Vietnam Market Entry: Build vs. Buy? A Foreign Investor’s Guide to Setting Up Shop

A practical guide to the two primary ways foreign investors can establish a company in Vietnam‘s high-growth economy, and how to decide which is right for you.

Vietnam’s dynamic economy continues to be a prime target for foreign investment, but navigating the entry process presents a critical first choice. Before you can tap into one of Asia’s fastest-growing markets, you must decide how you will establish your legal presence.

This decision, governed by Vietnam’s Law on Investment, boils down to one simple question: Do you build or do you buy?

Put simply, you have two primary pathways for establishing a company:

1. Direct Establishment: Building a new company from the ground up (a “greenfield” investment).
2. Acquisition (M&A): Buying shares or contributing capital to an existing Vietnamese company.

Your choice will fundamentally impact your setup timeline, licensing requirements, and initial operational challenges. This guide breaks down these two strategic options to help you determine the most effective entry strategy for your business.

Path 1: Direct Establishment (The “Greenfield” Approach)

This is the traditional “build” strategy. You are the founder, registering a brand new legal entity in Vietnam from scratch. This method involves contributing capital from the very beginning to form a 100% foreign-owned enterprise or a new joint venture.

How it works:

• You initiate the project by applying for an Investment Registration Certificate (IRC). This is the primary license proving your status as a foreign investor.
• After receiving the IRC, you then apply for an Enterprise Registration Certificate (ERC) to formally create the company, just as a local founder would.

The Key Detail: Under Vietnam’s commitments to the WTO and various free trade agreements, foreign investors can hold between 1% and 100% of the company’s charter capital.

Editor’s Note: The 100% ownership rule is not universal. It is crucial to check if your specific business line is subject to foreign ownership limits. For example, sectors like advertising, logistics, and broadcasting have specific caps.

• Best for: Investors who want full control over company culture, operations, and branding from day one, and who are not in a rush to market.
• The Challenge: This path is more time-consuming and bureaucratic, as it requires you to navigate the full, two-step licensing process from the start.

Path 2: Acquisition (The “M&A” Approach)

This is the “buy” strategy, and it is often a significantly faster route to market. In this scenario, you acquire a stake in an existing Vietnamese company that already possesses its Enterprise Registration Certificate (ERC).

How it works:

• You identify a local target company and negotiate the purchase of shares (in a joint-stock company) or capital contribution (in a limited-liability company).
• Instead of starting with the lengthy IRC process, you apply for a “Notice of Approval for Capital Contribution” from the Department of Planning and Investment. This is generally a simpler, faster procedure.
• Once the transaction is complete, the Vietnamese company is officially converted into a Foreign-Invested Enterprise (FIE).

The Key Detail: As with the direct approach, you can acquire from 1% to 100% of the company, subject to any sector-specific ownership limits.

• Best for: Investors who prioritize speed-to-market. You gain an instant operational entity, an existing business license, and potentially a workforce, client list, and supply chain.
• The Challenge: Due diligence is everything. You inherit the company’s entire history, including any hidden debts, tax liabilities, or labor disputes. Integration of a new business culture is also a significant post-acquisition hurdle.

Beyond the “Big Two”: What About BCCs?

While the “Build” and “Buy” methods are the most common ways to establish a company, the Law on Investment also provides for other forms of investment.

The most notable is the Business Cooperation Contract (BCC). A BCC is essentially a partnership agreement where investors cooperate to conduct business and share profits without creating a new legal entity. This structure is common in large-scale, specific-term projects, such as in telecommunications, resource exploration, or infrastructure development.

The Bottom Line: Your Strategic Choice

Choosing between “Build” and “Buy” is a strategic decision, not just a legal one.

• Choose Direct Establishment (Build) if you value control, a clean slate, and a custom-built corporate culture, and you have the time to manage the licensing process.
• Choose Acquisition (Buy) if you value speed, an existing license, and immediate market access, and you are confident in your due diligence and post-merger integration capabilities.

Would you like a deeper dive into the specific business sectors that are restricted or conditional for foreign investors in Vietnam? Contact Sophie Dao, (sophie@gbs.com.vn) Senior Partner at GBS – Global Business Services LLC – a professional investment business and legal services company in Vietnam if needed.

Related

Source: Vietnam Insider