Understanding Provincial Competitiveness in Vietnam

By: Loan Quach

Da Nang, Quang Ninh, and Dong Thap were recently awarded as the top three most competitive provinces in Vietnam, according to the twelfth Provincial Competitiveness Index (PCI) of 2016, recently published by the Vietnam Chamber of Commerce and Industry (VCCI). Compiled in partnership with the United States Agency for International Development, PCI 2016 surveys private enterprises and measures economic governance of 63 provinces and municipalities in order to help promote Vietnam’s private sector development. In more conventional terms, the report assesses the regulatory environment within each province and relays this data to businesses through rankings and comprehensive information pertaining to the sentiment of established business leaders. Foreign investors can then refer to this data to make a decision regarding whereabouts to relocate or expand their businesses in Vietnam.

RELATED: Dezan Shira & Associates’ Corporate Establishment Services

Overall, PCI 2016 looks at the following factors when evaluating provincial competitiveness:

• entry costs;
• proactivity and creativity of provincial leadership;
• quality of labor training; and
• business support services

Trends in provincial competitiveness

The survey highlights several positive trends. Compared to 2014 and 2015, the median PCI 2016 score remains stable. However, due to massive efforts by provinces in the lower half of the PCI ranking to improve their business environment, the score gap between provinces is narrowed to 17, two points lower than last year. That being said, provinces in the upper half also have faced greater challenges in introducing breakthroughs in governance innovation.

In addition to general trends in scoring, sixty-five percent of respondents reported earning profits and 48 percent expected to expand their business over the next two years. Foreign-invested enterprises demonstrated more optimism in the prospect of growth as more than half of the respondents reported expecting increased operation size.

Furthermore, the ease to register a business has improved. In 2006, registering a business took 20 days. In 2016, the number decreased to seven. The survey reports forty-four percent of respondents perceived provincial government has a positive attitude toward the private sector and 71 percent said provincial government becomes more flexible. It also illustrates an increase in the level of satisfaction with the quality of labor training.

Finally, having environmental concerns, seventy-five percent of foreign firms and 73 percent of domestic enterprises firms have developed green policy as well as other self-regulation mechanisms to combat pollution and enhance environmental protection. They are reportedly willing to pay a reasonable operational cost to alleviate conditions at their business. Many of these firms are also reportedly willing to comply with higher provincial environmental strictures.

RELATED: Setting Up a Foreign-Invested Enterprise in Vietnam

Provinces to watch in 2017

Da Nang

Da Nang again championed the PCI ranking, making 2016 their fourth consecutive year, and seventh since PCI’s inaugural survey, leading Vietnamese provinces and cities in terms of favorable business environment. The central seaport is also the first to achieve 70 points, and good governance also helps the city to attract 65 percent of potential investors.

Despite the success, Da Nang is aiming higher. Da Nang Communist Party Secretary Nguyen Xuan Anh shared in Vietnamese: “We are not satisfied with the results we have achieved in recent years and we want to do better. The results haven’t met our expectation. Leading doesn’t necessarily mean the best.” He continued to emphasize Da Nang’s ambition to become the most worth-living city in Vietnam depends on success in the private sector.

Bing Duong

Meanwhile, Binh Duong made a remarkable return to the PCI Excellent performance tier list. Having been in the Mid-High performance tier in recent years, Binh Duong climbed 21 places up the ranking after reforming and sustaining services. Tran Ngoc Liem, vice director of VCCI Ho Chi Minh City, commented in Vietnamese the rise is inevitable because Binh Duong has implemented innovative governance and has improved its infrastructures to create favorable conditions for businesses, including assisting them with saving costs with a center for public finance. The city has also become friendlier and more proactive to private businesses. In addition, Binh Duong also encourages public-private dialogues through multiple channels to address the needs of businesses and strengthen the role of business associations in the province.

Ho Chi Minh City

Even though Ho Chi Minh City earned a slightly higher PCI score compared to 2015, it had to yield to the rise of other provinces and cities like Binh Duong, which made greater improvements and landed at eighth place. At the same time, while enterprises applauded the move to slash the number of days to register business to three days, they reported less confident in legal and dispute resolution procedures as only 26 percent of businesses agreed “The legal system always has a mechanism to help enterprises to denounce acts of corruption of public officials.” Twenty-nine percent of investors to the city said good city governance was the reason they choose to relocate or expand to the city. Nonetheless, most enterprises still consider Ho Chi Minh City as an investment destination due to the city’s vibrant development scene and ample business opportunities.

Hanoi

Hanoi is racing to the top. Landing at high performance tier, the capital city climbed up 10 places in what it calls the spirit of “Five Clear” principle, which steers its handling of administrative procedures for businesses with clarity in “personnel, tasks, processes, responsibilities, and effectiveness”. Moreover, Hanoi introduced a policy of “one task, one focal point” to reduce time costs and informal charges by delegating tasks of resolving administrative issues to one single office. Forty-nine percent of businesses reported “Government officials are friendly in resolving administrative procedures”, compared to 36 percent in 2015.

Why invest in Vietnam?

Localities across Vietnam are competing to attract private investments, especially foreign direct investments. As PCI 2016 assesses Vietnamese regulatory environments, it provides comprehensive data for investors to have better overview of provincial governance and make decisions regarding their business relocation or expansion in Vietnam, where foreign direct investments are considered key in the country’s external economic affairs.

Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

An Introduction to Doing Business in Vietnam 2017
An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.

Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.

• Previous Article Setting Up a Foreign-Invested Enterprise in Vietnam
• Next Article Vietnam: Government Rejects Airfare Price Floor Proposal