What are the downsides of choosing a representative office (RO) to create a sourcing platform in Vietnam?

While an RO is relatively easy to establish and maintain, there are fairly limited in terms of operational scope since they cannot actually issue invoices or sign contracts. However, this can be an advantage because it reduces the accounting and tax compliance burden for an RO, thus helping to keep costs low. More importantly, operating an RO can often become very costly because of the need to have business done with the parent company overseas. The RO can help find partners but they cannot sign deals, the parent company must set up things like that, which is why it takes more time and money.

Despite their drawbacks, foreign companies often choose ROs as their first step in entering the Vietnamese market. An RO can allow a company to get a feel for the lay of the land while still keeping a light footprint since they only require a limited number of staff in the country to search for suppliers and conduct quality control assignments. As long as costs are kept low and the activities of the RO are within the scope of the parent company, there are probably no better alternatives to this type of entity and many foreign business are using ROs to rent offices, hire local staff and obtain working visas for their foreign employees.