Doing Business in Vietnam
by: Erika Visser, Associate partner of Hofstede Insights
Vietnam is the second fastest developing country in Asia behind China, and offers multiple business opportunities. After entering the World Trade Organisation in 2007, many companies have flocked to Vietnam due to the cheap labour costs. The government has always been the main employer in Vietnam, however, more and more private companies are being set up in Vietnam. There is still a great gap in sourcing talent for management and executive positions, and companies are trying to upskill local staff through hiring international talent on short-term contracts to train locals to help fill this gap. Due to the tight labour market and inflation, staff are prone to job hopping, especially if a company has not established adequate retention strategies. Due to Vietnam’s history, there is an undertone of skepticism, and building trust is not easy. Vietnamese people are open to foreign investment, however, they do not want to be exploited.
Vietnamese organisations are hierarchical and rank and position play an important role, and decisions are made at the top. In order to be successful, remember that relationship is more important than the task, therefore you need to invest in establishing long-lasting relationships with business partners. This takes time, consistency, and a lot of patience! Vietnamese people are not likely to conduct business with someone they do not know and thus third-party persons are used to introduce new business partners or to act as a mutual connection, making it easier to establish a relationship. Networking is essential to business success and can be done at formal or informal events. Third-party connections can help build your network in Vietnam. Corruption is still a very serious issue in Vietnam, and foreign companies should ensure that they have been legally covered and put plans in place to protect their interests before investing in Vietnam. Judicial and financial systems are still underdeveloped in Vietnam adding to this issue.
Three most important things for doing business in Vietnam:
- As you are dealing with a hierarchy culture, always respect this hierarchy and make sure that you build relationships with the key decision makers
- As a harmonious culture, conflict or any public show of emotions can erode trust, damage and possibly end business relationships
- Long-lasting relationships are core to any business dealings in Vietnam, thus spend time to foster relationships with the emphasis on long lasting - it takes patience and time! Implicit communication plays an important part in building long-lasting relationships.
What to look for in a good partner:
- Understands the local and national political situation very well, because it can change overnight and is always fluid.
- Has good connections with the government.
- Has the proper status, therefore explore his/her formal titles, e.g. vice president is an important one, because these titles are not used as casually as in the USA.
- Has the ability and willingness to be your contact on the ground or help you find a good one.
- Has lived and or worked and or has done business in the Western world and therefore is sensitive to the direct way of communication and task orientation of most Europeans.
- Ideally advanced his/her local education abroad.
Ensure you have a another third-party contact on the ground that can check the credentials of your potential partner first.
Conducting Meetings
Purpose of formal meetings:
- To give the manager a platform to show the way
- To give the manager a platform to inform subordinates
- To boost morale and to create in-group harmony
Purpose of informal meetings:
- Relationship building
- To check out in private if people agree
- To collect information and ideas; bottom-up
- To negotiate
- To check out opinions of the different groups of stakeholders
- Realise consensus “informally” among stakeholders
Business appointments should always be made in advance and will be confirmed one week in advance. You can then re-confirm the meeting one or two days before the scheduled date. Ask for a list of Vietnamese participants that will be attending the meeting, this will give you an idea about the levels and ranks of your Vietnamese counterparts and allow you to give face to the most senior person/s in the room. Arrive on time for a meeting, but be prepared to wait. Initial meetings are usually more formal and small talk is used for building rapport as business relationships are based on familiarity and trust, thus when having a first meeting do not expect business decisions to be made.
Send information about the level and titles of your colleagues attending the meeting and if possible send a translated agenda in advance. This will allow your business counterparts to get a better understanding of who should be attending the meeting. If you are not able to pinpoint the decision-makers for each contract or project, this will waste time talking to the wrong department or contacts. The most senior person will always enter the room first and shaking hands are common when being introduced, preferably by a third party connection. Appoint an experienced, recommended interpreter especially for initial meetings to help culturally and linguistically translate. Meetings are always started with small talk and you might be asked multiple personal questions, this will be followed by business discussions from the most senior Vietnamese counterpart - follow his/her lead and wait for their cue. Try to avoid topics about religion, politics and war and rather talk about topics like hobbies, food, personal interests, and family (if and when appropriate). Older Vietnamese with the highest rank are introduced first and they are shown great respect. Always address the most senior person in the room and wait to be seated in the format advised by your Vietnamese counterparts. Team members should never contradict one another and conflict should be avoided as it can erode trust. Always honour the titles and job descriptions of your Vietnamese counterpart, as these elements play an important role in showing respect in a hierarchical society. When receiving business cards, receive it with both hands, study the business card and carefully place it on the desk in front of you instead of putting it away in your pocket.
Style and structure of presentation
- The head of the host team will make a short welcome speech
- The floor will then be given to the visitors
- Your most senior person should speak
- Addressing the most senior Vietnamese host team member
- Avoid conflicting statements
- First give a broad overview, then address each point by point
Summation and closure
- The visitor is expected to signal the closure of the meeting
- Take minutes during the meeting
- Within 24 hours send the minutes to all attendees
Do not schedule any business meetings during Tet / Lunar New Year. Most Vietnamese people will head back to their hometowns to give their respect to their ancestors and to spend time with their loved ones. Tet is usually held the last week of January or the first week in February depending on the Lunar Calendar each year and can last up to seven days. The time leading up to Tet is a time of preparation, so also keep this in mind.
Behaviour
Vietnamese people are part of a greater network as a family culture and the relationships between family members and groups are central to Vietnamese society. Confucianism plays an important role to determine these relationships, and emphasises duty, respect for age and seniority, honour, loyalty, and sincerity. Confucianism is a life philosophy written by Confucius, a Chinese philosopher that has greatly influenced Chinese, Vietnamese and many other cultures in South Asia. Confucianism stresses the obligations that people have towards one another based on the relationships that they are in. There are five core relationships; ruler to subject, father to son, husband to wife, elder brother to younger brother and friend to friend. It is important to understand the role that Confucianism plays in everyday life as it will influence the way that business relationships are established. Always respect the hierarchy, titles, seniority and age - this will help to foster long-term relationships. Usually business relationships become social ones, unlike some western countries that always keep relationships professional. This is an important part of doing business in Vietnam. Vietnamese people will ask many personal questions, and sharing this information will help to bond with your business partner and allow them to see whether you are a trustworthy partner to do business with in the long run. Make sure you are aware of any special seating arrangements for meetings or appropriate gifts and business entertainment to always give face to your Vietnamese business counterparts. Implicit communication is another important aspect in understanding Vietnamese behaviour, and thus pay attention to nonverbal cues and do not cause conflict or display your emotions in public as this will let your Vietnamese counterpart lose face, eroding trust, damaging, and possibly ending business relationships.
Business Entertainment / Meals
Socialising is a very important part of establishing trust and long-lasting relationships. In many instances family members are involved, and Vietnamese people appreciate you bringing your family along (when appropriate). If you are not sure if family members are included in a social event, check with your Vietnamese counterparts whether they are bringing their families or not. You should avoid talking about business at the dinner table unless your host raises the subject. It is normal for the person who extends the invitation to pay the restaurant bill; in return, host a lunch/dinner for your Vietnamese counterparts. You can ask a third-party person familiar with the culture where would be a good restaurant or social setting for this return lunch/dinner.
Drinking beer is a great part of social events and it is not unusual for your Vietnamese host to keep on filling your cup or glass. Several dishes will be served as shared plates and you are expected to try all of the dishes. It is not unusual for pigs ears, frog legs or other intestines to be served. If you are not keen to try these dishes, you may politely decline or use your health as an excuse. Chopsticks are mainly used. Wait to be told where to sit and for your Vietnamese host to start eating or drinking before you do - follow their lead. You also might be expected to make a toast. If expected to make a toast; stand, raise your glass, thank your host and say something about Vietnam’s diverse and beautiful landscape and the hospitable and friendly nature of Vietnamese people, as they are very proud of their country.
Business Cards
Business cards are usually exchanged after an initial introduction. Business cards should include details of your education, professional qualifications, and business title, presented and received with both hands, and it should always be examined before being put away. Never write on a business card or fold it. Place business cards in front of you during business meetings always treating it with great respect. Have your business cards translated in Vietnamese at the back.
Dress Code
As a foreigner, when attending business meetings, western business attire is suitable. Men can wear a dark-coloured suit, a long-sleeved shirt and a tie, while women may wear modest skirts, trouser suits or dresses.
Business Meetings and Greetings
Always respect the hierarchy! It is advised to find out in advance how you should address the person you are to meet and the appropriate title to use. Shaking hands in Vietnam is common and being introduced by a third-party mutual connection is prefered. Generally speaking, Vietnamese people will have a western nickname to make it easier for foreigners to pronounce. You can use this nickname if offered in conversations to address your Vietnamese counterpart, while keeping correspondence more formal.
Gift Giving
Gifts are not usually exchanged as they may be perceived as a bribe, however, if you are presented with a gift, it is customary to accept it with both hands and wait until you have left your Vietnamese colleagues before opening it. Be sure to reciprocate with a gift of equal value in order to avoid loss of face. Ask a third party person to advise on an appropriate gift and how to wrap or present it to your Vietnamese colleagues or Vietnamese business counterparts.
How to manage people and build trust
Due to the hierarchical nature of Vietnamese culture, companies follow the same structure with a top-down approach. As a manager, you are expected to lead using a paternalistic management style. Be a good father or mother taking care of your staff, protecting their interests in turn for their loyalty. Remember that Vietnam has a group culture and thus motivating staff in groups is better than singling out individuals by giving individual bonuses or incentives. A good parent, and thus a good boss, in Vietnam is not only directive but also fair and takes care of staff needs in and also outside of the workplace. Once you have given instructions, check and inspect tasks to illustrate the importance of the task and your interest. Write down and remember staff and their family birthdays, be sensitive to family matters like weddings, births and deaths. Give appropriate gifts for special occasions and invite staff to your home to meet your family, also make sure that you meet their families by having dedicated family days – this could be lunches or dinners sponsored by the company.
Management styles and expectations of a good boss
Management styles and expectations of a good boss
- The company should preferably resemble a family
- Paternalistic management style
- A good boss should be directive
- Taking care of employees goes beyond the job
Ideal subordinate-manager relationships
- In-group and boss interests should ideally coincide
- Employees need to know what they have to do and why
Expectations by the manager of the employees
- To be loyal in return for protection
When giving feedback to your Vietnamese employees, do this implicitly and in private. If you do not have a good relationship with a local staff member, approach them through a third party person, such as an informal leader or their manager (if it’s not you). Vietnamese people have a more relaxed attitude towards timelines and meeting deadlines as consensus building and relationships are more important than getting the task done in a given time. Be sensitive to this and make sure that you have established strong relationships to help motivate staff to meet timelines. As a boss, you should know the amount of time that is needed for employees to execute a given task, be sensitive to their needs and provide support if needed.
Decision-making
The quality of decisions depends on the degree of excellence of the top manager. Emphasise the quality of the decision by referring to wisdom, experience and know-how. Cross cultural management is more likely to succeed when working in Vietnam, if you bear in mind that each person has a very distinct role within the organisation, and maintaining that role helps to keep order. People believe that their supervisors have been chosen because they have more experience and greater knowledge than those they manage, and it is, therefore, unnecessary, and even inappropriate for them to consult with lower-ranking individuals when making decisions.
Negotiation
Vietnam has a strong culture of negotiation and the creation of long-term relationships between two parties is more important than the actual deal / legal documents. Negotiators are more likely to address themselves and counterparts by titles, family names and use business cards. Avoid overt conflict and the expression of anger. Consensus building is a key aspect in decision-making. Make sure that you understand who the main decision-maker is before you start negotiations or else you will waste time in dealing with the wrong department or person. It is not uncommon after contracts have been signed for Vietnamese people to re-negotiate terms, for example, employees might request increases in pay after contracts have been signed.
Tips for increasing assignee’s negotiating skills:
- Think long-term interest and not short-term gain
- What are the collective interests?
- Be aware of communication gaps, high and low context
- Find the key decision-maker to negotiate with
- What is the preferred decision-making mechanism
- Understand the importance of relationship building
- Be willing to compromise
- Be patient & be flexible!
Retention Strategies
What can you do to retain your employees?
- Build strong long-lasting relationships
- Upskill staff, offer English lessons
- Create a good working environment
- Give out collective performance bonuses
- Offer a savings plan, paying out employees in, for example, 5-years
- Recruit constantly using your staff as scouts
- Leverage your ‘brand name’
- Engage in community service projects
- Use internships to bring new talent into your organisation
Handling Change
Change is not always perceived as good, unless there is a benefit to the group and accepted by the group. Too much change implemented over a short period of time will most likely be opposed. The best practices for implementing change:
- Being in a position of power
- Having a good trusting relationship with your team
- Implementing change in phases
- Including staff and reaching consensus that change is needed
Be Especially Careful with
Be especially careful with religious aspects and talking about the government in a negative way. It is best to steer clear from talking about politics, war, North versus South Vietnam, etc. as any of these conversations might be deemed as negative and erode trust. Remain very respectful and humble towards Vietnamese. They are very sensitive, especially about the Vietnamese political and governmental regime and religion. Corruption is everywhere; decide upfront what your policy is: go with it or 100% not; or go with it partly through using “agents” who are paid a fee or percentage of business deals.
Short Case Study
Examples of doing business in Vietnam, from Thien Do, Mary Quilty, Anthony Milner, and Simon Longstaff 2007. School of Management, Marketing, and International Business Working Paper Series, Volume 2, Number 2, 2007
BB Water
Mr B was the director of BB Water. Mr B started his business with capital borrowed from members of his family. Thereafter, however, Mr B’s family had very limited involvement in the business. He seemed to have sole control of his business. For example, after describing how he set up the bottling plant and negotiated with government officials to get the necessary papers he said: “I also had to do almost everything myself. At the beginning I bought the land, designed the buildings and supervised the construction. I had to interview and train each person. Also I had to discipline people.”
BB Water
Mr B was the director of BB Water. Mr B started his business with capital borrowed from members of his family. Thereafter, however, Mr B’s family had very limited involvement in the business. He seemed to have sole control of his business. For example, after describing how he set up the bottling plant and negotiated with government officials to get the necessary papers he said: “I also had to do almost everything myself. At the beginning I bought the land, designed the buildings and supervised the construction. I had to interview and train each person. Also I had to discipline people.”
He explained that he could not delegate discipline because workers would ‘react’ if they were admonished by “anyone but the boss, the owner of the company”. His exercise of authority extended to having to tell a typist how to type a letter and fax it to a foreign company, checking for mistakes constantly, aware (he claimed) that a Vietnamese secretary would “put the letter aside when work finishes at 4:30” unlike a non-Vietnamese secretary who would “simply work until she completes the task”. Mr B outlined his schemes to keep employers at his factory. After he trained them he gave them a share in the business, so that if profits went up that year they would be shared across the company. He also offered annual bonuses and a retirement scheme that gave out larger payouts the longer the workers stayed at the factory. All this he explained was in addition to the workers’ social benefit and medical benefits which he was legally required to pay. Despite all these loyalty schemes, however, many of his workers supplemented their income with money from what he called ‘odd jobs’, or moonlighting. This outside work, he explained, “is partly why they (were) not devoted” to his enterprise.
In an interview Mr B complained that “Vietnamese don’t think for themselves” - although this may also have been a result of his belief that “you almost have to take their hands and do it for them step by step”. Because of his ‘hands-on’ approach in introducing these foreign standards, Mr B proudly asserted “People think BB Water is a foreign company because of the organisation”. Mr B’s complaints about his staff not taking individual responsibility may show that he has had a more individualistic attitude than them. This attitude, he suggested, had been picked up on his trips to France, Japan and other countries in Southeast Asia.
In an interview Mr B complained that “Vietnamese don’t think for themselves” - although this may also have been a result of his belief that “you almost have to take their hands and do it for them step by step”. Because of his ‘hands-on’ approach in introducing these foreign standards, Mr B proudly asserted “People think BB Water is a foreign company because of the organisation”. Mr B’s complaints about his staff not taking individual responsibility may show that he has had a more individualistic attitude than them. This attitude, he suggested, had been picked up on his trips to France, Japan and other countries in Southeast Asia.