Vietnam Retail Industry Losing Attractiveness

 

The retail markets of developing countries, including Vietnam, always are strongly attractive to foreign investors. The allure lies in the market size, growing GDP and increasing consumer demand. The creditworthiness provides momentum to develop home trade and the retail industry and distribution industry in particular.

 

However, instead of exploiting this advantage, Vietnam may lose its attractiveness. Four weak points of the Vietnamese retail market were presented by Ms Loan, including lack of professionalism, weak financial sources, under-developed logistics and linking weakness.

 

Ms Loan said, “The Vietnamese retail industry is moving from a traditional market to a modern one, but the modernity is insufficient because producers and distributors are unfamiliar with modern retailing practices and consumers themselves cannot give up their routines of buying commodities at roadside markets to buy in supermarkets.”

 

Leading Vietnamese retailers like Nguyen Kim, Vinatexmart and Phu Thai also admitted that the professionalism and linkage of the Vietnamese retail industry were seriously weak. This is also the reason for the easier occupation of world-leading retailers like Metro Cash & Carry, Big C and Cora after Vietnam opened its retail market.

 

Besides, business operations of retail companies encountered dozens of difficulties in construction permit applications, tax declaration and bank loans. For example, it takes around 3-5 years to apply for a land plot in Ho Chi Minh City and this time is long enough for a complete change in business development strategies, Loan added.

 

Nearly a year after joining the WTO, the difficulties in rivalry with foreign retailers seem to increase. Vietnamese retailers and distributors said they worried most in the State control and assistance ability when Vietnam completely opens its market for wholly foreign-invested distributors from January 1, 2009.

Several retailers at the forum pointed out some sophisticated tips employed by foreign retailers to approach the Vietnamese market, such as implicitly cooperating with Vietnamese companies (even not companies operating in the retail industry) to register for the best locations for supermarkets when they officially come. Vietnamese companies will find it hard to compete with them after the market is opened up.

 

While the market has turned up dozens of signals of unhealthy and unfair competition, including comparison of products, untrue number of promotion prizes and price cornering, the Competition Law remains unclear to Vietnamese companies. They do not know how to use the law for self-protection. On the other hand, foreign firms are very good at Vietnamese competition laws and use this tool very effectively.

 

Ms Loan presented a common unhealthy competition to delegates of the forum that many companies joined hands together to sell products at price lower than production price to kill rivals before raising the price, or forced producers to sell products or services to their rivals. Retailers know dozens of tricks to treat customers, who usually believe in attractive advertisement and promotion programmes, although the reality was worse.

 

To waken Vietnamese retailers ahead of upcoming severe foreign competition, the Law on Competition should be revised.

 

 

The State always gives special concerns to enterprises. The State concerns in the market-opening context are to control and quantify the number of foreign retailers and the maximum ownership of foreign companies in a Vietnamese retail company. The strength of foreign groups is formidable. If domestic companies cannot own at least 60-65 per cent of stake, they will be acquired by foreign firms.

In fact, most Vietnamese retailers are looking for the way on their own without any orientation from the State. Metro only opened two supermarkets in India, but it opened eight in Vietnam already. If giant Metro and BigC have over 10 supermarkets, about 80 per cent of Vietnamese distributors will go bankrupt.

The road to bring a product from the manufacturer to the retail supermarket is very rough for Vietnamese companies. A shrimp raised in Thai Binh province has to undergo three fee-taking testing stations. The price of a kilo of shrimp is VND90,000 in the outskirts of Hanoi, but the price amounts to VND120,000 in urban markets. Farmers and distributors have neither gains nor losses; only consumers have to pay more. I think market fragmentation should be put to an end because it generates more unnecessary costs for enterprises. In the long term, it is necessary to set up a farming produce trading floor for farmers and enterprises.

Vietnam is allowed to erect technical barriers to protect the home market from strong competition by foreign companies. Instead of allowing 1-2 foreign investors to open 10-supermarket chains, Vietnam should allow 10 foreign companies but each is allowed to open 1-2 supermarkets to make the market balanced. Besides, Vietnamese companies can learn from more foreign experience in management processes from the presence of more foreign companies.

To create healthy and fair competition for enterprises, the Vietnam Retailers Association will be set up. Mr Phan The Rue and Ms Dinh Thi My Loan will be in charge of leading the mobilisation programme. Members are some 130 Vietnamese retailers. The role of the association is to ensure a healthy business environment for producers and suppliers of goods and services and protect the legitimate rights and interests of its members and consumers.