Joint Ventures In Vietnam.
Legal News & Analysis - Asia Pacific - Vietnam - Corporate/M&A
14 January, 2019
Joint Ventures in Vietnam have changed over the years.
When I first began working in Vietnam, the joint venture was all the rage. Not only was it a way for foreign investors to hook up with local talent and entrepreneurs, but it was also a way to appease the WTO agreements of Vietnam’s accession. Most sectors required a joint venture to begin with, and were set up in such a way as to require it for several years to come, at least to a certain extent.
But the WTO agreements and the joint venture requirements have all phased out. Only a few sectors vital to government security remain with requirements for joint ventures, or at least some threshold of native ownership. Otherwise, foreign investors can work their way through their investments without a local, using a 100% foreign ownership structure that allows for complete control by the foreign investor.
However, there are still some reasons for local involvement in foreign invested companies.
First, there remain certain sectors that require local ownership. These few remaining sectors are government critical and usually require hefty investment anyway, like banking or telecoms. These are not for the light of heart. And because of the money going into the sector for investors, large amounts of due diligence are required and recommended. It better be for a strategic relationship rather than simply a desire to invest in the industry, because if problems happen, they’ll be costly.
Second, joint ventures offer a native view of the land. Not only is there a reason for keeping a local on board as an investor, but they might just offer a great deal of support. Consider influence peddling, and corruption avoidance. It is much easier for a native Vietnamese to handle corrupt officials who want a part of their business than it is for a foreign investor to do so. It is also easier for an influential Vietnamese investor to navigate the government demands and this offers an opportunity for making friends and influencing people on the ground, all activities handled better by a local than a foreigner.
Finally, joint ventures offer a place for security. Unless there’s a conflict between the partners in a joint venture, a Vietnamese face offers a better chance to handle disputes. Consider the historical bent of local courts in developing countries. They tend to favor locals over foreigners and if you are a 100% foreign owned company, you don’t have a local face and you are a foreigner who will, most likely, lose in court. If you have a joint venture, you have a local side, and that means you have a much better chance to fare well in a court, or dispute resolution venue.
So even though the joint venture is all but obsolete, consider there remain a few reasons for using the investment form. Don’t write it off as something not worth doing, or cause for too much trouble, just because it’s not necessary according to WTO agreement.
For further information, please contact:
Dang The Duc, Partner, Indochine Counsel