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©2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris – Firm and Affiliate Offices | New York | London | Singapore | Los Angeles | Chicago | Houston | Hanoi | Philadelphia | San Diego | San Francisco | Baltimore | Boston | Washington, D.C.
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OLIVER MASSMANN - Partner, General Director DUANE MORRIS VIETNAM LLC
FLAT WORLD – OPPORTUNITIES FOR VIETNAMESE ENTERPRISES?
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AGENDA:
• OVERVIEW ON VIETNAM
• WHY IS THE WORLD FLAT? VIETNAM’S RECENT INTERNATIONAL INTEGRATION: ASEAN ECONOMIC COMMUNITY (AEC), EU- VIETNAM FREE TRADE AGREEMENT (EVFTA) AND THE TRANS-PACIFIC PARTNERSHIP (TPP)
• OPPORTUNITIES FOR VIETNAMESE ENTERPRISES?
• CONCLUSION*
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Vietnam 2015 Economy at a glance• GDP: US$204 billion• GDP per capita: US$2,109• GDP Growth: 6.68 % (compared to 5.98%
in 2014, highest in the past 5 years)• Inflation: 0.63% (lowest in the past 10
years)• Population: About 91.70 million • Labor force aged 15 and above: 54.61 million• Total export and import turnover: : US$
$327.76 billion (10% increase)• Minimum wage: VND 3.5 million (US$ 156)
per month (Jan 2016)
*
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Vietnam has the fastest-growing middle and affluent class in the region (Boston Consulting Group)
*
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Vietnam to be Asia’s second fastest growing country• In 2016, Vietnam’s GDP is expected to grow at 6% as forecast by World
Bank, with significant growth in construction, real estate and service sectors.
• The second fastest-growing economy in Asia, second only to India.• Progressing for the third year in a row, Vietnam reached the 56th
position in 2015 on the Global Competitiveness Index (GCI) list, a jump of 12 positions compared to 2014.
• Vietnam tops 6 European Union countries on the GCI list• Consumption is likely to remain the biggest growth driver in 2016,
closely followed by investment.• China’s economic slowdown and the US Federal Reserve increasing
interest rates were driving investor withdrawals from emerging markets.• *
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Vietnam’s Free Trade Agreements
• *
• ASEAN - China• ASEAN - Korea
• ATIGA
• ASEAN - India• ASEAN –
Australia – New
Zealand• ASEAN -
Japan• RCEP
• Vietnam - Chile• Vietnam - Korea• Vietnam –
Eurasian Economic
Union• Vietnam -
EU• Vietnam - EFTA• TPP
• ASEAN – Hong Kong
• Vietnam - Israel
• Vietnam - Japan
• Signed• In negotiation/
Negotiation concluded
• In negotia
tion
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FDI by province 2015 & first 7 months 2016
• *
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ASEAN ECONOMIC COMMUNITY
• *
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–
• *
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AEC Market Snapshot – Asia’s main investment hub• GDP: US$2311.3 billion (2012)• GDP per capita: US$3748.4 (2012)• Population: 620 million, 60% under the age of 35• AEC % of world GDP: ~3.3%• AEC % of world population: 9%• AEC’s merchandise exports: US$1.2 trillion - ~54% of total
ASEAN GDP and 7% of global exports• If ASEAN were one economy, it would be the 7th largest in
the world – 4th largest by 2050 if growth trends continue• *
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Key characteristics of AEC
• *
• ASEAN SINGLE MARKET AND PRODUCTION BASE• Free
flow of
capital
• Free flow of
goods
• Free flow of
services
• Free flow of
investment
• Free flow of
skilled
labour• Removal of
tariff and non-tariff barriers
• Opening of market access
• Freer capital flow
regime
• Free Investment Regime & ASEAN Single
Investment Destination
• Free skilled labour
mobility & Competence Standard
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EU – Vietnam Free Trade Agreement (EVFTA)
• *
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EU- Vietnam trading partnership• The EU is currently the second largest trading partner and
one of the 2 largest export markets of Vietnam.• By the end of 2014, 23 out of 28 EU countries have invested
in Vietnam with over 2,000 projects worth more than USD37 billion.
• Vietnam’s main exports to the EU: footwear, textile products, coffee, seafood and wood products, etc.
• EU’s main exports to Vietnam: machines, chemicals, milk and milk products, steel products, etc.
• *
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EVFTA – Bilateral negotiations
• *
Launch of negotiations • Fi
rst round in Hanoi
• 15 rounds alternately in Vietnam and Brussels
• Last round in Hanoi
• Agreement in principle
• 06/2012
• 10/2012
• Hardwork
• 7/ 2015
• 8/ 2015
• 02/12/2015
• 02/02/2016
• Conclusion of negotiation
• FTA text released
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EVFTA – Comprehensive agreement• Trade in goodsMarket access for goods – tariffs Rules of OriginExport dutiesTechnical Barriers to Trade (TBT)Sanitary and Phytosanitary MeasuresCustoms and Trade Facilitation Administrative Cooperation in Customs Matters
• Services and investment:National treatmentLiberalisation commitments / market accessInvestment to state dispute settlement
• *
• Cross-cutting issues• Dispute Settlement
and Investment Dispute Settlement
• Government Procurement
• State Owned Enterprises & Subsidies
• Intellectual Property Rights
• Geographical Indications
• Trade and Sustainable Development
• Cooperation and Capacity building
• Annexes (car; green tech and pharma)
•
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EVFTA – Tariff Liberalization
• Tariff liberalization: – 99% of tariffs both value and number of tariff lines– After 7 years for EU– Vietnam: 10 years• Coverage at entry into force:– 70.3% of value of Vietnamese exports / 86% tariff lines– 65% value of EU exports / 49% tariff lines
• *
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EVFTA – Benefits for Vietnam• Vietnam’s annual economic expansions rate may grow an additional 15%
every year • Tariffs for most of Vietnamese export product to the EU will gradually
reduce to 0% and Vietnam’s export to EU is expected to grow about 35% for next few years
• The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13%
• The EVFTA is the legal framework for a more stable relationship in bilateral trade for Vietnam when competing in the international market
• The EVFTA will generate greater effects, e.g. increased quality of investment flows from EU, acceleration of the process of sharing expertise and transfer of green technology and the creation of more employment activities
• *
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TRANS-PACIFIC PARTNERSHIP
• *
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History of the TPP
• *
• Trans-pacific Strategic Economic Partnership (P4) signed
• Scope of negotiation extended with participation of other countries, including the US
• Negotiation of the TPP officially launched
• First negotiation round in Melbourne- Australia with 7 members
• Other countries such as Malaysia, Japan, Canada and Mexico participated in the negotiation
• Finally agreement reached in Atlanta negotiation round
• 05 Oct. 2015
• 03 June 2005
• Dec 2009
• Oct 2010 – July 2013
• 2007
• March 2010
• Text released on 05 Nov. 2015 and the agreement was signed on 4 Feb 2016
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How is the TPP Different? • GDP of 12 TPP Members is nearly $28 trillion, 40% of global
GDP and one-third of world trade• TPP is broader: it covers markets for all goods, services,
investment, government procurement, e-commerce with 30 Chapters included.
• TPP is deeper: it addresses new trade challenges (environment, labor, competition, state-owned enterprises, etc.)
• The TPP is being touted as a “high-standard agreement” meaning “a landmark, 21st-century trade agreement, setting a new standard for global trade and incorporating next-generation issues”
• *
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TPP Trade in Goods• Tariff and non-tariff barriers on most industrial goods are
eliminated immediately, with tariffs on some sensitive products will be phased out as agreed by the TPP Parties.
• Each TPP Parties provide a tariff schedule covering all goods.• Parties agree not to use performance requirements, such as local
production requirements.• Parties agree not to impose WTO-inconsistent import-export
restrictions and duties. If any, they are required to notify the others about the procedures to ensure transparency and promote trade flows.
• *
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Trade in Services• Negative approach, meaning that their markets are fully
opened to service suppliers from other TPP Parties, except otherwise indicated in their commitments (non-conforming measures)
• In order to make such reservations, the member state must prove the necessity of such preservation and negotiate with other member states. If approved, the non-conforming measures are only limited to such list, except for measures in certain sensitive sectors which are included in a separate list
• Ratchet approach: Member states are only allowed to adopt policies that are better than what they commit
• *
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Rules of Origin• Originating goods:
– Wholly obtained or produced goods; – Produced in and from materials originating from TPP countries; or– Produced in and using material not originating from TPP countries nut
satisfying TPP rules of origin.• Separate rules of origin for each specific type of goods• Separate chapter on rules of origin for textile products• Rules of origin in TPP are predominantly based on a specified shift in
tariff classification, regional value content and production stages• No requirement for certificates of origin under TPP, or third-party
certification of origin but self-certification is sufficient• Note that Vietnam applies different schedules of tariff elimination/
reduction for different categories of goods• *
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Textiles and Apparel• Most tariffs on textiles and apparel will be eliminated
immediately, although tariffs on some sensitive products will be phased out as agreed by the TPP Parties.
• Yarn-forward rule of origin: requires use of yarns and fabrics from TPP countries in end products qualifying for preferential treatment under TPP.
• Exceptions:– a carefully tailored short supply list (when certain yarns and fabrics
not widely available in the region).– de minimis– 1 for 1 rule applied for women’s and men’s cotton trousers exported
to the US• *
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Shift in supply chains
• As companies shift sourcing patterns they also will need supporting investment in:– New infrastructure in roads, ports, bridges– Warehousing, cold chain, storage facilities– Logistics, distribution, retail– Improved communications – E-commerce platforms and distribution centers
• Whole new sectors, players can get involved• New customers in B2B, B2C and C2C• *
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How will TPP benefit Vietnam?• 70%• 70% of the total export value of Vietnam’s textile industry is from TPP countries. By participating
in • the TPP, the market is expected to double. Export turnover to the US may reach USD55 billion
in 2025
• 0%• The average tax rate on textile products into• the US market is currently 17.5%, after TPP• it falls down to 0%
• 0%• The whole import tariffs on footwear
currently• from 3.5% to 57.4% also falls down to 0%•
• USD 335.7 billion• According to a study by East – West Centre (USA), Vietnam’s GDP may increase by USD35.7
billion,• equivalent to 10.5% until 2025. At the same time, Vietnam’s exports also increase by 28.84%,
equivalent• to USD67.9 billion
• Investment increases by 9.2%• TPP helps Vietnam’s GDP increase by 1-2%/year as a result of an increase in investment by 9.2%
(mostly • inbound investment), consumption increase by USD6.9 billion and production increase by USD2.4
billion
• Opportunities to
• export flagship • products
• Create more than 6• million jobs in
textile• industry until 20•
• Liberalizing investment
• environment among TPP
• countries
• Expectation on more competitive business
• environment, cheaper goods and services at
• higher quality
• TPP offers free market access for enterprises
• operating in service sectors•
• *
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TPP and AEC intersection
• *
• Thailand
• Malaysia
• Brunei
• Canada
• Australia
• Cambodia
• Indonesia
• Myanmar
• Peru
• Philippines
• Japan
• Laos
• Mexico
• New Zealan
d
• Singapore
• The United States
• Vietnam
• Chile
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How to really get benefits from these positive changes? How to maximise investment?
*
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Build an international brand
• *
• Naming
products
• Uniform service
s
• Understan-ding
customer
behaviour
• Designing logos
• IPright!!• Participating in
start-up fairs (e.g. – Hatch
Fairs) or actively
approaching potential investors
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Attract investors – Which types?• Angel Investors: individuals with significant financial resources that
invests in start-up businesses. They may ask for a percentage of return on their investment, ownership in the company, decision-making power, etc.
• Peer-To-Peer Lending: a type which is arranged via websites that bring investors and small business owners together. Lenders bid on investing in the business. The owner and the lender negotiate on the interest on the investment, then the lender supplies funds.
• Venture Capitalists: funding organizations that typically get involved in companies that have already shown a history of returns. They tend to invest in risky start-up companies, ask for ownership and decision-making power.
• Banks • Personal investors: friends and family members
*
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Proof of potential success• Investors want to invest in a profit-making business• Investors need to understand market size and target customers of
the local business who are willing to buy its products or use its services
• Show investors big numbers but be honest!
*
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Trust/ creditability• Investors need to look for financial transparency and lawfulness in
the company’s operation. Investors do not want to involve in a illegal business or deal with disputes during the course of operation of the company.
• Investors expect frankness and straight-forwardness from their partner. If you know that there is something wrong happening and cannot deal with it, let the investors know. Not necessary at the first meeting, but as soon as possible. And draw a plan to solve the problem. Do not let investors find out themselves about the problems. You will lose their trust.
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Information publication
• Investors want to know clearly about their partners before making investment transparency and availability of information are very important.
• However, it is not enough. Information should not only be in Vietnamese, but foreign languages (preferably in English). Financial statement, company management structure, prospectus, etc. are among documents that should be available in English.
• Investors would be very happy if they are kept updated via phone, email or even monthly letters..
*
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Thoughtful and well-prepared business plan• Investors need to know about a
business plan for future cooperation• Through the plan investors will
understand the business model and exit strategies. A win-win cooperation is necessary for any investment.
• Information about how much investment capital investors need to prepare, how it will be used, how their benefits are maximized need to be clear.
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Thoughtful and well-prepared business plan (cont.)• Investors would like to see realistic and convincing
statements. Statements with statistics, case studies, local partner’s own experience, etc. would be very helpful.
• Know the local partner. Analyse who the local partners are, what they want, how they are operating, what their management structure is, any potential growth, risk assessment, compliance issues, …
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Experienced team
• Investors need to see passion for the vision of the company from their local partner’s team
• The local partner’s team must be flexible enough to adjust to changes and refocus their plans if things do not work out as planned
• The local partner’s team must show that they can work together with the investors and open to learn new things they need to know to succeed
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HOW TO START YOUR BUSINESS?
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Setting up a company? Key considerations• seeking partners/shareholders• determination of corporate forms • determination of funding (90 days)• business registration procedures• setting up of management apparatus• coming into operations and relevant transactions• restructuring/dissolving
• *
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A beautiful day in Hanoi Department of Planning and Investment
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Corporate governance – how to balance?
• *
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Choose partners and determine corporate form First step: Choose your friends wisely
1.Who can establish/contribute capital? The “negative approach” principle
2.Subjects are restricted/limited to contribute capital under the law on bankruptcy and law on cadres and civil servants, etc.
Next step: What is corporate form?
1.Limited liability company including single-member LLC and two-member LLC;
2.Joint stock company;
3.Partnership;
4.Private enterprise;
What form of corporate should be chosen?• *
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Selection of corporate forms
Key criteria:•Limited vs. unlimited liability;•Capability to increase rights in ownership and capital transfer •Easy to call any additional capital, i.e. listing•Easy/complicated corporate management;•Statutory requirements • *
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Business conditions• what are business conditions and why care?• where are they provided? • when are such business conditions satisfied?• what are the legal consequences without meeting
business conditions?
• *
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Tax incentives
• Items • 2006 • 2016• Inside
SEZ• Outside
SEZ• Tax
rates• 28% • 10% for
first 15 years
• 20%
• CIT Holidays
• 3 years • 04 years • 2 years
• CIT reduction
• 50% for subsequent 7 years
• 50% for subsequent 09 years
• 50% for subsequent 04 years
• *
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Conclusion• Investors look out for opportunities that bring potential financial
growth• Investors would like to invest in creditable, “clean”, transparent
and experienced business. Business involved in unlawful activities once found out would lose investors’ trust.
• Dig out as much information as possible about the local partner before engaging in any cooperation: how the business is operating, what is the management structure, analysis on potential success, …
• Important: Choose a legal advisor for your project!
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Questions & Answers
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DUANE MORRIS VIETNAM LLCThank you very much!
HANOI OFFICE HO CHI MINH CITY OFFICE
Pacific Place, Unit V1307/08, 13th Floor, Suite 1503/04, Saigon Tower 83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1Hanoi, Vietnam Ho Chi Minh City, VietnamTel.: +84 4 39462200 Tel.: +84 8 3824 0240Fax: +84 4 3946 1311 Fax: +84 8 3824 0241
Contact email:
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References (1)
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