In 2016, prevailing societal values and strong economic tailwinds combine to create promising opportunity in Vietnam’s education sector. For those capable of navigating the bureaucratic hurdles of the Vietnamese Market, timing has never been better to establish operations.
Historically, education has been championed as part of Vietnam’s Confucian value system. Not only has this created a strong demand for education related services, it has also propelled the sector to the top of the governments agenda, with education development listed among the top seven foreign investment promotion categories within the country. In addition to historical reverence, the skilling of workers is also seen by officials as the ticket to increasing national competitiveness and bolstering investment.
As increased trade, steady government policies, and strong economic growth continue, increasing disposable incomes are now enabling families to afford private tutoring outside of the unsatisfactory teaching quality in schools. As 42.1 percent of the population are aged between 0-24 years, the window of opportunity for foreign investors cannot be overstated.
Demographic Opportunities
On an individual level, economic modernization has resulted in significant changes in the demand for labor within the Vietnamese economy. A job market that once focused on agriculture has subsequently migrated to manufacturing and will likely see pulls towards services in the near to medium term. Many parents are therefore seeking to enhance their children’s education so they may obtain skills which meet the ever increasing demands of the labor market.
Data from the World Bank shows that around 27 percent of households in Vietnam send their children to private lessons and the majority of them (90 percent) spend between 1 percent and 5 percent of household expenditure on supplementary lessons. Wealthier families in major cities such as Hanoi and Ho Chi Minh City are where the biggest demand is found, although a number of private tutoring centers have cropped up and sustained profitability in smaller cities including Hai Phong, Bien Hoa and Da Nang.
The State of Foreign Direct Investment in Education
As Foreign Direct Investment (FDI) into education reached record highs in 2015, the most pertinent and requested skills are for language. The main languages sought after are English, Chinese, Japanese and French. The government has set an ambitious target for all graduates to have a good grasp of English by 2020, however teaching quality issues are rife in schools and a growing dissatisfaction has emerged with conventional education as well as the quality of teaching in lessons.
As a result of these deficiencies, opportunities abound for foreign investors. Up until May 2015, there have been 213 FDI projects in the field of education, with total registered capital of 822 million USD according to the Foreign Investment Agency (FIA).
As party of investment inflows, a growing number of investors are becoming involved in language tuition centers. The main entrants to the market include Apollo, ILA and VUS (Vietnam USA Society). While VUS has 15 centers in Ho Chi Minh City, Apollo and ILA operate across Vietnam with 18 and 31 centers respectively. Apollo was the first to take advantage of becoming a 100% foreign-invested education entity. Alongside these nationwide brands, there are many independent language schools.
Common Investment Vehicles
For those considering investment, language schools and education providers are able to operate under the following structures:
- A 100% Foreign Owned Investment – Since 2009, 100% foreign ownership of language centers has been permitted allowing investors to act under the same conditions as domestic enterprises.
- Joint Ventures (JV) – These will have at least one foreign and one Vietnamese investor and can operate with a majority foreign share.
- Business Cooperation Contracts (BCC) – The most common form of foreign investment in education in Vietnam. Foreign firms will partner with a Vietnamese investor without the creation of a new entity such as a JV or 100% FOI. Usually under this model, foreign and local education institutions will conduct twinning programs, offer training courses and/or exchange programs.
- Representative Office – These are usually set up to investigate the market in-depth. Their activities are restricted and establishment can be difficult but it allows for local relationships to be built.
Tax Incentives
Socialized sectors in Vietnam, including education, will enjoy a preferential Corporate Income Tax rate of 10%. This allows for a substantial discount over the already competitive CIT rate of 20% that is normally levied.
Understanding the Challenges Ahead
Set up
Setting up as an education service provider can be a tedious process with a number of preconditions. The initial step is to obtain an Investment Certificate before any investments can begin. The government requires a minimum investment of 20 million VND per student (not including the land tenancy).
Once a location is chosen, facilities need to be set up before an application for an Educational Institution License can be submitted. Following the business’ registration, a corporate bank account should be opened to register for the tax code. Employees can then be hired and registered.
Human Resources Compliance
From an HR perspective, teachers must also meet certain requirements. They must have college degrees along with a TEFL certificate. Health and police checks are also required. Naturally, parents are particular about teachers and native speakers are usually preferred. Fortunately, there are an abundance of foreign teachers in Vietnam looking for work. The quanity of potential applicats enables schools to conduct face-to-face interviews with potential teachers.
All teachers may be employed on a probationary period, after which a work permit and a residence card should be applied for. The school must then collect Personal Income Tax (PIT) from the employee.
Optimizing Investments
While the bureaucracy may seem daunting, many foreign-owned schools have been successful due to their emphasis on facilities, pricing and targeted markets. Confidence should therefore be instilled by promoting a strong and responsible brand that meets the expectations of parents.
In addition to this, investors should be strive to maintain a firm understanding of the latest setup and compliance procedures in order to ensure that operations can be established and run smoothly.
Source: Vietnam Briefing
Keywords: Industry Spotlight, Vietnam, Growing Appetite, Education
