Vietnam Business Integrity Index: Enhancing Accountability and Enterprise Conduct

The Vietnam Chamber of Commerce and Industry (VCCI) has launched the Vietnam Business Integrity Index. The project, created in collaboration with the UNDP and funded by the British government, provides a toolkit for assessing the integrity and conduct of Vietnamese business. By doing this, the program’s developers hope to attract more investment and enhance the progression of Vietnamese enterprise.

The Vietnam Business Integrity Index (VBII) – the first of its kind in the country to assess enterprises – was launched on September 21. The index, introduced by the Vietnam Chamber of Commerce and Industry (VCCI), is designed for enterprises of all sizes, forms of ownership, sectors, and structures, and measures the integrity and conduct of Vietnamese business.

The program was created with support from FairBiz – a UNDP regional initiative funded by the British government within the framework of the ASEAN Economic Reform Program – as part of a broader scheme promoting a fair business environment in Indonesia, Malaysia, Myanmar, Philippines, Thailand, and Vietnam.

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In recent years, Vietnam is one of few countries to substantially improve its standing on the Corruption Perceptions Index compiled and released by Transparency International. The country jumped 26 places to 87th in 2021 from 113th in 2017. It is also an exception among ASEAN countries, having moved up to the 88th position on the World Justice Project Rule of Law Index last year.

Vietnam currently finds itself in a unique position as many international companies consider relocating their manufacturing and production activities out of China amid concerns about frequent policy changes due to the pandemic, geopolitical tensions, and impact on economic stability. But here Vietnam faces competition from Southeast Asian markets like Indonesia. As such, it becomes ever more important for Vietnam to enhance its international reputation for business integrity.

What does the project aim to achieve?

The VBII project aims to enhance accountability and integrity within business practices at all levels. While Vietnam’s global standing as a business and manufacturing location might be improving, a UNDP article released last June showed that at least one in three enterprises engaging in public procurement reported informal payments to win contracts.

Patrick Haverman, UNDP Deputy Resident Representative, highlighted that if used honestly and transparently by enterprises, the VBII will enhance Vietnam’s international stature and brand. It will do this, he contended, by creating data and information-based trust which, in turn, will serve to attract more investment and enhance the progression of Vietnamese enterprise.

Meanwhile, Deputy British Ambassador Marcus Winsley said that the program would help create a fair business climate, while effectively reforming the economy, and making progress in many other fields. Winsley also highlighted the UK’s commitment to helping Vietnam realize its objectives in business and meeting international expectations around climate change, education, and health.

What does the Vietnam Business Integrity Index assess?

The index is a tool to assist Vietnamese firms to integrate ethical criteria into their production and business activities in order to come closer to international standards around transparency and integrity.

The toolkit has been recommended for any company, state or private, that is interested in business integrity as well as those that understand that business integrity is a bedrock principle for their growth.

The index was constructed in the belief that building integrity processes in a company starts with top-level commitment. The VBII states that a code of conduct, which reflects the values and expectations for the organization’s ethical culture and its consequences, is the starting point for integrity building.

Groups involved in the creation of the VBII toolkit contend that applying a model for enhancing integrity is key to detecting misconduct and implementing methods to deal with misconduct. They note that the Code of Conduct helps employees and other stakeholders manage dilemmas and situations with conflict of interest. Ethics must underpin the company values and compliance with the standards, they contend.

The VBII has been created based on seven elements:

1. Commitments to integrity.
2. The existence and quality of the Code of Conduct.
3. The quality of compliance programs.
4. Good governance for good control.
5. The codes and compliance programs are monitored and tracked and reported to all levels of the organization.
6. Timeliness and appropriateness of actions to address unethical conduct, the (potential) impact of unethical conduct on the corporation and its stakeholders.
7. Review, monitor, evaluate, and change for continuous improvement.

By implementing these elements, the VBII’s creators claim that Vietnamese businesses can more easily comply with the standards expected of them by international partners and stakeholders. “In deciding on investment sites, global companies will consider the state of respect in the countries for responsible business conduct with good governance and the rule of law as critical factors,” UNDP’s Haverman said in a statement.

A unique opportunity for Vietnamese business

Vietnamese businesses are being presented with a unique opportunity to grow as tensions rise between the West, notably the US, and China. These tensions have pushed international businesses to reconsider their position in China amid the ever-present threat of sanctions and government surveillance.

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Several companies, particularly those involved in manufacturing, have been vocal about their concerns around sanctions, and have moved to reduce their exposure and production activities in China. In July, it was reported that Jeep owner Stellantis had closed its only Chinese factory. Chief Executive Officer Carlos Tavares said his company was implementing an “asset-light” strategy in China, highlighting concerns that rising political tensions between China and the rest of the world would lead to economic sanctions.

Vietnam has emerged as an alternative manufacturing location for international companies. The nation, which borders China, offers comparable, if not lower labor costs, as well as inexpensive material costs and considerable free trade access. Vietnam is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a trade agreement with Pacific partners Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, and Singapore. The state also has an abundance of young workers – a big draw for many companies.

Headwinds for businesses in Vietnam

While Vietnam is open for international investment, foreign businesses still meet challenges. In turn, these challenges highlight the need for initiatives such as the VBII. Ongoing challenges include bureaucratic red tape, grey areas of Vietnamese law, a lack of intellectual property rights (IPR) enforcement, inadequate infrastructure, a skills gap in some areas, and language barriers – translators and interpreters are often needed.

Vietnam is also pressing ahead with data localization regulations that have been widely criticized by US businesses as well as CPTPP trade partners. The regulation requires domestic and certain foreign companies to locally store personal data. US business groups have raised concerns that the new regulation could have a “considerable impact” on investment. The policy, according to Japan and Canada, is also in conflict with the terms of the CPTPP.

If these headwinds persist, Vietnam could lose out to emerging regional rivals like Indonesia, particularly since it made early gains after the fallout of the US-China trade war. The implementation of the VBII could be a timely move to overcome some of the long-standing challenges and inspire more confidence in doing business in the Vietnamese market.

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