The requirement to open the distribution service field was always put on table as Vietnam negotiated the admission to the WTO. However, apart from integration advantages, Vietnamese distributors fear being crushed by giant foreign groups because they lack capital as well as management capacity.
As Vietnam prepares for the WTO entrance, foreign investors also intensively prepare for the shortcut penetration into the Vietnamese distribution market by seeking commodity source information, studying formalities to open representative offices and asking for recruitment consultancies. They are ready until Vietnam officially opens the market.
According to the assessment of the international management consulting firm AT Kearney, Vietnam now ranks third among the 30 fastest developing retail markets in the world. With the consumption ratio equalling 70 per cent of GDP (compared with 67.7 per cent in Thailand and 55.9 per cent in Singapore), Vietnam is on the focus of numerous foreign giant distributors.
The direct competition pressure can be seen after Germany’s Metro and France’s Bourbon entered Vietnam. The effort to expand the retail network by Vietnamese leading firms Trung Nguyen, Kinh Do and Vinamilk is very humble in comparison with nationwide network of P&G, Unilever and Coca Cola. Malaysia’s Parketson is waiting the ticket to join the Vietnamese market.
Vietnamese enterprises unprepared
According to a recent survey on the Vietnamese distribution system, as many as 44 per cent of consumers buy goods at outlets, 40 per cent at markets 10 per cent at supermarkets and commercial centres and 6 per cent at direct distribution shops of procedures. These figures are good news to many enterprises.
They think the penetration of several foreign distributors with some supermarkets will have little effect because the goods consumption via this channel makes up only 10 per cent. However, they are unaware that giant firms can boost this proportion to a much larger scale in a period of time. For example, when Carrefour of France arrived in China, three domestic distributors in a radius of 35 km went bankrupt immediately. The distribution systems in Thailand and Malaysia are also reliable on foreign groups.
According to the Ministry of Trade’s assessment, each supermarket has 2-3,000 domestic suppliers. At present, Metro is working very well with domestic manufacturers but when the WTO door opens, the tariff barriers will be removed, distributors like Metro will choose the best suppliers. Then, small domestic enterprises with weak financial capacities may be replaced by multinational distribution groups.
According to Trade Minister Truong Dinh Tuyen, to avoid an overall loss of the domestic market into the hand of foreign distribution giants, policymakers are setting up plans to support domestic enterprises. The Ministry of Trade will select and prioritise to support 15-20 distributors in key fields to act as a counterbalance against foreign distributors in Vietnam. However, according to Mr Hoang Tho Xuan, general director of Domestic Market Policy Department under the Ministry of Trade also affirmed: the State cannot protect forever. Each enterprise itself must be self-conscious and join hands together to set up large distribution networks.”
However, the association is an inherent weakness of Vietnamese enterprises. According to Mr Thomas Fikel, Chief Consultant of the German Technical Cooperation Organisation (GTZ), who had long surveyed the distribution network in Vietnam, the weak point of Vietnamese enterprises is the lack of trust of distributors toward producers in product purchase contracts. Thus, only when Vietnamese enterprises can form close relations between production and service, can they survive when the WTO door opens.
Trung Nguyen
Vietnamese
