Being an emerging market with a rapidly growing middle-class, investors and exporters compare Vietnam to China 15-20 years ago.
Even if Vietnam receives the attention to becoming a manufacturing hub, the domestic market shows an increased appetite for foreign products.
Entering the market can seem like a complex task for foreigners with little or no experience in Vietnam. Yet with some hand-holding and thought through planning you can avoid common pitfalls and plan for future sales.
In this article, I explain the basics you need to know when entering the Vietnamese eCommerce market as a foreigner.
- Market Entry Strategy
- Vietnam Market Entry Obstacles
- Market Entry Research
Market Entry Strategy
Entering a new market requires a robust strategy, including considerations to the different levels of involvement. For example, some companies are at an early stage and want to increase brand awareness through online or offline campaigns.
Others plan to increase sales instantly by selling on Vietnam’s eCommerce platforms. Let’s review the three options available when setting up a Vietnam market entry strategy.
Initial Marketing Campaigns
Before entering a market, it’s necessary to manage initial marketing campaigns. In short, these campaigns are crucial for new brands to establish a market presence and enhance the brand image among locals.
The campaigns can be done both online and offline and in various forms.
For instance, sellers of protein powders might offer testings at gyms through pop-up events. This can also be done with the help of local Key-Opinion-Leaders (KOL), being brand ambassadors, and through temporary online marketing.
Visiting trade fairs is also a popular option to let other industry leaders and visitors know about your company. While marketing campaigns can be done offline, managing marketing online becomes increasingly important.
Vietnam has one of the highest digitization rates in Southeast Asia at the moment.
When you have built up a sufficient brand presence to ensure trust and sales success, you can launch your product on cross-border eCommerce websites. There aren’t as many options available in Vietnam compared to China, for example.
Lazada and Shopee are the only options available where Lazada is the most popular choice for cross-border sellers.
The process is easy to start selling cross-border and you won’t even need a local company in Vietnam. Instead, you ship the products in bulk to Hong Kong where Lazada has its fulfillment center, offering the service Fulfillment By Lazada (FBL).
The products are stored in Lazada’s warehouse and shipped by Lazada Global Shipping (LGS). LGS is an end-to-end solution where Lazada takes care of last-mile deliveries and also generally returns products.
Benefits of selling cross-border:
- No local entity needed
- Generally lower market entry requirements
- Access to multiple markets (cloning of online stores)
- A good option to test markets
Disadvantages of selling cross-border:
- Product restrictions
- Generally lower sales volumes
- Smaller domestic audiences / no offline sales
Domestic eCommerce Operation
Cross-border eCommerce is still in an infant stage in Southeast Asia, leaving foreign sellers with two options.
The first is to import the products with the help of a local importer/distributor and sell the products offline, that is, in stores, supermarkets, restaurants, you get my point.
Yet sellers can also leverage sales by selling the products on domestic eCommerce platforms. In short, this means that the products are stored in the country, often in a warehouse in any of Vietnam’s larger cities.
According to official Lazada Partners, sales volumes are typically higher when selling on domestic eCommerce platforms rather than cross-border eCommerce options. Personally, I always try to buy products from local sellers as the shipping lead times are shorter.
As mentioned, this also allows for local returns.
Keep in mind that you can use both options, one doesn’t necessarily prevent you from using other sales methods.
Benefits of importing products and selling locally:
- Generally higher sales volumes (in single markets)
- Shorter delivery lead times
- Easier return process
- Possibility to sell in local stores, supermarkets, etc.
- Stricter import regulations
- Need for a local entity / to work with an importer
- The only access to the Vietnamese market
Vietnam Market Entry Obstacles
Vietnam has sprung up as a popular option for foreign companies to penetrate the Southeast Asian market. Some of the reasons are that Vietnam has a rapidly growing economy and middle class, some of the highest digitization rates, and many free trade agreements.
With that said, there are also a few obstacles that you have to consider before going into detailed planning to enter the market. Below I have listed some of the most notable ones.
Company & Product Registrations
Before you can import your products to Vietnam, you have to register them with the local authorities first. The regulations vary depending on the products. For example, imports of cosmetics require registrations on a government level and with the equivalent of the FDA.
Other examples include supplements, wine, dairy products, animal-derived products, and various processed food products.
Keep in mind that certain companies can act as nominees and help you import the products. This might be the case if you just want to test the market or avoid setting up a local entity. Service providers can help with both incorporation and product registrations.
VAT & Tariffs
Sellers are subject to VAT and import tariffs that vary depending on your country of manufacturing and the product types.
The VAT is generally set to 10%. However, a rate of only 5% is used for specific food products. Also, there are VAT-exempted goods and services.
The VAT rates are as follows:
- Highest VAT: Luxury goods – 15%
- Standard VAT: Other taxable goods and services – 10%
- Reduced VAT: Basic food and beverages, agricultural products and services, essential goods, transports, medical equipment – 5%
- No VAT: International transportation, overseas construction, exported goods, and services, agricultural equipment, animal feed, fertilizers
Additional taxes such as a Special Consumption Tax (SCT) and Environmental Protection Tax (EPT) might be added, depending on the products.
Vietnam’s Free Trade Agreements:
Vietnam has managed to set up several important FTA agreements, driving the demand for companies to set up local manufacturing operations.
Examples of Free Trade Agreements currently in place include:
- EU-Vietnam FTA (EVFTA)
- UK-Vietnam FTA (UKVFTA)
- ASEAN (The Association of Southeast Asian Nations)
- CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership)
In addition to the above-mentioned FTAs, Vietnam has also signed The U.S.-Vietnam Bilateral Trade Agreement (BTA). The agreement covers trade in goods, protection of intellectual property rights, trade in services, and more.
By setting up a local domestic company to import and distribute food, you are subject to setup fees and running costs. I will cover this in greater detail later in the article.
Product Standards & Labeling Requirements
Contrary to cross-border sales and where the end-user takes personal responsibility for imports, domestic sales require local product registrations. Labels have to be created from scratch according to Vietnamese standards and product testing might be needed.
Even if developing countries, including China, create standards that are similar to ISO standards used in the West, national standards are to some extent different.
Vietnam has a national standard system abbreviated as TCVN with almost 13,000 standards. Around 60% of the standards are harmonized with international and regional standards, reducing hurdles for importers.
Three authorities manage regulations for food products, including:
- The Ministry of Health (MOH)
- The Ministry of Agriculture and Rural Development (MARD)
- The Ministry of Industry and Trade (MOIT)
The ministries oversee different products, as follows:
- MOH: Mostly pre-packed and processed food products such as mineral water, bottled water, and functional food
- MARD: Cereals, meat, vegetables, dairy products, honey, agricultural products, and more
- MOIT: Beverages, beer, alcohols, oils, others
Below I have listed examples of labeling standards for different product categories.
Example A: Law on Food Safety (LoFS) (2011)
An umbrella law guiding food safety in Vietnam
Example B: Decree 43/2017/ND-CP
Food labeling regulation
Market Entry Research
Below is an overview of the different points that are important for market entry strategy.
Before choosing a marketplace, you have to make sure whether it suits your planned operations and budget. Luckily, it’s inexpensive to sell online in Southeast Asia, at least compared to China.
In Vietnam, you won’t cross as many cross-border eCommerce websites as in China. Below I present the top options available and what benefits each marketplace brings.
Lazada is one of the biggest eCommerce platforms in Vietnam and is managed by Alibaba Group.
Founded in 2012, Lazada is known for its customer experience, swift logistics, and wide product assortment. The website is popular among both domestic and cross-border sellers. To sell on the local eCommerce marketplace, you have to import your products into Vietnam first.
Lazada offers end-to-end solutions for international sellers, thanks to their in-house fulfillment service, Fulfillment By Lazada (FBL), and global shipping service, Lazada Global Shipping (LGS).
If you plan to sell cross-border on Lazada, you should have a look at LazGlobal. This is where buyers find products sold cross-border.
Tencent, one of the major Chinese competitors of Alibaba Group, has claimed a large stake in Shopee. The website has grown immensely in previous years, mainly thanks to its wide assortment, short shipping lead times, and offering free shipping.
Shopee will perhaps not be your first website to sell in Vietnam as Lazada is considered more accessible. Having said that, Shopee will most likely be your second-best option.
Tiki is a local website and not available in English. It’s still one of the most popular websites thanks to its competitive prices and fairly wide product assortment.
A reason why Vietnamese choose Tiki is that they control authenticity and provide warranties strictly. I’ve personally bought a laptop on Tiki and had no issues with the product quality.
Compared to China, setup costs are a fraction in Southeast Asia and when selling on the above-mentioned websites. The setup costs will also differ depending on if you sell cross-border or domestically.
For instance, by selling cross-border you won’t need a local entity. Even if there are companies that can act as nominees and import the products on your behalf, selling cross-border is generally cheaper (not considering marketing costs).
Competitor Cost Analysis Research
It’s crucial to get a strategic overview of the competition and price level in the market. As such, more in-depth market research is generally needed, assuring that sales targets can be met.
It’s easy to get information by visiting local stores or by checking Lazada.vn. A thorough analysis should be done to confirm sales volume and buying patterns, for example.
Shipping & Logistics
The shipping and logistics setups will also differ depending on your sales channel. If you sell cross-border on Lazada, you will store the products in their warehouse in Hong Kong and manage deliveries to the Southeast Asian markets.
This is beneficial in the sense that you’re completely integrated into the Lazada system and don’t work with a separate logistics partner. Even if this has been possible in the past, Lazada puts more pressure on sellers to switch to its FBL and LGS services.
If you sell domestically and import your products to Vietnam, a suitable option is to use a local fulfillment company such as Boxme.asia. By shipping the products in bulk, you can reduce the logistics costs drastically.
By checking the Lazada Rate Cards, you’ll notice that shipping costs can increase much if selling cross-border from Hong Kong to Southeast Asian markets.
Finally, let’s touch upon the incorporation process in Vietnam and the requirements.
The reason why I include this part in the article is that you’ll need a local entity if you plan to import to Vietnam. Unless you work with an importer or nominee that can manage that for you.
The most common company types are Limited Liability Companies (LLC) and Joint Stock Companies (JSC). Foreigners are entitled to 100% ownership of such entities.
A few general requirements worth having in mind are:
- No minimum capital requirements for most industries
- 100% foreign ownership allowed in most industries
- You need a business address to incorporate your company
- At least one resident director
The documents needed include:
- Investment registration certificate
- Business registration certificate
- Tax registration and payment of the business license tax
- Capital contribution
- Sublicenses or permits, where applicable
That’s it for this article. I hope you found it useful and interesting. If there’s anything else you wonder about, feel free to write a comment below or text us directly.