Open for Business: Vietnam Clarifies Economic Needs Testing for Foreign Retailers

April 3, 2014 Posted by Vietnam Briefing Reading Time: 4 minutes

HANOI – At a March 28^th consultation and dialogue with businesses located in Vietnam, discussions focused on economic needs testing (ENT) criteria for the establishment of retail outlets.

The meeting involved representatives from the Vietnam government and foreign invested enterprises, and was seen as a new move by the government to further open the country’s retail market.

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A key point of the meeting was the government’s reemphasis of the Ministry of Industry and Trade’s Circular No. 08/2013/TT-BCT. Enacted on June 7, 2013, the circular provides foreign retailers with an ENT exemption for retail stores which are less than 500 m² in size and located in areas zoned by provinces and municipalities for activities involving the selling of goods.

Foreign businesses are eager to enter into the Vietnamese market and to begin expanding their operations. However, there are many foreign businesses who feel that the current system of regulations is weighted against them. It was the Vietnamese government’s goal during the meeting to help address these issues.

Representatives from firms present at the meeting expressed their desire to invest heavily into their Vietnam retail distribution system. However, this desire has been stymied by undefined governmental procedures and criteria for determining ENT. This has created undue difficulties for foreign retailers seeking to enter the market.

Furthermore, although an ENT exemption is applicable for FDI firms who wish to open more retail stores, the firms are required to apply for a new business license for every single additional store. Applying for the licenses can be very time consuming since there is no required legislated response time for the licensing authorities.

In response to the concerns raised, Pham Huu Thin, Manager of Commercial and Materials Division at Domestic Market Department, stated that “[the] Ministry of Industry and Trade will study and adjust the time frame for responding to request[s] to further investment by foreign invested enterprises.”

Mr. Thin also explained that, in order to avoid rental and other related costs arising when the ENT assessment process is prolonged, foreign firms should only sign official contracts for the construction of new retail stores when they are permitted to by the licensing authorities.

Lack of professional knowledge was another area of concern that the government addressed. During the process of conducting ENT to assess criteria for the establishment of retail outlets, the local Department of Industry and Trade is always supposed to be the most knowledgeable unit about the retail distribution system in that specific region. However, as Thin explained, “the fact remains that some ENT assessment authorities do not include any official [from] the Department of Industry and Trade in their board members, which causes slower and less effective ENT assessment procedures.” To rectify this situation, the ENT assessment authorities will be more flexible during their ENT evaluations and include representatives from related departments and offices on their assessment committee.

Reiterating the government’s declaration that Vietnam is pro-foreign retail business, Dinh Thi My Loan, President of the Vietnam Retailers Association stated that ENT is not intended as an obstacle to foreign firms entering Vietnam’s retail market.

Vietnam’s retail market continues to be one of the most exciting industry sectors in Vietnam. There are numerous reasons why this industry is particularly attractive to both domestic and foreign businesses. Among its positive attributes, the country has a well-developed economy that continues to improve, a high population (90+ million) and ever increasing living standards.

Important statistics for the retail sector include:

42 percent of Vietnamese are under the age of 25.
There are a large amount of women (an important customer growth segment) in the workforce.
Through November of 2013, Vietnam’s total retail turnover reached VND 2,386 trillion (around US$113 billion), an increase of 12.6 percent year-on-year.

Circular No. 08/2013/TT-BCT (English version) can be found here.

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