1. Lawyer in Vietnam Oliver Massmann Pharmaceutical Market
Vietnam’s healthcare system is currently in general on the move due to the economic growth and the
rapid development.
Twenty years ago, the healthcare was under sole control of the central government. Later it became clear
that apart from government subventions yet further means were necessary in order to finance the system.
Meanwhile, a system consisting of three components exists. Since then, the healthcare is financed either
via government funds, out of the own pocket of the population or by means of health insurance.
Moreover, the poor were released from the obligation to pay the fees. Nevertheless, most hospital revenue
comes from private payments.
In contrast to other Asian countries, Vietnam spends very much funds for healthcare. The expenses for
this purpose amount to about 5% o 6% of the gross domestic product.
Particularly noticeable is the difference between public and private expenditure. While nearly three fourth
of the expenditure are attributed to the private sector, the public sector generates only one fourth of it.
Although Vietnam is subject to a constant progress, it is urgently required to continue extending the
healthcare system. The country claims to have eliminated many infectious diseases. Nevertheless,
malaria, trachoma, tuberculosis and cholera, poliomyelitis and typhus still cause a high mortality rate. In
2003, SARS (Severe Acute Respiratory Syndrome) broke out and had grave consequences.
A reason for the diseases is the lack of hygiene and education of the population. The government spoke
out in favor of making usual vaccinations against diphtheria, tetanus, pertussis, poliomyelitis, tuberculosis
and even measles. Communal health centers were established and, in addition, the educational work was
promoted. It included among other things the advice to ingest pure water and washed food and the
adjustment of living conditions in general to usual Western standards.
Besides, the government launched a program for the eradication of rats, mosquitoes and flies.
Thanks to some improvements in the recent years, the life expectancy increased and the infant mortality
rate dropped to 3.4%. Nevertheless, it is still a relatively high rate. Furthermore, a lot of cases of chronic
malnutrition still exist, particularly in ethnic minorities in remote and mountainous regions.
Furthermore, HIV and AIDS present a big problem. It is estimated that 215,000 people are HIV-positive.
About 8,500 of them are children aged between 0 and 15 years. There are about 22,000 orphans who lost
their parents because of AIDS.
The spread of the disease is to be put down on the one hand to intravenous drug use and on the other hand
to unprotected sexual intercourse, not least because it is what many women do by profession. Taking it
2. into consideration, the government, the party and the National Assembly launched programs promoting
the prevention and control. What is more, Vietnam is one of 15 countries that receive funds within a
global AIDS control plan amounting to US$ 15 billion.
There are still other communicable diseases in Vietnam. Among them are hepatitis B, parasitic diseases,
acute inflammations of respiratory tracts, tuberculosis, dengue fever and Japanese encephalitis, etc. They
cause about 30% of deaths. Moreover, non-communicable diseases, such as cardiovascular diseases,
cancer and diabetes increase steadily. The abuse of tobacco, alcohol and drugs is more widespread than
before. Such phenomena as suicide, violence and mental illnesses are on the increase.
Many differences in various populations groups are due to different living conditions, which are worse
particularly in rural areas.
Some people still suffer from the effects of the use of dioxins that caused cancer, miscarriages and
stillbirths. Moreover, a large number of not cleared explosive devices and landmines can still be found in
rural areas.
Health promotion and health programs
Almost all hospitals in Vietnam are owned by the state. The insurance is too expensive for the majority of
the population. The employer is indeed obliged to pay 18% of the income of an employee inclusive
certain extra charges to a social insurance fund and, besides, has to pay 3% of the total amount of the
wage or salary. Moreover, the employee has to pay 9.5% of the wage or salary and certain extra charges.
Altogether, the concept of health insurance in Vietnam is relatively new. Health insurances were
introduced by the government as recently as 1992. Compulsory insurance applies to all active and
pensioned employees in the public sector and all employees in private enterprises with 10 or more
employees. The contribution rate amounts to 4.5% of the wage or salary, with the employer having to pay
3% and the employee 1.5%. Health insurances for children and farmers can be effected voluntarily. The
government systems include also the issuance of free health insurance cards for the poor. At the same
time, however, informal fees, which have a negative effect particularly on the less well-off in the
population, are still charged. Naturally, the benefits of health insurances do not yet correspond to Western
standards. The long delay in payments presents a particular problem. In 2001, the government developed
a “Strategy for the Health of the Population” including two aspects: The reorganization of the health
insurance system for the purpose of regulating financial relationships between the users and the providers
and searching for new approaches to strengthening the quality and efficiency of nursing services.
Market development
The public expenditure for the healthcare constitutes only 1% of the gross national product and no more
than 20% of the income from the healthcare.
3. The healthcare system is insofar undermined by charging illegal fees. 80% of the turnover is sold out of
the own pocket of the population, which amounts to about US$ 23 per capita. Moreover, many
medications and placebos are sold illegally.
Today, there are around 800 wholesale establishments. The cost of maintenance of these establishments is
relatively high and amounts on average from 4% to 14% of the turnover.
Hospitals and pharmacies are in most provinces and larger towns. Private and public pharmacies are
scattered all over the country. They sell usually both local and international products. Their number
amounts to 41,500.
Depending on the educational system, the education to become a pharmacist takes 1 year, 3 years or 5
years. Unfortunately, no educational standards exist and each of these qualifications permits to open a
pharmacy.
Market barriers
Despite the accession to WTO, some market barriers for investors still exist. Within these barriers fall for
instance poor infrastructure, bad education of the population and not yet completed implementation of the
WTO agreements.
Another problem is that the prices of pharmaceuticals do not vary. It induces the hospitals to buy from
state-owned enterprises only.
The marketing of a product also poses difficulties. For instance, placing of an advertisement requires a
special permission. Prescription drugs, which are usually sold only by the state anyway, may be praised in
professional journals only. Other forms of advertisement may be made only after the participation in
training courses and seminars. Since wholesalers are not allowed to advertise in hospitals, it is common
that the advertisement is taken over by agents.
Natural and alternative medicine
Moreover, many Vietnamese trust only the traditional medicine. Basically, there are three kinds of
alternative medicine: The northern medicine influenced by China (thuoc Bac), the southern medicine
(thuoc Nam) and the western medicine (thuoc Tay).
The philosophy of the northern medicine is based on the Yin-Yang theory. The elements of this theory are
of material and moral nature and represent the entire universe. Ying is the feminine, passive element
whereas Yang is the active, masculine element. The human body is understood as microcosm in the
universe that has to adjust its inner functions to external forces and to the nature. The underlying idea is to
create harmony of a human being with the nature, which at the same time constitutes the basis of the
medicine.
4. In the southern medicine, the treatment is performed using tropical plants and animals. Some of these
traditional medicines proved to be extremely effective for curing dysentery, arthritis, gastritis, gastric
ulcers, cardiac diseases, influenza and hypertension and, besides, have the advantage of being cheap.
The curing method of the western medicine is based on the contact with dangerous spirits.
Vietnamese physicians rely on a diagnosis consisting of four steps: examination, auditory perception,
patient interview and pulse rate measurement. However, Vietnamese patients are rather suspicious of
specific questions concerning previous medical history and symptoms.
The traditional medicine has a large share in the market. Almost 17% of the pharmaceutical and
healthcare turnover comes from the traditional medicine. There are around 250 manufacturers of products
for alternative medicine and 450 private enterprises practicing traditional medicine. The producers are
successful even in the export.
Foreign investors should be always aware of the great mistrust towards modern medicine and the
reverence towards traditional medicine.
Favorable development after the accession to WTO
After the WTO Agreement, a considerable relaxation of the so far limited rights of sale in Vietnam was
expected and at least partly implemented in 2009. Prior to this, Vietnam’s structure of distribution was
distinguished by statutory restrictions and bureaucracy: Only enterprises operating in the country were
allowed to distribute their products themselves. All imported pharmaceuticals had to be brought into the
country via a local state-owned enterprise or via an enterprise authorized to import. Consequently, the
import enterprises were allowed only to buy foreign products from state-owned enterprises. Afterwards
they could resell the imported goods to pharmacies. Only in rare cases had they also the chance to
distribute them directly to hospitals. It was due to the fact that hospitals – although they have a certain
budget which is provided in 50% by the government – had only over 15% of the budget at their free
disposal.
The newly passed law, at the same time as the accession to WTO in 2007, brought the first favorable
development. It shall establish equal conditions for national and international enterprises in the country.
Since 2009, the formation of fully foreign enterprises is possible. According to this, also foreign
manufacturers and wholesalers have been recently in a position to distribute pharmaceuticals without the
aid of brokers. Foreign enterprises can also set up branches in Vietnam that are entitled to import goods
and to trade. In the context of the sale of placebos, it is to be welcomed that in 2005 regulations
concerning the competition law were introduced and the intellectual property rights were put under better
protection.
General conditions, advantages and disadvantages for foreign investors
Vietnam offers the following advantages for investors in the pharmaceutical industry: Apart from the very
favorable geographical location of Vietnam at the center of Southeast Asia, the country is to be
5. characterized as politically stable. The economic situation improves continually, with the labor cost being
still very low.
In 1992, establishing of the ASEAN Free Trade Area (AFTA) was launched with the goal to create free
trade areas within the ASEAN countries, China and possibly India. It will be implemented by 2015. Since
1995, Vietnam is a member of the ASEAN countries and in 1996 it became a member of the AFTA.
Another favorable development is the reduction of the tax rate on pharmaceuticals to 2.5% planned for 5
years after the accession to WTO. The tax rate on cosmetic agents has been reduced from 44% to 17.9%.
Vietnam still imports many medicines, as for example antibacterial agents and antibiotics. These
pharmaceuticals play a central role in prevention and treatment of diseases as well as within the scope of
supply of raw materials for the industry in the country. Specific pharmaceuticals are still very rare in
Vietnam and come mainly from France, Germany and Switzerland. Therefore presents itself the chance
for investors to undertake their production in the country. The number of local enterprises in the country
increases, too. Vietnam has over 180 pharmaceutical factories and only 25% of them are foreign-funded.
Another positive aspect for foreign investors is the fact that the government promotes the cooperation of
domestic and foreign enterprises in order to ensure the compliance with international standards. Since this
decision of the government, foreign investments in the sector are on the rise. The growth potential results
particularly from the fact that Vietnam has a large population, but very low per capita expenditure for
pharmaceuticals as yet, namely amounting to less than 10 US dollars per annum.
The economic growth rate of 2007 exceeded 8.5%. The industrial production amounting to US$ 35.9
trillion has improved by 17%. Total exports amounted to US$ 48.4 trillion, which means an increase by
21.7%, and the number of foreign direct investments almost doubled. Their maximum level was around
US$ 20.2 million. Taking it into consideration, the profit of the pharmaceutical market is expected to rise
to about US$ 1.5 billion by 2011.
Legislation and requirements for obtaining licenses
Opening of a pharmacy is cumbersome. The application for the license can take months. It is particularly
problematic that each individual pharmaceutical to be distributed has to be registered and could be
applied for only by local manufacturers and local importing firms as yet.
On the other hand, the fees for the license of only US$ 2000 are relatively low. Two certificates have to
be granted for the registration of an enterprise. For the sale, it is a so-called FSC certificate (“FSC”) and
for the manufacturing a so-called Good Manufacturing Practices (“GMP”) certificate. The GMP can be
replaced by the Certificate of Pharmaceutical Product (“CPP”). Besides, the product has to be subject to
sampling at the Institute for Quality and Control.
The applications have to be submitted in English or French and additionally in Vietnamese. The
Vietnamese administration has a separate Pharmaceutical Department that is responsible for granting and
cancellation of licenses.
6. Compared to other Asian countries, the approval of pharmaceuticals is quite simply and quickly to obtain.
Altogether, the validity of a license depends on the demand. Thus a license for 5 years is granted usually
for a product that is not manufactured locally, but is in high demand. A 3-year license is issued for foreign
products being in high demand which cannot be manufactured in adequate quantities at the local level.
Altogether, 4 reports have to be submitted for the approval of a new pharmaceutical, namely a legal, a
toxicological, an experimental and a clinical report.
The most important registration office for foreign investors is the Ministry of Planning and Investment
(“MPI”). The MPI is responsible for granting licenses for substantial investments of foreign investors, but
apart from that additionally the approval of other government agencies, as the Pharmaceutical
Department, may be required.
Currently, there are over 300 foreign enterprises on the market. Most of them have only a representative
office. Especially India and South Korea have a particularly big share in the market. However, the
number of potential competitors increases by about 5 to 10% annually.
Especially as locally manufactured products belong mainly to state-owned firms, the prices are very low.
Since the raw materials necessary for production have to be imported, also local firms are willing to
cooperation.
Conclusion
The continuing economic upturn in Vietnam and the liberalization of the market after the accession to
WTO could at the same time constitute a new profitable productive and distribution potential for Western
enterprises. Except for the local industry, there are still not many competitors on the market. However, in
order to attract investors, it is absolutely necessary to improve Vietnam’s infrastructure. Fortunately, there
are already plans for the implementation of a subway and a new airport in Ho Chi Minh City.
In order to promote the pharmaceutical industry in concrete terms, the government has to take yet further
modernization measures for the sector. Among them are the development and expansion of the industry of
pharmaceutical and chemical substances and agents from medicinal plants, the promotion of the
healthcare system and of a reasonable and safe use of medicines. Moreover, efforts have to be made to
take steps against illegal distribution of unregistered pharmaceuticals.
Please do not hesitate to contact Oliver Massmann under Uomassmann@duanemorris.comU if you have any
questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: Uwww.vietnamlaws.xyzU
THANK YOU VERY MUCH!