intending to invest in Vietnam and help them succeed in the Vietnamese market.
To ensure that investment projects in Vietnam proceed smoothly, enterprises should continue to monitor local policy changes, adjust business strategies in a timely manner, and establish a flexible risk management mechanism. It is also recommended to maintain close contact with local governments, legal advisors, and industry associations to obtain the latest policy information and advice, ensuring the legal compliance and sustainable development of investment projects.
