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GETTING STARTED - An Insider's Guide to Starting a Business in Vietnam
By Peter N. Sheridan

Part II - General Business Considerations

Table Of Contents:

Part I - Introduction

Part II - General Business Considerations

Part III - Cultural Differences

Part IV - Mechanics of Foreign Investment - Representative Offices and Joint Ventures

Part V - More Mechanics of Foreign Investment - Fully (100%) Foreign Invested Enterprises

Part VI - Still More Mechanics of Foreign Investment - Business Co-operation Contracts and Build-Operate-Transfer Enterprises.

PART TWO - GENERAL BUSINESS CONSIDERATIONS

The First Meeting It is our business experience - more than 35 years working with the people of Vietnam - that traditional "first" meetings with Vietnamese business and political leaders are often not productive because The foreign investor does not understand the need for careful, courteous introductions that can be lengthy, and forthright- and honest presentations of aspirations and concerns.

Different Expectations. A traditional first meeting for foreigners typically allows both parties to back into a negotiation, feeling one's way with a quick rout of escape always available. That has led to disastrous results in Vietnam.

Deal Breakers. The Vietnamese, not accustomed to this approach, may wonder at your wisdom in devoting important time to such small matters, but they will negotiate them as if they were important. Looking for tricks, they may not know from your point of view what is important and what is not.  Remember the Paris peace negotiators in the 1970s.  Three years were devoted to just agree on the shape of the table.  Don't blame the system or the Vietnamese.  Look to your own negotiating skills and question if they are honed well for this environment.

Traditional Approach is not Western. If you follow the traditional western approach, when you finally feel comfortable and raise the "drop-dead, deal-buster issues," don't be surprised by the shock raised in the Vietnamese camp.   Do not presume the Vietnamese will not know which of your points are throw-away  "We have spent so much effort negotiating already before you raised THIS issue.  What further surprises do you have in store for us?"  were the last substantive words mentioned to an investor. 

Vietnamese do not like to say "No," or "Never."  They do not want to appear rude.  In many cases, you will only hear that your counterparts are "too busy" to find a time to meet for more discussions.

Brinkmanship. Here, no matter how sweet the deal, unless you are prepared to pay far more than its worth, walk away.  In a dispute, unless you are prepared to stand tall and walk away from a deal, be prepared to loose the dispute.

Reminiscent of now ancient labor-negotiating techniques, if one seeks a 10% increase they here ask for not 50% but 500% or more.  If you want to buy a chair, inquire about purchasing the house.  If you wish to sell a motorbike, ask the price of a new car.  If your realistic value of goods or services leads you to expect a certain price, don't ask "how much?"  Offer far below your expected price, and walk away unless you achieve something reasonably close.

Whether bargaining with you intended in-laws or to build an oil refinery, ask what for what you want or reasonably expect and get less.  Fail to walk away and loose more.   It is possible others may get it for less, but not likely.

Not for a Novice. Difficult or important subjects should not be left for later meetings.  Raise them, politely, in the first meeting.   Drop-dead, Deal-Breaker issues can be raised, politely, even in the first meetings with Vietnam’s business and political leaders.  However, this can be a land-mine-filled path for even a skilled international negotiator who is a novice in the realm of Vietnamese transactions.

Helpful Research. An investment guide is a good first step for all investors. But they are not a substitute for on-the-ground experience. The book we favored is the 250 page Laws and Customs Affecting Foreign Investment in Vietnam, published by VVG.  The last, the 9th edition, is now out of print.  

The book contains commentary on many laws, and entire portions of key laws, or excerpts from them. Current as they existed and were published, even our book is soon outdated.

Following the laws of Vietnam, our book is not available for general distribution.   It is restricted to our clients.  When available (it is not now) the then current edition is given to our clients when VVG is retained.  However, copies are available at Vietnamese Embassy in Washington, DC and at Vietnam’s Mission to the United Nations in New York.

Dated Material in a Dynamic Environment. Guides by others are available in local book shops. Careful attention must be paid to the date of publication, and the depth of current reportage. Books that take months to draft can be outdated the week of publication. Events move that fast.  More importantly to the investor are changes in the laws, and interpretations, that may have occurred since printing. These may have a substantial effect on conducting business in Vietnam.

If specialized, professional advice is required for accounting, auditing, architectural, legal, marketing and tax counselors, strong domestic and international firms are to help with a full range of services.

Forms, It Is a Matter of Form. The forms required by the government are important. As with civil servants the world-over, those here are accustomed to seeking data from particular boxes and spots on their own forms.  They are loathe to search an unfamiliar document. However, caution again. Vietnam is a land where form is equally important to, and can be MORE important than substance. The forms printed in our editions of VVG’s guide are current only as of the time of printing.  We caution all who have our book (only clients who have paid us a retainer), or any other business guide for Vietnam, before using any forms, confer with competent sources to insure your version is current.

Agreements.  Contracts in can be "complete" and yet not exceed three (3) pages, no matter how large or important the transaction. A friend, formerly General Counsel to the Asian operation of one the world’s leading oil producers and petroleum refiners, in 1994 showed me a Joint Venture Agreement to construct a US$1 billion oil refinery in China. It took up less than two pages. Half the printed space was covered by the heading and the signature block.

The transaction took two years for the General Counsel to complete. One year to work out the details with the Chinese authorities and the second year to convince corporate leaders in America that the deal could be concluded with a document containing less than two pages of language.

Asian Values.  This is fast becoming a worn-out phrase.  In some ways, the style and use of written contracts remains of pure Asian Values.  The China experience can be helpful here.  The greater the volume of the contract is no assurance one will gain the protection or the results intended.

In early 1996 we consulted on a US$110 million power generation station for Vietnam . The contract, all 60 pages of it, was drawn by one of the world’s leading law firms. Considering the length of time we take to negotiate contracts (it can take many months and even up to one year or more on key infrastructure projects), we were startled to learn of the speed (a matter of weeks) in which the law firm reached agreement.

But it is not all due to Asian challenges. A large client of ours took over 3 years to work out its custom items with the factories of Vietnam; recent projections call for over 2.8 million items a year for the ten year term of the contract.  That makes all parties feel the time was well spent.

Strike-Over and More. We were retained after the client discovered the Vietnamese had over-written the executed document in substantial portion, and then insisted their unilaterally modified copy was the only proper version of the agreement.  At that time the project was two months behind schedule. Not a spade of earth had been moved, yet the media was proclaiming the plant would be ready to come on-line as scheduled, in less than 10 months.

Inquiring of the client how well they thought the Vietnamese understood the original agreement (we sought to understand why the changes had been made: due to guile or innocence), the client related what the law firm told them.  The speed in reaching the agreement was due both to the clarity of the law firm's drafting technique and the law firm's great knowledge of the business environment in Asia as well as Vietnam.

Business Cultural Clashes.  Due to our broad experience as part of in-house law operations, major law firms, and executive management, we at VVG understand the needs of some corporate cultures to hire the largest and most expensive outside firms to "protect the integrity of proceeding in a new environment." From our long experience from both hiring and being part of large law firms, we recognize and accept the broad expertise that is their territory. 

However, it was clear to us that the problem with the power station contract was borne more of innocence than guile on the part of the Vietnamese.  From our experience, signing such a document in only a few months of negotiations, and certainly after a mere few weeks, was a clear indication that the Vietnamese had NOT thoroughly read or understood the written document. Even in translation, few Vietnamese have the experience or patience, if they have the time, to read and understand lengthy, sophisticated legal documents.

This is NOT to say the Vietnamese fail to have the intelligence.  To the contrary, it is a matter of culture, experience, and patience, and certainly not an absence of intelligence, that creates the greatest problems here.

Guile or innocence? Contract execution was, and by many is still, considered a mere formality. Binding agreements are those which are hammered out in the many meetings that take an excessive amount of time (from the western experience).  An agreement well negotiated in Vietnam, when reduced to writing, need state only the essentials.

Of course this creates problems of proving intent and duties for execution should a dispute need to be heard by an impartial third party.  However, to understand common dispute resolution techniques in Vietnam gives a great insight into why written contracts loose much luster here. 

A Simple Dispute. In the process of renovating his house, a neighbor discovered live electrical lines buried in a common wall.  Installing  his own electric line and meter, he also installed a hidden switch.  The public line was activated whenever the meter was read.  At all other times the neighbor used the "free" line. On the days before an expected visit from the meter maid, our neighbor switched on his own power source, only to switch back to the "public" line immediately following the meter reading.

The owner of the so-called "public" line owner noticed the increased electrical charges, but was not able to discover the source of the loss for more than one year.  In that time the neighbor stole more than $1,500 use of electrical power that the line owner was compelled to pay for. 

Investigation. The line-owner discovered the source of the theft one night.  On an impulse, he had staff outside his home watch all the surrounding neighbor's homes.  Then turned off his power.  His and the thief's house went dark.  To the line-owner's  great surprise, power was quickly restored to the neighbors house while his remained dark.

As peacefully as possible, the line-owner discussed this with the neighbor the next day.  The neighbor readily admitted he was using free power but denied it was taken from the line owner, until the line owner offered to turn off his power at that moment.

Report to Authorities. Admitting he had inadvertently stolen from the line-owner, the neighbor lamely excused the theft claiming he thought he was simply from the power company and not a neighbor.  When the line owner asked $1,500 for the stolen power, and produced the bills to prove the loss, the neighbor lost contrition and compassion. He just simply refused to pay anything.

The local police took three weeks to investigate, by which time the hidden switch had been removed.  Although clear evidence of this recent renovation was apparent, there was no recourse available.

Dispute Resolution. There would be no inspection of past electric bills or of the number of electric appliances in both houses.  There would be no depositions or other hearings to discover what had been said or done.  There would be no interrogatories to the construction company that re-built the neighbor's home, or any of his household.   These methods of discovery and investigation are completely unknown in Vietnam.

The net result: absent a confession of error from the thief to local authorities, there would be no civil or criminal prosecution possible.

A recent contract nearly stalled when the domestic factory insisted that dispute resolution would only be held in Vietnam under Vietnam laws.  It was our task to assure the client (we did) that actual dispute resolution in Vietnam must never descend to the courts in any event.

Alternative to Peaceful Negotiations. If there is a wrong committed or even suspected, the only method of resolution is to report the wrong or the suspicion of a wrong to the local authorities.  One first discusses the event with the wrong-doing neighbor at his peril, for the transgressor will then have the opportunity to cover-up his miss-deeds.  Only if the authorities find the wrong on-going when they investigate, and then only if the accused confesses, will there be a hope of some form of recovery.

This is not an apocryphal story.  Unfortunately, VVG was the line-owner.  Our neighbor was the thief.  However, the event is illustrative of the underpinnings of dispute resolution techniques.  They become more difficult as the issues increase in complexity.

Complex Disputes. If a contract says one thing but you believe the agreement is for another, the ability to prove the contract terms may effectively have no meaning. When the Vietnamese  Power Project partners found the practice of the foreign party did not conform to their understanding of the agreement, they simply over-wrote the formal terms to reflect their understanding of the actual terms. From the Vietnamese point of view, discussions between the parties were the binding force.  The written instrument covered many points never discussed in depth or detail.  It was for the most part those terms that were later over-written.

Using tried and true Vietnamese methods of dispute resolution, we corrected this potential disaster.  The power station opened only three months behind schedule.   How we achieved this result is a topic for another article.

Contracts in Vietnam need not exceed three pages. From the western business approach, and particularly the Wall Street Law Firm approach, such documents scarcely cover the bare bones of a transaction. Typically found in traditional Vietnamese contracts are:

• (i) the names and contact addresses of the parties;
• (ii) an agreement to uphold the laws of Vietnam;
• (iii) the business purpose of the agreement;
• (iv) an outline of the key obligations of the parties;
• (v) the consideration (funds, deeds, obligations, etc.) paid by the parties; and
• (vi) a dispute resolution clause.

That's it!

"Ya Gotta Be Kidding!" is the accepted first reaction many western businessmen have to contemplating a 2 page document for a multi-million dollar transaction.  Senior partners at law firms are concerned about claims of malpractice.   Billing partner's are worried about failing to raise revenues.  General Counsel are looking to accountability.  Rather than saving face, they are all looking to cover another part of their anatomy.

While many companies still insist on the American law-firms approach to contract writing (paper them to death; cover every contingency and not merely the details), others who are now old hands at doing business in Vietnam have learned to overcome the NYC Wall Street and Washington DC Connecticut Avenue law firm backgrounds, and Fortune 100 company perspectives.  Success in this part of the world comes from the strength of the agreement and the relationship, and  not the length of the document.  The China refinery and the Vietnam power station are only two of the many important examples of success that abound in this dynamic land in a manner far removed from what we have grown to accept as the norm or standard operating procedure.

It's the Relationship.  In Vietnam, discussions and negotiations are extensive, friendly and polite.  Those alone are difficult tasks, and from a western experience, seemingly mutually exclusive.  It is a greater problem when the parties have not previously worked together. It’s the "relationship-thing" to paraphrase President George Bush. Or rather, the absence of one, that creates a problem in negotiations.

One should expect chit-chat, false starts, reasoned and restrained entertainment, and a lot of shop talk. Then there are the expected misunderstandings, the local tradition of never agreeing until it is agreed, and the need to start each new meeting by restating nearly everything that has previously been agreed.  Expect to renegotiate many of those same items.

Be assured that when a real relationship is established, things can become more easy, but not always

Brokers/Fixers.  Some investors are told that "doing business in Vietnam is different." Expect  a prospective agent to make that claim.  Some will present themselves as a (i) former resident of, and a former high level official of a prior government in, Vietnam, (ii) a current official, (iii) a relative or close associate of a current high-level official, and even (iv) a former member of the American CIA or AIA  

Of course the wise investor will immediately decline this "offer" which is nothing more than a license to steal.    The prospective agent will seek to be paid a "success fee" with or without costs for doing almost nothing of consequence. However, he will assume full credit when success is achieved.

Decisions here are made by consensus and not by any one person. Some agents will tell you of their high connections, and their unique ability to get a job completed.  Ask them to name their satisfied customers, giving names, telephone contact and project name.   Don't be surprised when they claim a need for confidentiality.

Should the transaction proceed to closing, the agent will loudly proclaim it was due to his expertise, contacts, and knowledge. And he will then expect to be paid a hefty fee, ostensibly for paying-off his contacts. If the deal goes bust, unless the investor has been further duped into paying the agent his expenses for such non-work, the investor will pay nothing, which seems to make the agreement attractive to some.

Literally a life-death decision. If an overseas Vietnamese makes such a claim, it is because he remembers the old way of life, and/or has been told that is the way things still are. He may be innocently incorrect. If you hear this from a domestic Vietnamese or a foreigner, they know such practices are now illegal.   If more than $45,500 is taken from State resources for a bribe, it will subject the bribe-giver and taker to forfeit his life if prosecuted!  Pay or receive only $450 and be subject to imprisonment.

The only exception appears to be that if the domestic "agent" steal money from a foreigner that the government is not entitled to in any event, neither the agent-recipient nor the foreign payee will be prosecuted -- in Vietnam.

Certainly at the level of granting cabaret, restaurant and mini-hotel licenses, there are sufficient numbers of low-level authorities who abuse their positions and indeed insist on bribes. The usual sum depends on the size of the establishment.  Small hotels and restaurants have been known to pay $300 down and $50 each month.  This practice is not unique to Vietnam.  It is no different from similar corrupt practices by some local police or inspector authorities in other major cities of the world.

For a more detailed discussion on the practices of some agents that investors should avoid, please read "Experts." 

At the level of most foreign invested projects here, our advice based upon our long experience is to maintain your high, ethical, moral and financial accountability standards in Vietnam as you have in the development of your company before entering Vietnam.

Please Continue to Read More from This Article:

Part I - Introduction | Part II - General Business Considerations  

Part II - You are here right now! General Business Considerations

Part III - Cultural Differences

Part IV - Mechanics of Foreign Investment - Representative Offices and Joint Ventures

Part V - More Mechanics of Foreign Investment - Fully (100%) Foreign Invested Enterprises

Part VI - Still More Mechanics of Foreign Investment - Business Co-operation Contracts and Build-Operate-Transfer Enterprises.

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