Entering the Vietnamese market through a joint venture – what should be noted?

Joint venture is one of the forms chosen by foreign units to invest in the Vietnamese market. Let’s find out more about what is a joint venture? The requirements for the joint venture as well as the benefits and disadvantages of this form of investment.

What is a joint venture?

A joint venture is a partnership between companies or individuals for a specific business purpose. Joint ventures are not the only option for corporate structure; The partners normally form a Limited Liability Company for standard joint ventures and a Joint Stock Company (JSC) if they wish to list on stock exchanges in Vietnam. Investors who buy shares in state-owned enterprises that are being equitized on Vietnamese exchanges will often choose joint stock companies. When entering the Vietnamese market, foreign investors can choose to form a joint venture as a majority shareholder (owning > 50%) or a minority (owning < 50%).

Requirements for joint venture enterprises when investing in the Vietnamese market

The capital requirements for a joint venture are the same as for a 100% foreign owned enterprise (FOE). Unconditional business investment areas are not subject to specific capital requirements. However, Vietnam’s Ministry of Planning and Investment still sets industry-specific capital requirements in many cases.
Equity ratio based on contributed capital is an important metric used to reassess capital requirements for joint ventures in Vietnam. Currently, statutory requirements apply a 30% foreign contribution rate for joint ventures, which is also a ceiling in conditional business investment sectors. In addition, the Government also sets out regulations on minimum contribution levels for domestic investors on an industry-specific basis.
Joint ventures are not a legally recognized form of investment so there are no special requirements. Instead, the investor may be subject to the same requirements as a Limited Company or a Joint Stock Company, depending on the type of partnership required.
Entering Vietnam market through joint venture

Timeframe for establishing a joint venture

The time used to set up joint ventures is from 2 to 4 months, the processing process is the same as that of a 100% foreign owned enterprise (FOE). The time mentioned above does not include the time used to negotiate agreements between the parties involved. Negotiations on stakes, leadership, and obligation structures by stakeholders can lengthen the joint venture establishment process. While it is well known that these negotiations can delay incorporation, they are integral to a successful joint venture, so negotiations should not be rushed.

The benefits of the joint venture model in the Vietnamese market

The main benefit of a joint venture lies in its ability to give investors market access. Investors will have access to conditional business investment areas – which are often limited in ownership. The level of investors’ access to conditional business investment areas depends on the investor’s business line.
A second potential benefit of joint ventures lies in the local understanding of local companies. For foreign investors entering the market for the first time, local partners can provide better access to suppliers and customers, sometimes even enhancing their reputation. of foreign brands in the domestic market.

Limitations of joint ventures

Foreign investors participating in a joint venture cannot act independently like other business models. Decision-making on issues such as expansion, shifting profits or downsizing can create significant divisions between foreign and local partners. While these issues can be resolved during initial negotiations, differences of opinion and cultural barriers will likely delay the establishment process and lead to reduced maneuverability. established in Vietnam.
To find out more about joint ventures or investment forms in Vietnam, businesses can look to a consulting unit to ensure that they choose the most appropriate and optimal form. Currently, VaniStar is a leading unit in strategic consulting for foreign businesses entering the Vietnamese market. Understanding the law and the domestic market, VaniStar’s consultants will provide the most complete and accurate information on investment forms in Vietnam as well as support full procedures.

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