Many overseas executives coming to Vietnam expect a familiar growth story with a fast developing economy, low cost and high potential in terms of investment opportunities. While these elements are present, they are partially responsible for the success of the business in the market. In reality, a number of challenges are caused not by regulations and competition but by a lack of understanding of how the Vietnamese do business, including how they communicate, build trust, make decisions, and how they view business relationships.
Doing business in Vietnam requires understanding beyond the economic indicators and market reports. This guide aims to provide understanding in the business culture, address the most common misconceptions and show the local realities that define the operating business environment in Vietnam in a way that will allow foreign investors and executives to have a greater degree of confidence and more realistic expectations in the Vietnamese market.
The Vietnam Business Mindset
Many foreign executives coming to Vietnam expect business logic to be the same as in the Western markets. While Contracts and regulations are familiar, the business relationship and communication are built on deeper cultural influences.
The lack of understanding these cultural influences is the primary reason for poor communication and lack trust with the Vietnamese business partners, customers, employees, and government.
Face, Hierarchy and Workplace Culture
The Vietnamese business culture is based on the Confucian traditions which place emphasis on respect, harmony, and a hierarchy based on collective responsibility. Although Vietnam is a rapidly modernizing and developing economy, these values have not diminished, and continue to influence work behavior and the business decision making.
A critical concept for foreign executives to understand is the idea of preserving “face.” This is the desire to maintain one’s dignity and reputation and the social standing of one’s family and ancestors. In a Vietnamese professional setting, this means that it is rare to hear someone openly criticize a colleague. It is also rare to hear an idea rejected in public. Directly confrontational behavior, and especially towards superiors, may be viewed as disrespectful or a disturbance.
Many companies also practice a hierarchical structure. Many decisions are discussed in the company before they are formally announced, and many employees are reluctant to challenge those above them. For foreign managers, this may come across as a lack of initiative or apathy. In fact, this reflects the company’s cultural structure.
Group alignment is another example of a shared culture. Many decisions are ultimately made through the consulting and agreement of many employees. Because of this, a large number of meetings that are seemingly productive, may actually require further internal discussions before a decision is made.
For foreign companies, understanding these structures can make communication less frustrating. Given the proper decision-making structures, and build the appropriate amount of trust, feedback may be more constructive and reliable.
North and South: Business Differences
Despite being a single market, business culture is not entirely consistent across the country.
Northern Vietnam and Hanoi are widely viewed as more formal and more focused on relationships. Business dealings may focus more on the hierarchy, procedures, and the gradual building of trust. Northern Vietnamese organizations are likely to have more ties with government agencies and public-sector institutions, as the North is the political center of Vietnam.
In contrast, the South, including Ho Chi Minh City, is often seen as more pragmatic and more commercially oriented. Business conversations may be more succinct, and decision-makers may be more open to innovative ventures, entrepreneurship, and business initiatives.
These distinctions should not be taken too far, but they may affect how foreign businesses approach meetings, negotiations, and the establishment of business relationships. A communication style that may be effective in Ho Chi Minh City, may not be in Hanoi.
For businesses operating throughout Vietnam, the practical lesson is clear. One business model does not apply to every region. Recognizing specific regional and local expectations and customizing communication styles can markedly enhance relationship building and business success.
Negotiating and Making Decisions in Vietnam
Foreign executives may be surprised to learn that establishing successful business negotiations in Vietnam is as dependent on relationships as it is on business deals. While the price, quality of product, and terms of a business deal are still critical, negotiations are most often concluded based on trust and reputation with relationship considerations.
Assessing how Vietnamese businesses view potential partners may assist foreign businesses to negotiate with more understanding and avoid some of the more common pitfalls.
Relationships First
One of the most discussed elements of Vietnamese business culture is relationships, or networks, or connections, as it is often translated.
For global companies, this does not mean contracts are written based on personal relationships. It is rather a recognition of the role trust plays in business deals. As a general rule, Vietnamese businesses prefer entering into contracts with known partners, people recommended by a reliable source, or businesses that have shown interest in Vietnam for the long haul.
Because of this, the first few meetings are often assumed to be for the purpose of developing a business relationship and not for negotiations. Usually, the business background, knowledge of the market, and the long-term goals of the meeting participants are discussed before any business negotiations are held.
The stage of relationship building is often neglected by foreign businesses that prefer to dive into pricing and contracts. It is worth mentioning that, especially for family-run and small businesses, which are the backbone of the Vietnamese economy, the stage of relationship building is very important.
Understanding Indirect Communication
Another hurdle for foreign executives is trying to understand the Vietnamese style of communication.
When it comes to business communication, the Vietnamese like to keep things indirect, especially when it comes to communication about issues that may arise because of a disagreement. Because of this, a response that is seemingly positive may not mean that the person is in agreement.
Examples of such may be:
- “We will consider it.”
- “Let us discuss internally.”
- “We will get back to you.”
These may in fact mean that the respondents have not yet come to a decision.
Avoiding an outright refusal is commonly recognized as an approach to avoid disruption of peace and to protect relationships. This can confuse foreign executives, who anticipate a straightforward answer of “yes” or “no”.
As a result, great attention should be dedicated to any and all conducted actions during negotiations. Follow-up actions, response times, requests for additional information, and the openness to set future meetings can indicate greater interest over verbal negotiations.
The most successful companies operating internationally have learned the balance of conducting negotiations with a combination of relationship-building and focused observation.
Common Misunderstandings About Conducting Business in Vietnam
Although the business landscape of Vietnam has transformed greatly in the last twenty years, many foreign executives conduct business in Vietnam using old information and experiences that have served them in other Asian countries, or following advice that is now obsolete.
Differentiating between myth and reality will give an organization the opportunity to avoid costly blunders, manage stakeholder and customer expectations, and strengthen engagement with local business partners and employees.
Myth #1: Vietnam is not China
This myth is prevalent among businesses in the explorative stage in the Southeast Asian region.
Vietnam’s market is not just a lower-cost option to China on the entire spectrum of business. Because of differences in business culture, regulations, consumer behavior, and market structures, Vietnam has its own opportunities and challenges independent of China.
Many successful firms in China find that their products, business strategies, and policies are not automatically applicable to Vietnam. Therefore, market entry strategies should cater to the particular conditions of the market and not be constructed on the assumptions of adjacent markets.
Myth #2: Connections Solve Everything
While relationships are important in Vietnam, they cannot be leveraged as a substitute to compliance.
Some foreign investors have a misconception of relationships in that they can manipulate the system to comply (or not comply) with laws and regulations. Vietnam’s system has become more sophisticated with regulations in flexible and direct spheres of tax compliance, investment, labor, and anti-corruption.
Relationships can help businesses market to a wider audience through effective and trust-based communications, but they cannot substitute the law. The most prosperous businesses defend the law and maintain good relationships.
Myth #3: Employees Never Push Back
Some foreign managers interpret the Vietnam workplace to be an environment in which a managerial decree is to be executed with no questions asked.
This is an oversimplified view of the reality. Employees respect hierarchy and may be unwilling to challenge managers, but this does not imply that instructions are understood or agreed with.
A misalignment often exists when managers interpret a lack of verbal disagreement as an agreement. Communication, guidance, feedback, and the opportunity to ask questions are generally more useful than the one-way order given from higher management.
International employers must offer a clear indication of expected standards of work whilst creating a culture where employees are comfortable with, and even encourage, raising questions and concerns.
Myth #4: Vietnam Is Always Cheap
While Vietnam continues to be more affordable than many developed countries, the costs of doing business in Vietnam’s major cities such as Ho Chi Minh and Hanoi have become more expensive.
Renting an office, doing business, engaging staff, and especially managerial and executive staff have all become more expensive. Increased competition for skilled workers has meant that companies employing a budget based solely on wage estimates will incur costs associated hiring staff, regulatory compliance, as well as losing staff through high staff turnover.
While inexpensive, the cost of doing business in Vietnam should be viewed as an opportunity to invest. Vietnam is a developing economy.
Myth #5: The Contract Ends the Deal
In many Western economies, the signing of a contract is the end of the negotiations. In Vietnam, the signing of the contract is only the commencement of a business relationship.
The mainstay of a business relationship in Vietnam is an engagement of trust and will be built through effective communication over a significant period of time. Although contracts have a place in a business relationship in Vietnam, the management of the business relationship after the contract is signed is equally important, if not more so.
Long term success and effective business engagement will be greater for companies who have frequent and meaningful interaction.
For foreign companies, discerning the difference could strengthen partnerships and smooth out integration curves.
What Sets Apart the More Successful Foreign Firms?
A number of foreign firms entering Vietnam are well-resourced, bring with them robust and established business models, and offer good products. Some of these firms, however, have a hard time achieving sustained growth, while others have no such difficulty. The opportunities presented to these firms are more or less the same. The difference is rarely one particular decision. Instead, the difference is more often how well the firm balances the adaptation to the local context while retaining the business’s core competencies.
Successful firms do not simply replicate the strategies that they have developed in other countries, within Vietnam and other locations they operate in. These strategies are representative of the markets they are developed in. Successful firms do not consider Vietnam as just another market. In Vietnam, they invest time, resources, and efforts in developing an understanding of the market.
Adapt the Strategy
One of the more established habits of firms that have performed well in Vietnam, is the localization of leadership and presence of highly experienced local senior executives in Commercial and Operational roles. The combination of International standards and local market expertise and localization of senior oversight ratios leads to superior business results.
Focus on the Future
Vietnam is a great example of how trust is a key part of relationship-based business culture. Although trust does grow from successful dealings, it is more likely developed from sustained interactions and engagements than from a single business dealing or negotiation.
There are many foreign businesses in Vietnam that are very successful. They were able to grow in the market after many years. Successful foreign businesses build many professional connections, develop business partnerships, and strengthen business networks. Regular contact is a big part of a successful business partnership. So is the active participation in the association of the developed trade and the development of a visible commitment to the market.
There are other factors involved in market growth. The decisions in the market may take a long time. Negotiations may also take several interactions. Most of the time, the best opportunities in a market correlates with the best business relationships.
Many of the businesses with a successful record in the Vietnamese market have a common trade philosophy. They make a long-term commitment to the market and work on partnerships and business relationships.
Conclusion
You can not expect the same business strategies that work in many markets to be the same in Vietnam. It is very important to understand the style of communication, the culture of the people, and how business relationships grow when searching for opportunities.
Multinational companies in Vietnam that adopt global best practices with local adaptability have a greater likelihood of being successful. In order to develop a market within Vietnam, foreign businesses spend a considerable amount of time creating and building their trust with clients. They make themselves flexible to the realities of the Vietnamese market and understand the economic and business opportunities, as well as the market potential in Vietnam. Businesses operating in this way are likely to avoid the common traps for foreign companies and build a strong foundation for economic growth in the long run.