Setting up a trading business in Vietnam is very easy. There are only 4 steps to get a business license to setup a company for trading purposes. The most critical part however is not this but rather the tasks that need to be preformed before and after a trading company is setup.
We have observed that most investors who come to Vietnam or intend to invest in Vietnam, see it as an easy and lucrative market, want a piece of it, and figure they have a product or service that will sell. They then setup an entity, struggle to break even and eventually fail. Vietnam is no doubt a great place to setup a trading business however as with any business, it requires its own due diligence. Due diligence involves two crucial tasks, market research & post incorporation licenses.
Unlike other agencies, Mahan actually setup and manage their own food trading company under the name of Kien Den Trading company. This makes us subject matter experts and the right people to provide practical advice. We always recommend that before setting up a trading company in Vietnam an investor have clarity about three aspects – their company, customer and competition. In order to do this, the investor needs to make at least one short trip to Vietnam.
3C’s of setting up a trading business in vietnam
Company
What solution the compay’s products will provide to the customer’s existing problems.
To be able to provide a product driven solution it is essential to understand the customers business model. Based on this knowledge, it is then possible to assess whether the company’s product will sell or not. If the product does not solve any problem directly, the next thing would be to try to add value to the customers business in some form or the other.
eg. Vietnam is a diary deficient country. If a trading company wishes to engage in dairy distribution it first needs to evaluate if they can provide a low cost high quality product which is suited to local tastes. Over this they also need to assess if they can provide any value addition with their product. This typically involve giving something free.
Some trading businesses require a special license over and above a business license. It is therefore important to gather as much information on these as possible. Later sections provide information on these special licenses also referred to as post incorporation licenses.
Customer
knowing your customers.
In B2B businesses it is not only important to know and understand the customer but also the customer’s customer. Like any where else, customers in Vietnam want to provide their customers with the cheapest price and superior quality. However being able to supply a cheaper better product does not always ensure that a local customer will make a purchase. In many cases, the truth of the matter is that the purchasing staff will not allow a new entrant to supply their products unless the vendor is able to provide some financial incentive directly to them.
eg. A purchasing manager is the person responsible for making purchases and stocking in the most retail chains and large supermarkets. The trend in Vietnam is that these managers will expect some gift/ incentive from a vendor just to introduce a new product or supplier to their company, especially if the supplier is a new or small player.
Competition
Competition in Vietnam though prevalent is of little significance to small and medium sized traders. This is primarily because existing local traders provide financial incentives to the purchasing staff and it is difficult to break this nexus. In our experience, competition in Vietnam is very slow to react and seldom changes their market strategy to new entrants.
In conclusion, the investor must be able to clearly answer the following at the end of their first trip
- Who are the potential customers for their products and who are not their customers
- How do they plan to reach out to these customers
- What can they provide over and above their product i.e value addition
- Do they want to enter this market individually or with a local partner
- Do they want to do only wholesale or only retail or both
- How much capital will they need to infuse into their company
- How much of this capital will they be able to assign for operating expenses
- In how many months do they expect to break even
- What are the additional licenses that they will require for their line of business
Post incorporation licenses
Trading of certain items require additional licenses. These additional license are related to product registration, storage and handling.
Product registration
Prior to import into Vietnam, it is essential to register certain products such as food items, health supplements, pharmaceuticals, cosmetics etc.
Storage and handling
The ministry of health has laid down certain guidelines with regards to the storage and handling of products meant for human consumption. The provincial government overseas trading companies and ensures they follow these guidelines. They also issues licenses for storage facilities and provide training to the staff on product handling.
Please refer to our article on post incorporation licenses to better understand this process.
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