Reinstalling Distribution Networks

Vietnam is set to completely open up its distribution network to all foreign players from January 1, 2009. Local enterprises will have no more backing. As a result, the Vietnamese distribution network will inevitably encounter difficulties at the opening as they are dominated by speculation and weak competitiveness.

 

The Ministry of Trade and Industry has outlined a project with a package of measures to enhance the State management over distribution systems on the retailing market and will submit to the Prime Minister in the third quarter of 2008. This move is seen the initial step to help Vietnam to have a well-organised retail market and help Vietnamese firms to stay firmly at the presence of foreign retailers and avoid being swayed by foreigners; thus preventing speculation and reining in inflation.

 

The current issue is whether this project can heal the gaps in the distribution system. Mr Hoang Tho Xuan, who is director of the Domestic Market Policy Department under the Ministry of Industry and Trade and a member the Price Management Board, had a talk with the Vietnam Business Forum on this issue.

 

We have worked on this project for a long time, taking advice from enterprises to be restructured to fit in with the new context. The project will have three specialised distribution systems. The first group is involved with essential commodities like steel, cement, fertilisers, food and drugs, which have strong influence on inflation. The second is a distribution network of consumer goods, with pivots being influencing distributors in major market zones. The third is a system of retailing system at local levels, with focus on small markets. We will have mechanisms and incentive policies to attract investors to develop these three systems.

 

According to the project, 15 distributors in Vietnam will be selectively supported to institute a skeleton domestic distribution system. These 15 distributors will have supply all commodities like consumer goods, materials and foods and operate all retailing facilities like commercial centres, supermarkets, 24/24 shops and wholesale markets. If we have good distribution systems in the five biggest cities, Vietnamese enterprises will basically control the key markets.

 

We have finished the draft project. We are collecting opinions from economic groups, corporations and local firms before submitting to the Prime Minister for approval. We expect the implementation of the project soon. We are taking the first step: planning and designing.

 

The biggest difficulty is the policy. We support choosing state-owned groups and corporations to be the backbone, the seed distributors, of the retail market. The policy must create favourable conditions in both central and local levels. For example, we must conditions favourable for investors to approach land funds, to plan businesses and to implement investment.

 

We should treat distributors the same as producers. For long, distributors have little preference. Thus, the policy will equate invest preferences for distribution sector as other industries.

 

The project enables us to rearrange the domestic market to prepare for competition from 2009. Countries with developed markets normally have modern and well-organised distribution systems. They even have laws on retailing and wholesaling. Our distribution system remains weak. Many advocate that we should have a Law on Retailing and Wholesaling or at least a decree to regulate behaviour on this market.

 

The Ministry of Trade and Industry is also building a master plan for state commercial networks. This is the basis for local governments to license foreign distributors to invest in their localities.

 

We will work out more criteria for warehousing, wholesaling and retailing. For instance, there will be guidance for the number of hypermarkets, shopping centres, general department stores and trading warehouses.

 

The project also mentions practical support for enterprises like budgets for medium and long-term loans at rational interest rates. The tax rate should also be reasonable.