Hoang Minh Duc advises clients in corporate & MA matters as special counsel with Duane Morris Vietnam, the Vietnamese subsidiary of Duane Morris LLP (US). In this interview with Asia Law Portal, he details the most important opportunities and challenges he sees for corporate clients in Vietnam looking forward into 2020. He’s also the author of Vietnam Startup Law blog – and explains when the blog was founded, what inspired him to blog about legal issues for startups in Vietnam, and his thoughts on blogging for practice development. Further, he explains what unique opportunities and challenges Vietnam offers to startups and venture capital investors – and what the Vietnamese Government is doing to help encourage Vietnam’s startup ecosystem.
You advise clients in corporate & MA matters as special counsel with Duane Morris Vietnam, the Vietnamese subsidiary of Duane Morris LLP (US). What are the most important opportunities and challenges you see for corporate clients in Vietnam looking forward to 2020?
In terms of key opportunities, the economic outlook is very positive by the numbers. Last year, Vietnam’s GDP was above 7% for the second year in a row. Exports, foreign investment, private investment, domestic consumption – was all robust – while the inflation rate was kept as low as 2.79%.
The US-China trade war, despite recent efforts from both sides to have reached phase one, seems to be far from over. Vietnam is obviously one of the biggest beneficiaries of this situation. In fact, our firm were approached by many foreign manufacturers who want to quit China for Vietnam and are actively looking for manufacturing sites here.
In recent years, the Government is speeding up its deregulation efforts by cutting many redundant market-access restrictions and generally simplifying administrative procedures. This effort will help businesses, especially those from the private will find it easier to access the market. What’s more important is the change in mindset of many, albeit not all, senior officials in Governmental bodies that companies ‘can do what the laws do not expressly restrict or prohibit’ instead of the long-established ‘you can do what we have expressly committed’ approach.
Another opportunity lies in Vietnam’s young and vibrant population who, on the one hand, has demonstrated strong spending behavior and, on the other hand, proven very quick to adapt to change. One of my clients said his decision to invest in Vietnam is influenced by, among other factors, Vietnamese people’s high level of flexibility and strong desire to learn and adapt to new things.
In terms of major challenges for the years to come, you can first name corruption and its twin, bureaucracy. Despite recent crackdown efforts, corruption is still rampant at almost all levels and getting more and more complicated. These practices leaves private and foreign investors to make difficult choices, i.e. – either to live with corruption or suffer from it. If you may notice, last year, the US fined Ericsson for having admitted to a campaign of corruption across Djibouti, China, Vietnam, Indonesia and Kuwait. This reflects a phenomenon that a corruption case which involves international bidding in Vietnam is often found in other jurisdictions beyond Vietnam itself.
Another consideration is the lack of qualified staff. Many foreign investors keep claiming that it is sometimes very difficult for them to find good, experienced people.
Believe it or not, environmental pollution, especially air pollution, is also posing a real, but silent, challenge for the economy. I heard, though not verified, that some foreign staff either refused to come to work in Vietnam or asked for ‘air pollution’ allowances due to the critical environment problems in the major cities of Vietnam, especially Hanoi which is still among the worst places in the world for this.
You’re author of Vietnam Legal Startup Law blog. When was the blog founded and what inspired you to blog about legal issues for startups in Vietnam?
I started my start-up blog in early 2018 after several years of working with all the key players in the industry ranging from the decision-makers, the startups and, of course, offshore venture capitalists. What I realized is that, on the one hand, a VC-style transaction sharply differs from and seems to be more complicated by the traditional private equity deals that lawyers in Vietnam are very familiar with. On the other hand, I also found that Vietnamese founders, most of which are tech startups, though quite dynamic and ambitious, are very ‘naive’ about almost everything. For example, in many cases, they cannot even distinguish a term-sheet and a share subscription agreement (for example, some have thought that once a term-sheet is signed, they can immediately receive cash from investors). Worse, they even ‘blindly’ signed transactional documents without knowing what they cover exactly.
Frankly speaking, I think that these talents deserve to better understand what can expect ahead. At a minimum, someone should let them know how a deal of this type is done in practice, what should be taken into consideration, etc. – and my blog was intended to be that ‘someone’.
Nevertheless, my blog does not just focus on startup communities. Equally important is to give foreign investors an insight (that they would not be able to get from elsewhere) on how to do business in Vietnam in general and to invest in local startups in particular.
And, on these thoughts, the blog was founded.
What unique opportunities does Vietnam offer to startups and venture capital investors?
Many times, I’ve raised this question with experts in the industry including professional venture capitalists and here are their answers:
- There are many new potential startups in Vietnam to invest in and they are good value for money.
- A young population makes Vietnam relatively attractive from a market perspective. Vietnam is a very large market by itself (third largest in Southeast Asia) and can easily reach out to other markets in Southeast Asia;
- The Government’s efforts to create and maintain a startup-friendly legal framework makes it easier to do business in Vietnam;
- There are good and relatively cheap tech human resources.
What key challenges should venture capital investors and startups be focused on in Vietnam?
In our view, the key challenges that both venture capitalists and startups are now facing in Vietnam include:
- Vietnam is a bit behind some of its South East Asian rivals, namely Singapore, Thailand, and Malaysia, when it boils down to financial incentives for investors and startups, especially tax incentives;
- The lack of sufficient supporting infrastrutures, market statistics and data, etc., makes the development of startup products more challenging.
- The legal framework for venture capital investment is still in its infancy and therefore far from being complete. For example, though the Government made a break-through by introducing Decree 38 to pave the way to VC-style investment in startups, little progress has been made so far due to the lack of guiding regulations, mainly from banking and accounting’s perspective.
- Market access for foreign invesment in new sectors is facing challenges from the licensing authorities. A classic case is the controversial and long debate among State bodies of Vietnam a few years ago about how to define and restrict app-based taxi service providers like Grab and Uber. For these new sectors, the licensing process would be very complicated with the involvement of numerous State bodies’ opinions and consequently time-consuming. This leaves local startups with no choice but to seek to circumvent the restrictions including by arranging a ‘domicile flip’, a term that refers to their investment in Singapore first and use the Singaporean vehicles to invest back to their ‘real’ operating entities in Vietnam.
- For some new industries, such as blockchain, cryptocurrency, P2P lending, and equity-based crowdfunding, the legal framework is not ready. The lack of such legal framework does slow down market access of both foreign and private investors in Vietnam.
- The transperancy in operations of local startups remains questionable. It is not quite rare that many startups use the ‘dual accounting book system’, one for tax declaration purposes and the other ‘real’ for the founders’ knowledge; or easily violate corporate governance principles.
The Vietnamese Government has actively sought to help encourage Vietnam’s startup ecosystem. Can you tell us more about this?
To encourage entrepreneurship, the Government of Vietnam has, for the last 4 years, launched a series of programs, including:
- The National Program to Support the Innovative Startup Ecosystem until 2025 (passed in 2016), The National Program to Support Women Entrepreneurship, and The National Program to Support Youth Entrepreneurship. While these policies are not per se official legal instruments, they have created a platform for capacity building and networking among startup ecosystem stakeholders.
- The concept of startups and VC investment, for the first time was made a legal instrument at the ‘law’ level in 2017 – in the small & medium enterprise support law.
- There are multiple large national events to connect Viet Nam’s startup ecosystem with the world including TECHFEST (the largest annual startup event in the country hosted by the Ministry of Science and Technology of Vietnam (MOST), which has been running for 5 years (this year MOST has expanded to TECHFEST International in the US, Korea and Singapore); Venture Summit (the newly created event to attract domestic and international VC investors, hosted by the Ministry of Planning and Investment of Vietnam).
- The Ministry of Planning and Investment of Vietnam is in the process of building the National Innovation Center – the world class hub to incubate technology startups in Viet Nam.
- MOET is in the process of building the National Startup Center to develop and sustain the network among startup ecosystem stakeholders.
In our view, what also really counts is the Government’s awareness of the importance of the next wave of startups. In fact, it does actively instruct State bodies at lower levels to create the most favorable conditions for startups.
How has blogging helped you build recognition for your practice?
Frankly speaking, I am not aware of any client who comes to me by just first visiting my blog. Nevertheless, using web-tracking parameters, I am have found that the readers of my blog come from different corners of the world and this excites me a lot. What also makes me feel happy are the emails and messages I receive from time to time showing senders’ gratitude to what I wrote. For me, that is just enough at this stage.
 Decree 38 dated 11 March 2018 on investment for small-and-medium start-ups and innovative firms