In Vietnam, the Economic Needs Test applies to foreign-invested enterprises wishing to open retail outlets beyond their first store. The ENT process is designed to assess whether the opening of additional retail stores would meet the local economic demand. This can take time and effort, however, it is a necessary part of doing business in Vietnam for foreign retailers.
With this in mind, this article runs through the key details of this key regulation for foreign retailers.
What is Vietnam’s Economics Needs Test?
The Economic Needs Test (ENT) is a regulatory measure used by Vietnam to assess whether the opening of additional retail outlets by foreign-invested enterprises (FIEs) is justified based on local market conditions. The ENT examines factors such as:
- Population density: Whether there is a sufficient population in the area to support a new retail outlet.
- Number of existing outlets: How many similar stores are already operating in the area, and if market saturation is a concern.
- Market stability: Whether the entry of a new store would disrupt the local economy or create unfair competition.
- Economic development: Whether the new store aligns with the economic goals of the region or community.
The ENT is required for FIEs after the opening of their first retail store, with subsequent stores subject to this test unless they meet certain exemptions (e.g., stores under 500 square metres in commercial centres). Its purpose is to ensure balanced market development and protect domestic retailers from overwhelming foreign competition.
Box 1: Opening a retail store in Vietnam
Shopping at retail stores in Vietnam is becoming increasingly popular as wages rise and the variety of products on offer expands. This presents a range of opportunities for foreign retail store chains.
Opening a retail store in Vietnam for foreign firms, however, is not always easy. Not only are there a number of technical requirements that need to be met, but Vietnam has also developed its own retail store culture, putting its own twist on retail store shopping experiences.
Understanding the nuances of Vietnamese retail store culture and the complexities of business establishment procedures in advance of entering the market can therefore be crucial to the success of a new retail store or chain of retail stores in Vietnam.
For more information see: How to Open a Retail Store in Vietnam
Where is Vietnam’s Economics Needs Test codified?
The Economic Needs Test (ENT) for retail outlets in Vietnam is part of the broader regulatory framework under the Law on Commerce (2005) and its related decrees, particularly Decree No. 09/2018/ND-CP. This decree governs the trading activities of foreign-invested enterprises in Vietnam, including the establishment of retail outlets.
Decree No. 09/2018 outlines the requirements for the ENT, specifying the criteria and process foreign investors must follow when expanding beyond their first retail store. It is part of Vietnam’s efforts to regulate the retail sector, balancing foreign investment while protecting domestic businesses.
Who does Vietnam’s Economic Needs Test apply to?
The Economic Needs Test (ENT) in Vietnam applies specifically to foreign-invested enterprises (FIEs) that are seeking to establish additional retail outlets beyond their first store. The ENT is triggered when these businesses want to open a second or subsequent store.
For domestic Vietnamese retailers, the ENT does not apply, and they can open new retail outlets without going through this process.
Foreign enterprises looking to expand in Vietnam must go through the ENT unless the new store is smaller than 500 square metres and located in an approved commercial center, which may grant them an exemption. The ENT is designed to regulate the expansion of foreign retail presence and ensure that such expansion aligns with local economic conditions, market demand, and competition levels.
How do you do an Economics Needs Test?
To conduct an Economic Needs Test (ENT) in Vietnam, foreign-invested enterprises (FIEs) must go through a formal application process overseen by local authorities. Here’s a general outline of the steps involved:
- Submit a Retail Outlet Application: After opening their first retail store, FIEs wishing to open additional stores must submit an application to the Department of Industry and Trade in the relevant province or city. The application typically includes business details, the location of the proposed store, and plans for operation.
- Authorities Review the Application: Local authorities, including the Department of Planning and Investment and the Ministry of Industry and Trade, will review the application. They evaluate factors such as:
- Population density in the proposed area.
- The number of existing retail stores nearby.
- Market stability and whether the new store will disrupt competition.
- Compatibility with local economic development goals.
- Economic and Market Analysis: Authorities conduct an analysis based on the submitted data and current market conditions. This analysis determines whether there is a need for another retail store and if it aligns with the local economic plan.
- Decision and Approval: Based on the review, the authorities will approve or reject the application. If approved, the FIE can proceed with the establishment of the new store. If rejected, the company may need to adjust its plan or reapply.
Stores under 500 square metres located in certain commercial centres may be exempt from the ENT, simplifying the process. The timeline and specific requirements may vary depending on local regulations and the complexity of the case.
When is an Economic Needs Test performed?
An Economic Needs Test (ENT) is performed in Vietnam when a foreign-invested enterprise (FIE) wants to open additional retail outlets beyond its first store. The ENT is required for each subsequent store unless the new outlet qualifies for an exemption, such as being under 500 square metres and located in a designated commercial centre.
The ENT is typically triggered in the following situations:
- Second and subsequent store applications: After opening their first retail outlet, FIEs must undergo the ENT for any additional outlets, as local authorities assess whether the new store is necessary based on economic conditions.
- Expansion to new geographic areas: If the FIE wishes to expand to a different city or province, an ENT is required to evaluate the market demand in the new location.
- Changes in store size or location: If a store originally exempt from the ENT (e.g., under 500 square metres) is later expanded or moved to a non-exempt area, the ENT may need to be performed.
The ENT is part of the approval process before the business can proceed with opening additional retail outlets, ensuring that market needs and competition are balanced.
Additional notes on Vietnam’s Economic Needs Test
When dealing with the Economic Needs Test (ENT) in Vietnam, there are a few additional important aspects to consider:
The ENT process can be subjective, as local authorities have discretion in interpreting the factors used to assess market need, such as population density or economic stability. This can lead to variability in how different provinces or cities apply the test, creating uncertainty for foreign investors.
It can also be time-consuming, involving various government departments and reviews. The process may take several months, depending on the complexity of the application and local market conditions. Investors must plan for potential delays in their expansion timelines.
Some retail outlets are exempt from the ENT, particularly those under 500 square metres or located within designated commercial centres or shopping malls. These exemptions encourage smaller stores in well-defined commercial zones, while larger outlets or stores outside these zones remain subject to the test.
Free trade agreements may influence the ENT process. These agreements provide foreign investors from member countries with more favourable conditions or gradually relax restrictions. However, the ENT still applies, and the benefits depend on the sector and specific terms of the agreement.
The ENT can be a challenge for expansion, as it may limit opportunities in saturated or smaller markets. Companies should carefully assess local market conditions before applying for additional outlets, particularly in competitive urban areas where the ENT may be stricter. Preparing thorough market research and understanding the local regulations are key to navigating the process successfully.
What’s next?
In Vietnam, the Economic Needs Test applies to foreign-invested enterprises wishing to open retail outlets beyond their first store. The ENT process is designed to assess whether the opening of additional retail stores would meet the local economic demand. This can take time and effort, however, it is a necessary part of doing business in Vietnam for foreign retailers.
That said, Vietnam’s regulatory environment is dynamic and can change quickly. With this in mind, to keep abreast of changes to said regulations, foreign firms operating in Vietnam should make sure to subscribe to the-shiv.