Product outsourcing is a common practice in both international and domestic trade, particularly in sectors like textiles, footwear, and electronics. But what exactly is outsourcing, and what are the relevant legal provisions?

Legal ground:

• Commercial Law 2005.

1. What is outsourcing?

According to Article 178 of the Law on Commerce 2005, outsourcing in trade is a commercial activity where the processor uses some or all of the materials provided by the orderer to perform one or more stages in the production process, as per the orderer’s requirements, and receives remuneration.

In simpler terms, outsourcing is the act of hiring another unit to manufacture goods according to one’s specifications. The hiring party (the orderer) provides the raw materials, designs, and production process, while the outsourcing party carries out the production stages to create the final product.

2. Types of goods subject to outsourcing

In principle, all types of goods can be processed, except for goods that are prohibited from trading under the law.

For the outsourcing of goods for foreign traders to be consumed abroad, even goods subject to prohibited business, export prohibition, import prohibition can be processed if authorized by a competent state agency. This creates conditions for Vietnamese enterprises to participate more deeply in the global supply chain.

3. Rights and obligations of parties in a outsourcing contract

The outsourcing contract is an important legal document that details the rights and obligations of the parties. Below is a summary of the main rights and obligations:

Orderer:

• Provide complete and high-quality materials according to the terms of the contract. Can transfer money for the outsourcing party to buy raw materials.
• Receive all processed products, machinery, and equipment (if leased or borrowed), and any remaining materials, after contract liquidation, unless otherwise agreed.
• Has the right to sell, destroy, or donate in place processed products, excess materials, and waste products according to the agreement and in compliance with the law.
• Assign a person to supervise and inspect the outsourcing process and product quality at the outsourcing workshop.
• Be responsible for the legality of intellectual property rights related to processed goods, materials, and machinery and equipment provided to the processor.

Processor:

• Supply some or all of the raw materials (if agreed) in accordance with the quantity, quality, technical standards, and agreed-upon price.
• Receive outsourcing fees and other reasonable costs according to the contract.
• Be allowed to export processed products in place, machinery equipment for lease, excess materials, waste products, waste (if outsourcing for foreign organizations, individuals and authorized).
• Be exempt from import tax on machinery, equipment, raw materials, and materials temporarily imported to perform outsourcing contracts (if outsourcing for foreign organizations, individuals).
• Be responsible for the legality of outsourcing activities, especially for goods that are prohibited from business, import and export.

4. Outsourcing Fees

Outsourcing fees can be paid in cash, in processed products, or with machinery and equipment used for outsourcing.

In the case of outsourcing for foreign organizations, individuals and receiving remuneration in processed products or machinery and equipment, the processor must comply with the import regulations for these products, machinery, and equipment.