Keys to a successful business in Vietnam

Keys to a successful business in Vietnam

Keys to a successful business in Vietnam

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Understanding the business Culture

Vietnam has a rather new business culture compared to Europe, US, Australia or even other countries in the region, it is important to remember that between 1975 and the early 1990’s, the country was totally isolated from international trade. In 1986, Vietnamese government initiated the “Đổi Mới” reforms, which aims were to shift to a “socialist-oriented market economy” by allowing the development of a private sector and the liberalization of the economy. One year later the government allowed foreign investment, 1990’s was the first year Vietnamese individuals could establish a private company. The development of private sector and international trade was sluggish until the lift of American embargo in 1994, so it has been only a bit more than 25 years that Vietnamese society has been involved in business and international trade. 

This obviously create major difference between developed industrial societies and Vietnam, one of the main differences to successful business in Vietnam compared to developed markets is the high importance of personal relations and trust needed here instead of the state-of-the-art product or solution. This is the key point many first timers fail to understand, even after making business in China or other Asian countries. Whereas in other countries the networks and relationships are used to open doors and find new prospects, in Vietnam the personal relationship is the ground for trust and the possibility of making business at all. The first thing your Vietnamese prospect is deciding is how trustful you are personally; not how excellent your product is. Being able to meet him is already a proof of his interest into your product and he thinks he can make or save money with it, but all depends if you can be personally trusted to make deals. This is a key factor when selecting your salesperson, the ability to create trust.

The reason for this cultural behavior is very probably related to the harsh times the country went through during the past-war communistic period when nobody could be trusted. As of today, Vietnamese business have a concept of extended “family”, where additional to the blood relatives also other trustful people can be part of. The importance of the family concept is that within the “family” the business is easy, as a result business is done often between the family members or relatives. One person obviously can be part of several “families” and a trusted business friend for many people.

How to enter to “family”?

Typically, somebody with who you are already in good relation can introduce you to another “family”. Therefore, networking is very important, takes time and must be done on the personal level. You get to know your customers children and family, you will get invited to celebrate birthdays, join weddings, visit during lunar new year festivities and many other family events, that’s all part of the work of the salesman or foreigner entering the market.

As a foreigner, if you don’t speak the local language, then building this trust might be more complicated. Although English is spoken by more and more people, Vietnamese still feel more comfortable exchanging in their mother tongue.
Note also that in Vietnam, information spreads surprisingly fast and widely, people gossip all the time and social media spreads information across the country. This has the advantage that if you have a good reputation and you are a trustworthy person, then you’re business will be easier but problems and issues spread fast as well and the business circles are in the end much smaller than to what we are accustomed in developed economies…  

Is there a need for your product?

Vietnamese are very practical and do not spend money on something they consider non-essential. If you don’t know if there is a need for your product or solution, don’t take the risk to go blind in the market, lose money and time and bang your head against the wall. In the end, you will save money and time by making a basic market study. Many customers tell us that no need for that, we already know who our customer is. While this is true in many countries, be assured that you cannot reflect your market entry in other countries directly to Vietnam. It simply doesn’t work like that. 

Who does what?

Value chains are more complicated and disorganized than in developed countries. Wholesale industry level is practically non-existing, instead, you have a multitude of very small importers selling to distributors and end customers. This is valid for nearly all business sectors and in both B2B and B2C. It obviously creates a lot of duplicate work in operational level, marketing, invoicing as well on the side of seller and buyer but this is the environment where you must operate.

Therefore ie. participating in trade shows are good for promoting (although the visitors are from a very small area, within 50-100 km radius typically) but very dangerous for any kind of partner search. You simply don’t get the picture of the value chains and 9 times of 10 end up with a distributor/agent who later proves to be a complete disaster. The typical problems are the small number of customers they have and the missing capacity (financial and competences) to do real prospecting work to develop the business volume for you. 

Vietnamese distributors and agents

In Vietnam, there is no problem to find a distributor! Go to any trade show, and you’ll find hundreds of them, there are plenty of companies who are willing to take you in their catalog. The real challenge and often insurmountable barrier are how to get your sales up and growing in Vietnam. The sad truth is that if you expect to be working with your Vietnamese representative the same way you do with your western representatives; you will fail in 99% of the cases. 

The major issue is in the business culture and in the way you and your representative see each one’s role. In developed countries, typically, you are expecting that once you have agreed with the partner, he will start active sales by prospecting, marketing, visiting existing customers and new prospects to find new deals. We call that proactive sales and it can be done because the company has the financial capacity to do it and you will support them technically by training their staff. Often first orders come only after a sales cycle lasting 6-12 months, but you can be assured that at least the partner is active and doing it outmost to get orders and gain himself at the same time.

In Vietnam things don’t go like that. As companies in many cases are small importers with a limited financial capacity, they are unable to invest in business development. This leads to the fact that while signing a new principal, orders must start to come right away. If that is not the case, the franchise becomes very rapidly uninteresting for them, without you knowing that.

A typical distributor here has a very small customer base, due to the “family” concept mentioned earlier. Once that is depleted, the work becomes more difficult as the deals are not coming automatically but would need prospecting work. Unfortunately, the Vietnamese partners rather seek a new principal to simply repeat the same limited sales with new products, move your franchise into the catalog of available products and expect that if somebody needs your products, he knows where to call.

Obviously, repeated orders from the small customer base they have will keep some yearly sales, but the numbers very rarely increase over the years.

How to sell successfully in Vietnam?

There are few things to ensure that you have at least a decent starting point to develop your sales. We strongly suggest you spend some time alone or with us to discuss your options and resources you need to put in place to guarantee a success in Vietnam.

  1. Unless you have done market entries to similar markets and you have the experience on the subject, we strongly suggest you use a professional Partner to guide you through the steps. A market entry Consultant will save you real money and time, and you will be much faster selling than taking the long road. But make sure that your Partner has the needed experience, customer cases, and solid ethics to work for you. Vietnam is full of middlemen and pseudo consultants; they speak well but deliver little if anything. Would you use a plumber to fix your broken leg? Probably not, so you shouldn’t use unqualified people to take care of your market efforts neither.
  2. Do your homework
    1. Understand the market, make a professional market study with local interviews of value chain.  This cannot be done by students behind the desk or from other countries, it needs networks, relations, and footwork.
      1. Is your product/service needed?
      2. Do you need to localize it? 99% of the services must be provided in Vietnamese.
      3. Who does what? The value chains.
      4. Entry Barriers? Legislation?
      5. Other issues
    2. Both financial and personnel resources are needed to support your market entry. Estimate 25-50,000 US dollars in overall costs in the first year.
    3. Daily support to answer your representative’s sales/technical questions. Vietnamese customers ask very detailed questions, sometimes irrelevant and your salesperson on the ground doesn’t know all the answers.
  1. Select well you sales channel
    1. Do not engage with companies met in tradeshows or proposed to you by third parties without a solid background verification and especially, never offer exclusive distributor agreements at the start of cooperation. 
    2. You have the option between a distributor and having your own salesperson to lead the activities. In many cases the Outsourced Sales can be the best solution.
    3. Make sure that your partner understands the need of prospecting and pro-active sales work. If they don’t, walk away.
  1. Support and monitor continuously your sales channel
    1. Once you have a partner, the works starts. Make sure that from day one you monitor and guide the sales and prospecting activities.
    2. Be present from distance by emails, calls, messaging but reserve also time to come to Vietnam and meet customers with your salesperson. Foreign principals are always welcomed by Vietnamese customers and shows that you are interested in them.
    3. Know your end clients, not just virtually but meet them as well, it is particularly important that the end clients build also trust with you. If your distributor decides to stop representing you, at least you will have a chance to sell to your clients through another partner.
    4. Do not offend or make loose the face of your partner or other local stakeholders. Respect his culture and country but stay firm in your needs. You have an educative role here; people has been doing business only less than 30 years in the whole country. They still need to learn many things which are obvious in developed countries and old Vietnamese business gurus are very few.
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