Improving Vietnamese Retailers’ Competitiveness

According to incomplete statistics from the Association of Vietnam Retailers, the country currently has about 130 commercial centres, 700 supermarkets, over 1,000 modern retail outlets, concentrating mostly in Hanoi and Ho Chi Minh City.

 

With the strength of young population and a rapid urbanisation rate, Vietnam is among the countries with the most attractive retail markets in the world. In the period of 2009 - 2011, although the world’s economy in general and Vietnam’s in particular were severely affected by the economic downturn, the retail industry in Vietnam still saw impressive growth. In 2011, total retail sales and consumer service revenue reached VND2,004 billion, up 24.2 percent compared to the previous year. In 2012, that number reached VND2,320 billion, up 16 percent compared to 2011.

 

However, as the difficulties of the economy continue, the shortcomings and inadequacies of the retail market in Vietnam are getting clearer and clearer. Besides the long-standing shortcomings such as small-scale market, weak purchasing power with traditional methods of retailing, there remain other weaknesses yet to be overcome, including limited financial capacity and loose links between corporations, which lead to unhealthy competition. In 2012 alone, hundreds of local retailers had to close. From a country with an attractive retail market in the world in 2008, Vietnam dropped to 14th in 2010, and is now out of the top 30.

 

Looking directly at the problem, we can see several difficulties for retail businesses in the country such as declining solvency of consumers, fierce competition among retailers and subjective reasons including the intrinsic difficulties of the enterprise such as basic corporation governance system which is not fundamental, and lack of retail staff.

 

According to the Department of the Domestic Market Management (Ministry of Industry and Trade), in the first quarter of 2013, the total turnover of retail sales and consumer services in the country reached more than VND636 trillion, up 11.7 percent over the same period last year. Excluding the price factor, the increase rate was 4.5 percent, lower than the 4.7 percent increase of the same period in 2012. Economic sectors, trade groups, hotels, restaurants, services increased by 10-15 percent. However, tourism only increased 4 percent, as tourism demand on Tet holiday this year decreased compared to last year. Although total retail sales and consumer service revenues continue to grow, Dr Vu Dinh Anh said that the above figures show that the purchasing power of our country remains low.

Although it has dropped out of the top 30 attractive retail markets in the world, according to economic experts, the Vietnam market still attracts great interest from large retail corporations in the world thanks to background factors such as a young population, high population density and purchasing power.

 

Besides, the retail distribution channels in Vietnam are still having many opportunities to develop because currently in the retail market, in addition to domestic enterprises, 21 enterprises with 100 percent FDI are operating.

 

Recently, Vietnam's retail market has also welcomed the participation of many big names in the world such as Auchan, one of the largest retail groups in France, which announced plans to invest US$500 million in Vietnam retail market, NUTC Fair Price, the largest retail group in Singapore, has cooperated with Saigon Co-op to invest in and operate hypermarkets with the Co.opXtra brand.

 

Ms Vu Thi Hau, Deputy General Director of Nhat Nam JSC, which owns Fivimart supermarket chains, said that large foreign retail corporations investing in Vietnam are a challenge for local retailers. Low purchasing power is no hindrance for domestic retail businesses, but creates challenges for retailers to prepare in all aspects such financial and human resources to dominate the market.

 

Ms Dinh Thi My Loan, General Secretary of the Association of Vietnam Retailers holds a different view. According to her, modern retail channel accounts for only 20 percent, so the market to exploit remains big. According to the plan, by 2020, Vietnam will have raised this rate to 45 percent. Therefore, it was suggested that the domestic retail business professionalise and strengthen connections with manufacturers and suppliers. The State should create favourable conditions for enterprises in mechanism system and appropriate policies to develop by themselves.

 

Under WTO commitments, from January 11, 2010 to January 11, 2015, Vietnam has given the right to set up joint venture to provide services related to production, in which foreign investors can own up to 50 percent of the charter capital of the joint venture. After January 11, 2015, Vietnam will allow the set up of enterprises with 100 percent foreign capital. It means that in just more than one year, Vietnam's retail market will be fully open to foreign companies, which will create significant pressure on local businesses. Having to fairly compete with foreign firms even in their home market remains a big challenge for domestic retailers.

 

Without conducting a radical change on a large scale which focuses on improving competitiveness and mapping out a strategy for sustainable development, the threat of losing their own home market will become more apparent.

 

Dr Nguyen Hoan, Economic Adviser to the Training, Consulting and Economic Information Centre, confirmed that the development of the modern retail model combining with the traditional retail model is considered the solution to create efficient distribution channels for Vietnamese goods. At the same time, it is important to actively promote national trade, focus on the market areas of dense population, develop infrastructure systems for commercial development in general and retail operation in particular. If those steps are accomplished, the Vietnam retail market will probably return to the original trajectory.