Vietnamese businesses should prep better for risk-laden international trade

The confused owner told me that her contract with the customer did not specify which arbitration agency or court would handle any possible dispute.

She is worried that she will lose everything.

Vietnamese businesses often have bad luck while doing business with international partners: 52% of businesses reported being victims of scams and economic crimes, according to a PwC survey released by the Vietnam Federation of Trade and Industry last year.

The actual figure may be higher since not all businesses want to let others know they have been scammed.

However, Vietnamese businesses are not the only victims: The problem occurred to 46% of enterprises in the Asia-Pacific region and 49% globally.

Fraud and economic crimes are quite common in international trade.

In the process of integration, Vietnamese enterprises do business with more partners, the playing field is larger, the rules of the game are different, and so the risk of disputes and frauds is also greater.

The main reason is that businesses do not have the wherewithal to thoroughly check their partners, choose inappropriate payment methods or are too inexperienced to recognize traps their partners put in the contracts.

Despite being a country with many of the world's leading export industries, most Vietnamese enterprises remain small or medium-sized and lack experience in international trade disputes.

Most rely too much on brokers who are not responsible for the conduct of the parties in the negotiations. Contracts drafted by brokers are often very simple and lack many important provisions.

Businesses also tend to skip due diligence, which is a mandatory requirement when dealing with new customers.

So businesses do not immediately recognize signs of risk.

A container vessel at Tan Vu Port in the northern city of Hai Phong, July 2023. Photo by VnExpress/Giang Huy

When Vietnamese businesses are scammed or face disputes, the country's diplomatic and trade agencies abroad often step in to support them.

The biggest recent success was when dozens of containers of cashew were exported to Italy in early 2022 but their documents were lost and the exporter was not paid.

Through the great efforts made by the embassy and the Vietnam Trade Office in Italy, these containers were cleared to be brought back to Vietnam or sold to other customers.

But such success is not a given.

Governments tend to consider these civil disputes that must be resolved in court or through arbitration depending on the agreement between the parties.

Any intervention by diplomatic agencies is therefore only meant to persuade the local government into paying more attention and not a legal measure.

So businesses have to be self-reliant and vigilant, and learn to deal with risks on their own.

The fundamental solution is to understand the customer. To verify information about prospective partners, foreign businesses often buy information from business consulting companies and credit rating companies.

These units have large databases about businesses that are updated regularly.

Banks not only play the role of payment institutions but also consult. All banks worth their salt have an agent system that can advise a seller whether a bank nominated by the buyer can be trusted.

If the seller cannot trust the buyer's bank, the seller should negotiate, request to switch to another bank, change the payment method, or request an additional bank guarantee.

My research shows there are businesses that do not require buyers to make any deposit even if they are new customers, partly due to a mentality of wanting to please customers and wanting to sell right away.

But deposit requirements are normal when dealing with partners, and sellers should not be persuaded by buyers to ignore this condition.

Exporters also need to be alert to unusual signs such as buyers using free email addresses for transactions; make overwhelming demands; avoid meetings and direct contact...

In case a business wants to sell but is not sure about the buyer, it can ask the shipping company to issue a bill of lading based on the bank's order. Thus, anyone who has a bill of lading in hand but has not yet received a bank order cannot take delivery of the goods.

In addition, you can use the bank's risk prevention methods like L/C confirmation, payment guarantee, contract performance guarantee... This will cost an additional fee, but reduces the possibility of trouble in future.

In international trade, logistics businesses not only help import-export businesses carry out shipping and delivery, but also act as a guarantor.

Insurance and inspection agencies also participate in the logistics service chain. Import-export businesses can prevent risks by purchasing cargo insurance, using third-party inspection services...

Consulting firms and law firms should be considered a business's companions in the entire export process and not just when a dispute arises.

They will help businesses learn about partners, review contracts to avoid unfavorable terms and support them and handle disputes on their behalf.

A businessman who was in foreign trade for a long time once told me Vietnamese enterprises should not consider learning, improving professional knowledge and training professionals expenses, but should instead think of them as an investment.

It is much cheaper than the cost of settling disputes and the consequences of fraud in the international market.

*Tran Thanh Hai is an international trade expert.