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Working with factories in Vietnam has become an increasingly attractive option for foreign businesses thanks to competitive costs and growing manufacturing capabilities. However, many companies have faced serious risks due to poorly drafted contracts, delayed deliveries, factory shutdowns, or prolonged disputes with little chance of recovering their money. So, what should foreign companies check before signing a contract with a factory in Vietnam to minimize legal risks and protect their commercial interests?
Vietnam has become a major manufacturing hub for companies from the US, Europe, South Korea, Japan, and China. In practice, however, many disputes arise not because of product quality itself, but because foreign businesses do not fully understand Vietnam’s legal environment and commercial practices.
Many companies find factories through trade fairs, Alibaba, brokers, or referrals from business partners. Negotiations often focus heavily on pricing and delivery schedules while overlooking critical legal factors such as:
When problems occur, businesses often realize too late that “having a contract” does not necessarily mean “being able to recover money.”
One of the most common mistakes is using international contract templates without properly adapting them to Vietnamese law.
In practice, many contracts contain highly detailed technical specifications but fail to include:
Under Vietnam’s 2015 Civil Code and 2005 Commercial Law, many rights may be difficult to enforce if the contract does not clearly address them from the beginning. In some cases, businesses can prove actual losses but still struggle to claim compensation due to the lack of proper contractual grounds.
This is especially risky for companies without an in-house legal team in Vietnam. Relying solely on emails or simple purchase orders (POs) can create major exposure if disputes arise later.
Many foreign businesses ask:
“If we sue in Vietnam, can we win?”
In reality, this is not always the most important question.
The more practical considerations are:
There are many cases where businesses technically win the lawsuit but still cannot recover funds because:
This is why experienced commercial lawyers often emphasize that preventing risks through a well-structured contract is far less expensive than handling disputes afterward.
Before transferring deposits or signing manufacturing agreements, businesses should conduct legal and commercial due diligence appropriate to the transaction value.
Many disputes can be significantly reduced if warning signs are identified early.
In many situations, the contracting party is not even the actual manufacturer.
Foreign businesses should verify:
Key items to check include:
If the contract is signed with the wrong legal entity or by someone without proper authority, dispute resolution can become far more complicated.
Beyond legal paperwork, businesses should also assess:
Many companies only review quotations and skip actual due diligence. This often leads to delayed production, substandard goods, or undisclosed subcontracting to third parties.
A strong manufacturing contract should not merely exist for formality. It must create practical mechanisms to control commercial risks.
This is one of the most common sources of disputes.
Businesses should consider:
If most of the contract value is transferred upfront without safeguards, recovering money later can become extremely difficult.
Contracts should clearly define:
Under Vietnamese Commercial Law, contractual penalties in commercial agreements generally may not exceed 8% of the value of the breached obligation, except in certain sector-specific situations. Therefore, contract provisions should be carefully drafted to maximize practical protection.
Many businesses only contact lawyers after serious disputes have already developed, such as:
At that stage, however, legal options are often far more limited.
When considering legal action in Vietnam, businesses should evaluate the overall commercial picture.
A dispute may take months or even years depending on the complexity of the case.
Businesses often need to prepare:
For foreign companies without a presence in Vietnam, managing legal proceedings can place substantial pressure on operational teams.
In some situations, legal costs and management time may exceed the amount realistically recoverable.
Experienced lawyers typically assess:
This is why not every dispute should automatically proceed to court.
An effective legal strategy may sometimes involve negotiation at the right time or applying appropriate commercial pressure rather than focusing solely on litigation.
Many businesses assume hiring lawyers early simply increases costs.
In reality, contract review costs are often far lower than:
This is especially important in Vietnam, where enforcement proceedings and commercial disputes may take considerable time. Building preventive legal mechanisms from the beginning is therefore critical.
DEDICA regularly supports foreign businesses in matters including:
DEDICA’s legal team has experience working with international businesses and understands the gap between international commercial expectations and practical legal realities in Vietnam.
In many cases, properly structuring a contract from the beginning can significantly reduce the risk of financial losses or prolonged disputes.
That said, every transaction and dispute has unique characteristics. Legal outcomes depend on available evidence, documentation, the financial condition of the counterparty, and various practical factors.
If your company is preparing to work with factories in Vietnam or has already encountered issues with a Vietnamese partner, consulting lawyers at an early stage can often help reduce risks and avoid unnecessary legal costs later on.
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