[Public Voices] Vietnam's Changed Business Environment... Keys to Success

Moving Beyond Manufacturing Bases...
Rising Interest in Renewable Energy
Vietnam Seeks Value Investors Who Can Justify Permits
Thorough Due Diligence and Long-Term Vision Are Essential

A few years ago, a Korean company decided to invest in a development project by a Vietnamese company. To finance the initial capital required for obtaining business permits, they made a capital investment, and the costs for proceeding with the project after obtaining the permits were to be covered either by their own investment funds or by loans they would secure. According to the contract terms, if the business permits were not obtained, the Vietnamese company promised to return the investment through a capital reduction.

However, under Vietnamese commercial law, capital reduction can only be done after a certain period and is subject to limits on the amount. If the project was canceled, the Vietnamese company could not return the full investment to the Korean company. If the Vietnamese company proposed the capital reduction as a safety clause knowing this fact, it was a mere pretense; if they did not know, it would be natural to suggest alternative solutions later. When the Korean company demanded, "If the business permits are not obtained, the Vietnamese company’s shareholders should buy back shares equivalent to our investment or propose other alternatives," the Vietnamese company refused. Ultimately, the Korean company invested without any substantial safety measures. The deadline for obtaining the business permits has long passed, but there has been no word about recovering the investment.

It is not hard to find cases of Korean companies investing in Vietnam while taking high risks like this. This is because they focus more on the expected profits if the project succeeds than on the potential loss of the investment if it fails.

From my experience advising on international transactions for over 20 years, I have observed that successful companies?whether foreign companies investing in Korea or Korean companies investing abroad?without exception, gather detailed information about business activities themselves and thoroughly verify hidden risks. On the other hand, I have never seen foreign investments succeed when decisions were based primarily on information received from partners.

The same applies to Korean companies entering Vietnam. While personal relationships and trust among owners and the local partner’s domestic network are important factors for starting a business, they are not everything. No matter how promising a business opportunity appears, if it is not supported institutionally and legally on the ground, it should be reconsidered.

In Vietnam’s case, as the country increasingly integrates into bilateral and multilateral trade norms, its legal system is evolving. With the rise of Western companies entering the market, the level of competition has changed. Vietnam no longer positions itself merely as a simple assembly base; interest in renewable energy and ESG legislation is on par with advanced countries. Amid ongoing anti-corruption campaigns, obtaining permits is no longer a matter of knowing just one or two decision-makers. Vietnam now seeks value investors who can provide justification for permits, whether through technology, workforce development, or infrastructure construction.

Last month, President Yoon Suk-yeol made a state visit to Vietnam, and I participated as a member of the economic delegation. More than 100 memorandums of understanding (MOUs) on investment between companies from both countries were signed. It was notable that investment cooperation spanned various industries, from traditional sectors like power generation and infrastructure development to fashion and artificial intelligence. However, what has not changed yet among Korean companies entering Vietnam is the business initiation pattern relying on personal networks. While personal trust must underpin any business, decisions must be based on sufficiently comprehensive information. To turn the MOUs signed this time into successful business ventures rather than one-off events, it is essential to carefully examine Vietnam’s changed business environment and proceed with a long-term perspective.

Lee Jun-woo, Head of International Legal Team, Law Firm HwaWoo, Representative of Vietnam Office