Compliance and Ethical Issues to Consider for Business in Vietnam

Since its reunification in 1975, Vietnam has emerged as one of Southeast Asia’s dynamic economies. The success is impressive given the country’s recent history of war, invasion and massive migration, as well as the loss of support from the old communist bloc. The country’s resurgence began with economic liberalization in 1986 and the implementation of the doi moi or “renovation” policies. Its openness to the free market has made Vietnam the United States’ fastest-growing trading partner in Southeast Asia and fostered international economic achievements, including the Vietnam-U.S. Bilateral Trade Agreement in 2001, acceptance into the World Trade Organization in 2007, and nonpermanent membership on the United Nations Security Council in 2008.

Today, however, Vietnam’s Communist Party leadership is struggling to meet its established targets for reducing poverty amongst its 87 million citizens with an export-oriented growth model in the face of the global economic downturn.

Here are five compliance and ethics issues to consider when doing business in Vietnam:

Corruption
Corruption is one of the main ethical challenges facing business people in Vietnam. According to the Global Integrity 2006 report, corruption consumes between 3 percent and 4 percent of the country’s gross domestic product each year, so managers must be prepared to confront it. The latest International Finance Corporation report shows that 67 percent of firms studied expect to pay bribes in Vietnam.

Most instances of corruption can arise through regulatory bureaucracy and miscalculating the length of time that negotiations and permit approval can take. In preparing for business, you should consult trusted local sources such as experienced law and accounting firms and adjust your expectations accordingly. Vietnam has recently strengthened regulations for corrupt public officers, including execution sentences, so an improving climate can be anticipated over time.

Freedom of speech
Enforcing a single party system in Vietnam has fostered numerous restrictions with regards to freedom of speech, and business managers must be cognizant of the issue. There have been several recent cases of foreign journalists imprisoned for reporting human rights violations or government abuses.

Although there is no reason to assume that such situations are systematic, prudence is called for.
Most responses to freedom of speech issues are fostered by watchdog groups such as Reporters Without Borders. The organizations pursue fact-finding missions that expose abuses.

Transparency
Like other rapidly developing countries, transparency in decision making is limited. While Vietnam has made progress in establishing regulations for greater transparency, implementation has been irregular, creating risks for business. Issues especially arise around property ownership, where foreigners often find themselves trapped in flawed agreements with an unclear real estate title.

The risks of limited transparency and weak institutions can be addressed somewhat by understanding the potential sources of dispute prior to negotiations. This means investing upfront in appropriate guidance and consultation with trusted local experts and the use of insurance as necessary. In the case of real estate, it is imperative to request and analyze all ownership documentation prior to finalizing a deal.

State monopolies
Monopoly issues in Vietnam have been created by the protectionist role of the government as the sole owner of crucial service providers in the country. Privatization has been gradually advancing, but economic success legitimizes the government’s claim to continued intervention, especially in the electricity, telecommunications and aviation sectors.

In response to international concerns, the government launched the Competition Law in 2005. Among other things, the law prohibits agreements that restrict competition, monopolistic abuses and anti-competitive behavior. The law applies to all businesses and professionals, including state-owned enterprises. Investors who experience unfair treatment under the law have recourse with VCAD, a government agency belonging to the Ministry of Industry and Trade of Vietnam, and the Vietnam Competition Council, an agency with adjudicative powers.

Supply chain ethics
As the prices of labor and cost of living in several established Asian economies have risen, many businesses have relocated to lower-cost Vietnam. While there are sound business reasons for this, companies have to be aware of the perception that lower costs arise because worker rights are ignored, along with health and safety protections. The reputations of companies, including Nike and IKEA, have suffered when issues such as child labor abuse have been tied to the production of a company’s product by local contractors.

When doing business in Vietnam, it is important at a minimum to provide external evidence that you are compliant with all applicable Vietnamese laws and regulations. It is also prudent to establish open and transparent communication with your company’s stakeholders and to provide guarantees that supply chain ethics are not being outsourced to local firms. Common practices for doing so include supplier codes of ethical behavior, corporate social responsibility reporting and membership in globally recognized roundtables such as the United Nations Global Compact.

Professor Gregory Unruh, Ph.D., is director of the Lincoln Center for Ethics in Global Management at the Thunderbird School of Global Management in Glendale, Ariz. He is the author of Earth, Inc.: Using Nature’s Rules to Build Sustainable Profits (Harvard Business Press, April 19, 2010). 

[This article has been reproduced with permission from Knowledge Network, the online thought leadership platform for Thunderbird School of Global Management https://thunderbird.asu.edu/knowledge-network/]