In this episode (MMC.004): Vietnam’s Competition Law and its impact on foreign companies.
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Below is a transcript of the episode, edited for readability.
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Granger: Good morning. Welcome to The Lotus Talks. Today, on Monday Morning Coffee, we will talk about Vietnam’s Competition Law and its impact on foreign companies.
Granger: Vietnam’s Law on Competition came into effect on July 1, 2019, focusing on competition restraining agreements, market dominance, economic concentration, and unfair practices. The new law builds on the previous regulation and provides investors with clearer guidelines. The move underlines the government’s intent to match Vietnam’s laws to international standards and this bodes well for foreign investors in the country. There’s a lot to cover, so let’s begin!
What is the scope of Vietnam’s Competition Law?
Granger: The new law has expanded its scope and now includes both Vietnamese and foreign companies and individuals The government will also have authority over offshore activities if there is an impact on the domestic market. The law will apply to foreign entities part of competition-restricting agreements, economic concentration, or other unfair activities even if they do not have a subsidiary in Vietnam.
Who are the regulatory bodies?
Granger: The regulatory bodies overseeing this are the NCC – National Competition Committee, which is a combination of the Vietnam Competition Authority and the Vietnam Competition Council. The competition investigation agency has also been established under the NCC. It will be responsible for monitoring and investigating breaches of competition law. The NCC will be a unit under the Ministry of Industry and Trade.
Granger: You know, it’s really good to see that these kinds of things are happening today and it’s all part of the movement and growth of Vietnam.
What do the Anti-competitive Agreements do?.
Granger: The new law prohibits certain types of anti competitive agreements if the firms are in the same market or if the agreements can’t impact market competitiveness.
Granger: Agreements prohibited in case firms are in the same market are: when dealing with directly or indirectly fixing prices, sharing customers or markets or supply sources, and controlling the number of goods produced, sold or bought as well as the services provided.
Granger: Agreements prohibited in cases where they have a negative impact on a market competitiveness are: restraining investments, technical and technological capabilities; and forcing other companies to sign contracts related to the buying or selling of goods and services or binding them into commitments not related to the content of the contract. Well, these are really important subjects and things that definitely need to be dealt with if you’re going to create a fair anti-competition law in Vietnam or anywhere.
What are the exemptions?
Granger: Certainly, for growth, these laws allow certain types of exemptions if they can satisfy certain conditions such as promoting technical progress or business efficiency, which can be a little bit of a wide open term if you will. But it gives the government some flexibility. However, the new law does impose a five year limit on any exemptions. Extensions are limited to a maximum of five years and the NCC will decide whether to continue the exemption with 90 days prior to its expiry.
How does the new law affect economic concentration?
Granger: Earlier, economic concentration activities such as M&A, consolidations and joint ventures were prohibited in cases where the combined market share of the entities was above 50%. Now the combined market share condition has been removed and any such activities can be prohibited if they have a significant competitive restraining impact on the market. The MCC will make the final decision based on the following factors: combined market share; level of concentration before and after the economic concentration or M&A, joint venture, et cetera…; The relationships of the firms in the chain of production, distribution or the supply of goods and services or whose business lines act as an input or complementary in nature (so that the whole supply chain being consolidated or being joined together, it can be another way to give somebody an economic advantage and therefore, it would breach the competition law); competitive advantages due to economic concentration; the probability of participating in firms to increase the price or rate of profit after the merger or the partnership; and the capability of the combined firms to remove or prevent other firms entering the market. In the previous version is economic, concentration activities could lead to a market share of 30% or more or required to be reported to the authorities. Under the new law, any economic concentration needs to be reported to the NCC if they are subject to certain thresholds and based on the following factors: total assets and turnover of the firms in the domestic market; transaction value; and combined market share.
How about mergers and acquisitions?
Granger: Mergers and acquisitions. Before a merger or acquisition or a joint venture, the entities have to notify the regulators if certain thresholds are crossed such as assets and turnover as per the 2018 Law on Competition. While not mandatory, a pre-merger consultation with the involved and a regulator is helpful to see if there are any issues. This can be an informal cost-free step to clarify merger regulations. Once the entities submit to the regulator, the preliminary review should be completed in 30 days. If the NCC requires further time, it can extend the review another 90 days and then a further 60 day extension for complex issues. These are all very good things to know if you’re envisioning any M&A activity or joint ventures in Vietnam in 2019 or beyond.
How about market position and power?
Granger: From July, 2019 onward, firms will be considered to be in a market-dominating position if they have a market share of 30% or more and has significant market power. What is market power, you can ask. Well, I’ll tell you. Market power will be determined by several factors such as: the financial strength of the firm; technological advantages and technical infrastructure; ownership and the right to possess an access infrastructure or use items of intellectual property rights to gain position; the correlation of market share among firms in the market; and other factors specific to their sectors.
Thought of the week
Granger: Well, that’s pretty broad and it brings up the question in the Thought for This Week: How do foreign companies make the best out of these changes while investing in Vietnam? I want to bring Cam over for a minute and ask him. I mean, that’s a mouthful. There’s a lot going on in Vietnam. Good morning, Cam. How are you?
Cameron: I’m doing fine. I’ve had my coffee.
Granger: Fine? You’re not fabulous, governor?
Cameron: Always need to do better, right?
Granger: Good. So, I mean, you read that and it makes my head spin, but also it’s exciting. There’s a lot of opportunities in Vietnam and it’s great to see the government taking these steps to create a more competitive, really fair environment for not only in foreign investment companies, but also the companies here in Vietnam. What are your thoughts, young man?
Cameron: Well, it’s, I really think it’s been a 40 year process. They’ve always been opening up the market.
Granger: 40 year process?
Cameron: Yes, since the “Đổi mới” reform. That was when they fought first integrated into the free market society.
Granger: So what year was that?
Cameron: 1984, 1985 or something along those lines. Yeah, I don’t remember.
Granger: And then they went into law, really, in 94? But it took a while to actually template them and actually put them into action, right?
Cameron: But looking at that, I feel like nowadays, with all this potential, you really have to be attracting, attracting investors, attracting people to do actually put money into Vietnam. So, this is a good step and in many respects…
Granger: I like that there’s guidelines, right? And I mean it’s pretty specific and I read a lot of what we had put down as notes, and trying to explain to everybody what’s out there, what to be aware of, what’s going on with the anti-competitive agreements. I mean, when you talk about sharing customers or markets or supply sources. You know, that can be a little tricky, right. Because you want to be able to leverage and if you can do a partnership with somebody to save some money, helping your end-user have a better price, well that’s a great thing. Also, if you can keep buying companies, buying power, or combine their need for buying and going to manufacturer, that gives that manufacturer more business. So, they can be more efficient. So, you know, these kinds of things always make me wonder where does the efficiency and the value breach the law. And it seems that there can be a gray area there. It’s not as black and white as one would like to think.
Cameron: I mean, that’s one of the difficulties making laws in and of itself. You know, you gotta always think about the gray area, but you have to always allow for your economy to keep on expanding. You know, at this point, being on a 6% year over year increase in GDP or something along those lines. So, I mean, this just bodes well for the economy in general.
Granger: Absolutely. Well, so we’re fans of this. Great. Well, so for the listeners out there, the Thought of The Week is: How do foreign companies make the best out of these changes? Take a minute, think about this new law, the Vietnam’s Competition Law. Get a copy of it, read it, see how you can use it to gain an opportunity in the market and grow your business. And we will talk to you on Friday and see what happened. Have a great week!
The Lotus Talks is produced by The Vietnam Group. This episode was produced by Granger Whitelaw, Cameron Lynch and Toan Tang.
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