Economic Sector

Last updated: Wednesday, May 15, 2019

 

How Can Vietnam Retail Industry Cope with Competition under CPTPP?

Posted: Monday, February 25, 2019


Vietnam's retail industry is expected to benefit a lot when the country joins and becomes a full member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). From the perspective of an industry specialist, Dr. Dinh Thi My Loan, President of the Vietnam Retailers Association, shares her insights into this story. Anh Phuong reports.

The CPTPP has come into effect for Vietnam. How does this historic agreement affect Vietnam's retail industry?
In my opinion, in 2019, Vietnam’s retail industry will grow well because the country is now a full member of the CPTPP. This historic trade pact has a strong impact on many industries, including manufacturing, trade and services.

We have talked a lot about opportunities and challenges of the CPTPP. This deal provides huge opportunity for us to bring our products to other CPTPP member markets, but it also poses numerous challenges for Vietnamese companies because of their limited capabilities and strategic branding vision. Particularly, the distribution - retail sector will be also affected by the CPTPP but the view that “The rolling wave of foreign retailers entering Vietnam is already strong, and now plus more CPTPP commitments, competition from CPTPP investors in the retail market may be fiercer” or that “CPTPP is effective, Vietnam's retail industry is threatened?” is not actually right because the opening of the retail market in the CPTPP (as well as in the EU - Vietnam Free Trade Agreement - EVFTA) is fundamentally based on the World Trade Organization (WTO). So, there are no major changes in international commitments compared to the WTO.

Notably, after five years of enforcement (i.e. in 2024), Vietnam will abolish regulations on economic needs test (ENT) for retailers from CPTPP member countries. This means that foreign retailers can open retail facilities anywhere and at that time. Competitive pressures from CPTPP investors on the Vietnamese retail market will be thus more intense.

In addition, along with the strong oncoming wave of plentiful and diverse imports at the back of CPTPP enforcement, more investors will pay attention to our very potential and dynamic retail market. In 2019 - 2020, the Vietnamese retail industry will convince foreign retailers to invest more by making direct investment and conducting mergers and acquisitions (M&As).

What do you think about Vietnam’s retail development trends?
2018 marked the continuous development of the retail service industry. The total retail sales of goods and services continued to achieve spectacular growth, rising 11.7% year on year to VND4,395,704 billion (US$152 million), in which retail sales of goods remained the key pillar, recording a year on year growth of 12.4%. Notably, the average retail growth rate is always 1.5 - 2 times higher than the average GDP growth in the same period.

Market development trends will be based on the following points:
E-commerce continues to play an increasing role in the retail industry. Although the fierce competition and the ongoing effort of well-known retailers (like Lazada, Tiki, Sendo, Shoppee and Adayroi) for sustainable growth have caused many smaller and weaker retailers to abandon the market silently, e-commerce continues to grow rapidly across the country, with Ho Chi Minh City Minh and Hanoi playing a pioneering role.

Market network will be the race of domestic retailers and foreign retailers. For example, Saigon Co.op currently has more than 500 retail outlets across the country in various formats. 2019 will see more potential retail newcomers beside Q Mart supermarkets (T&T Group), FujiMart supermarkets (a joint venture between BRG Group of Vietnam and Sumitomo Group of Japan) successfully launched in 2018.

The exciting race between modern retailing and traditional retailing, between online retailing and direct retailing will bring many benefits to consumers. Shopping at traditional markets or retail stores will still account for a very big share in 2019 and this reality is expected to last until 2030.

More interestingly, 2019 will test the long existence of direct retailing (in-store retailing) ahead of massive attacks of online retailing.

“Small is beautiful” will be an outstanding retail model in the Vietnamese market. Minimarts and convenience stores will grow further in 2019. This is also the general trend of regional and world markets.

Thank you very much!








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