Vietnam is one of the fastest-growing economies in Southeast Asia, with a vibrant and diverse export sector. The country offers many opportunities for entrepreneurs who want to tap into its potential and expand their markets overseas.
However, doing exports business from Vietnam is not without its challenges. In this blog post, we will discuss some of the common financial hurdles that exporters face and how to overcome them.
After covering some of the main challenges of doing business in a frontier market like Vietnam, we received questions from our readers regarding exporting products from Vietnam.
1. Currency fluctuations
One of the biggest risks that exporters face is currency fluctuations. The Vietnamese dong (VND) is not a freely convertible currency, meaning that it is subject to government controls and interventions. The exchange rate of the VND against major currencies such as the US dollar (USD) or the euro (EUR) can vary significantly depending on market conditions and policy decisions. This can affect the profitability and competitiveness of exporters, especially if they have to pay for their inputs or debts in foreign currencies.
To mitigate this risk, exporters should consider hedging their currency exposure using various tools such as forward contracts, options, swaps, or futures. These are agreements that allow exporters to lock in a favorable exchange rate for a future transaction, thus reducing their exposure to currency fluctuations. Alternatively, exporters can also try to negotiate with their suppliers or customers to use a more stable currency for their transactions, such as the USD or the EUR.
2. Trade barriers
Another challenge that exporters face is trade barriers. These are restrictions or regulations that limit the free flow of goods and services across borders. Trade barriers can take various forms, such as tariffs, quotas, subsidies, standards, licenses, or customs procedures. Trade barriers can increase the cost and complexity of doing exports business, as well as reduce the market access and competitiveness of exporters.
To overcome this challenge, exporters should familiarize themselves with the trade policies and regulations of their target markets. They should also take advantage of the free trade agreements (FTAs) that Vietnam has signed with various countries and regions, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the European Union-Vietnam Free Trade Agreement (EVFTA), or the Regional Comprehensive Economic Partnership (RCEP). These FTAs can provide preferential access and lower tariffs for Vietnamese exports in many markets, as well as facilitate trade procedures and cooperation.
3. Financing difficulties
A third challenge that exporters face is financing difficulties. Exporting requires a lot of capital and cash flow, as exporters have to pay for their production costs, transportation costs, insurance costs, taxes, and fees upfront, while waiting for their payments from their customers. This can create a gap between their revenues and expenses, which can affect their liquidity and solvency. Moreover, accessing credit from banks or other financial institutions can be difficult for exporters, especially for small and medium-sized enterprises (SMEs), due to high interest rates, collateral requirements, or lack of credit history.
To overcome this challenge, exporters should explore alternative sources of financing, such as export credit agencies (ECAs), trade finance companies, or fintech platforms. These are entities that provide various forms of financing for exporters, such as loans, guarantees, insurance, or factoring. These can help exporters bridge their cash flow gaps, reduce their risks, and increase their working capital. Additionally, exporters should also manage their cash flow carefully by negotiating favorable payment terms with their customers and suppliers, such as advance payments, letters of credit (LCs), or open account terms.
4. Quality issues
A fourth challenge that exporters face is quality issues. Quality is one of the most important factors that influence the reputation and satisfaction of customers. Exporters have to ensure that their products meet the expectations and requirements of their target markets in terms of quality, safety, functionality, durability, design, etc. However, maintaining high quality standards can be challenging for exporters due to various reasons such as lack of skilled labor, inadequate infrastructure, insufficient quality control systems, or different technical specifications.
For effective support in navigating this challenge, consider partnering with a partner specializes in facilitating foreign businesses operations in Vietnam. Also look for Vietnam sourcing agencies specializing in facilitating foreign businesses’ factory introductions in Vietnam for quality assurance.
5. Logistics challenges
A fifth challenge that exporters face is logistics challenges. Logistics refers to the activities involved in planning, coordinating, and executing the movement and storage of goods from the point of origin to the point of consumption.
Logistics plays a vital role in ensuring the timely delivery and availability of products to customers. However, logistics can also pose many challenges for exporters due to factors such as distance, transportation modes, infrastructure conditions, customs clearance procedures,
or unexpected events.
6. Domestic demand and market diversification
A sixth challenge that exporters face is domestic demand and market diversification. Domestic demand in Vietnam has been weaker than expected due to the impact of the COVID-19 pandemic on consumer confidence, income, and spending. This has reduced the opportunities for exporters to sell their products in the local market, which can help them balance their revenues and reduce their dependence on external markets. Moreover, many trading partners are facing dwindling fiscal and monetary space, potentially restricting their ability to further support their economies if the crisis persists, which in turn could slow the global recovery and weaken demand for Vietnamese exports.
Doing exports business from Vietnam can be rewarding but also challenging. Exporters have to deal with various financial issues that can affect their performance and profitability. However, by being aware of these challenges and taking proactive measures to overcome them, exporters can succeed in the global market and grow their business.