Vietnamese Retailers Self-Adjusting to Face Competition

Facing increased competition while dealing with the impact of economic crisis, many Vietnamese retailers have been forced to strengthen structuring and adopt innovated methods of doing business.

 

However, many retailers believe that the policy of decentralising investment in attracting foreign direct investment (FDI) plus poor planning are the main cause making the domestic retail businesses became vulnerable to foreign competitors.

 

According to Mr Tran Nguyen Nam, Deputy Director of the Department of Domestic Market, the Ministry of Industry and Trade, there are about 20 international-scale retail corporations who are operating in Vietnam market.

 

Domestic retail systems are also on the way of reforming, moving from traditional distribution to modern distribution channels. Addition to that are thousands of specialty shops and convenience stores (based on modern models of developed countries) located throughout the country.

 

Besides the introduction of many new modern retail outlets, there are also some old facilities has been renovating, expanding business premises, upgrading and modernising equipment. All of these activities have created a new look for national retail, changing buying habits of Vietnamese consumers toward modern civilization, contributing significantly to national socioeconomic growth.

 

According to statistics, the number of customers came to foreign trade centres has been massive due to its professionalism and the enormous number of goods on display. Meanwhile, domestic retailers have been struggling with investment costs as well as weak governance capacity. However, those foreign retailers in turn have showed their disadvantages when it comes to Vietnamese consumers’ demand. The race for market share, therefore, is still running fierce between domestic and foreign enterprises.

 

So where is the right direction for Vietnamese retailers, especially at this moment when they are facing many difficulties in terms of premises, capital, high interest rates and especially intense competition from big foreign retail corporations. "Domestic retailers going to provinces have a lot of difficulties, especially getting access to land and premises. Besides, many provincial authorities have the tendency to be more welcome to foreign companies," said Mr Pham Dinh Doan, CEO and General Director of Phu Thai JSC.

 

Another opinion from Mr Nguyen Van Hoa, Board Chairman of Saigon CoopMart, believe that the current policy has not taken into account the capability of domestic businesses, and as a result, these businesses have no other choices but to "swim” by themselves and soon showing the sign of shortage of breath. This can be seen from premises auctions, when big premises of beautiful location always come to foreign companies. Meanwhile, the majority of Vietnamese enterprises of small and medium-sized, with limited capital, weak competitiveness and infrastructure are facing more and more difficulties. In particular, finance and human resources are two among major problems that domestic retailers encounter. Therefore, in order to create favourable conditions for domestic enterprises, the Ministry of Industry and Trade should develop supporting policies, especially in financing and human resources training to improve the management as well as vision of domestic retailers.

 

According to representatives of Hanoi Trade Corporation (Hapro), there should be consistency between the central and local levels to ensure that domestic enterprises would get support from localities when seeking premises. On the other hand, the government should also consider policies aiding pioneer businesses who develop retail market in remote areas. Therefore, domestic enterprises should cooperate closely with each other to change the business policy of foreign enterprises, improve standing in retail market, promoting domestic production and winning domestic market.

 

Under the WTO commitments, within the time range of November, 1st, 2012 to January, 11th, 2015, Vietnam is allowed to control the percentage of authorised capital owned by foreign investors in joint ventures relating to production under 50 percent.

 

After that time, Vietnam must accept enterprises with 100 percent foreign capital. Right now, the deadline for that time is just over a year to come. This presents Vietnamese retailers a daunting prospect of tougher challenges and competition.

 

Speaking from years of experience working in the supermarket sector, Mr Vu Vinh Phu, Chairman of the Vietnamese Supermarket Association, affirmed that now is a challenging time when domestic businesses are considered fortunate if they are not suffering losses. He pointed out domestic businesses are facing the difficulty of ensuring the return of capital in the short term, while capital is the most serious problem of them. When purchasing power decrease, only businesses with great persistence can stay in the industry, the failed ones will have to withdraw from the investment location or move toward other directions.

 

"In addition, the work of building a brand name will become harder than ever when the market welcoming in more and more competitors. To establish a supermarket only need six months but to keep that supermarket in good shape might take 10 years," said Mr Phu.

 

However, Mr Phu said that businesses still have the chance to succeed if they can develop a sound strategy of trading and investing. Investors should not rush into opening business at this time, instead they need to plan, to design an effective business strategy, to carry out market and cargo sources researches and to train human resource before deciding to enter the market.

 

According to Mr Tran Nguyen Nam, rating the efficiency of trade centres’ operations cannot base on the number of buyers alone. In fact, a trade centre may experience break-even for some time after coming in operation but still can gain huge profit if they are in good hands. Therefore, a prerequisite for Vietnamese retail businesses to succeed is to have large premises.

 

However, in big cities such as Hanoi and Ho Chi Minh City, finding a large space is a challenge. Not to mention the problems after including maintaining stable cargo sources with clear origin (especially in high season), ensuring goods’ quality along with reasonable prices. These factors are considered plus points of each supermarket. Final step is applying technology to manage sales, inventory, financial revenue and expenditure, and human resources.

 

The comprehensive implementation of a system management technology for the supermarket not only increases business efficiency and cost savings, but also helps reduce losses, mitigate risks arising in operations.

 

Ms Dinh Thi My Loan, Chairwoman of the Vietnam Retail Association said that in order to adapt to the current conditions, domestic retail businesses must thrive to grow more significantly. Now is the right time for domestic retail business to self-assess its potential, remedy shortcomings and adopt effective methods.

 

In order to help domestic retail enterprises exploit their strengths and overcome their weakness, for the upcoming time, the Ministry of Industry and Trade said that there will be policies to encourage domestic retailers to join venture with the world's leading retail groups in Vietnam to learn from experience, acquiring management skills and advanced technology. However, the condition required is that Vietnamese businesses have to hold 51 percent of authorised capital.

 

Additionally, the Ministry of Industry and Trade has approved a development plan for the supermarket network and trade centre. Accordingly, toward 2020, the country will have about 1,200-1,300 supermarkets and 180 trade centres. Besides, the government also encourages enterprises of all economic sectors to get involved. Predicted, in 2020, the proportion of retail trade conducted through the network of supermarkets and commercial centres will account for 45 percent of total retail sales of social commodities. However, for supermarket to become a reliable address for the consumers, there’s still efforts to make.

 

On the other hand, Vietnamese retail businesses themselves also need to change their methods of doing business, improving the quality of customer service to raising competitiveness. Especially, supermarkets must learn to respond quickly to the demand of the dynamic retail market because the current retail formats will soon become out of date. Hence, they need to overcome the supermarket "inherent disease" of Vietnam’s retail market.