Economic Stability Associated with Domestic Market Development

The domestic market is very good shooting board in times of economic difficulty. The “Buy Vietnamese” campaign was launched to encourage Vietnamese people to give priority to made-in-Vietnam goods. However, to develop the domestic market in a sustainable way, Vietnamese producers have many things to be done.

Many market segments left untapped

With a population of 86 million, with over 50 percent aged under 30 and 70 percent of income earners (aged 22-55), Vietnam is known as one of the most attractive countries in the world in terms of Global Retail Development Index (GRDI) – a general gauge of market saturation with a weight of 30 percent. Other three factors are country and business risk, market attractiveness and time pressure with respective weights of 25 percent, 25 percent and 20 percent.

As an emerging market with rapid growth and population structure should facilitate Vietnam’s retail market becomes attractive in the eyes of investors and foreign retailers. It is worth saying that consumer habits and purchase behavior of people has been little significant change in recent years. Retail sales increased by average 20 percent per year in recent times, and retail sales in 2008 reached 54 billion dollars.

As an emerging market with a rapid growth and good population structure, the Vietnamese retail market has thus turned very attractive in the eyes of foreign investors and retailers. Notably, consumption habits and purchasing behaviours of Vietnamese people have been significantly changed in recent years. Retail sales expand by 20 percent annually on average, reaching US$54 billion in 2008.

According to statistics, modern trade accounts for approximately 15 percent and traditional shopping channels account for 85 percent. One of notable weaknesses is the lack of strategic link of manufacturers, distributors and retailers. In terms of infrastructure, we lack supermarkets, warehouses and retail spaces. To date, foreign distributors and retailers of different scales have made present in Vietnam, including Metro Cash&Carry, Casino (Big C) and Parkson. Other foreign retailers have also expressed their deep interests in the Vietnamese market like Wal-Mart, Carrefour, Tesco and DiaryFarm. These foreign distributors are, in reality, dominating modern retailing spaces thanks to their financial sources, technology and administration levels. However, market segments for low-income people, rural and remote areas remain untapped.

Competing with big distributors

In spite of integration commitments, economies always use different instruments to defend domestic distributors and manufacturers. Under recent developments in the world, governments can base on State distribution systems to regulate supply, demand and market prices. From foreign investment perspective, the distribution industry in Vietnam is really attractive in all fields and market segments (market segments for low, medium and high-income earners). The pace of accepting new shopping methods and products plays an important role in planning market approach strategies and methods for each distribution.

Dr. Nguyen Minh Tuan, Deputy Director of Enterprise Development Institute under the Vietnam Chamber of Commerce and Industry (VCCI), said: Domestic distributors have held certain advantages like long-term presence and knowledge of consumer tastes but they are suffering from strong competitive pressures.

Apart from foreign distributors with business in Vietnam, other foreign distributors have also showed their keen interests in the Vietnamese market. However, according to Mr Tuan, it is unlikely to see a massive penetration of foreign distributors into Vietnam. At the end of 2008 and early 2009, many foreign distributors and retailers conducted market surveys in Vietnam. Most of them find it is the best to cooperate with domestic distributors.

Mr Tuan said that activities of big distributors should be taken into account because their financial capacities, strong brands and advanced administration and technological levels can lead the market and act as backbones in association with Vietnamese distributors and suppliers. In the near term, these distributors tend to link with domestic partners to expand market shares.

Better design and higher quality needed

In the face of market expansion challenges posed by foreign firms, Vietnamese businesses need to rapidly improve production and specially supply methods. According to Mr Tuan, the first thing needed to be done by Vietnamese enterprises is to improve the design of their products. This important factor can help Vietnamese enterprises to stand on the domestic market and reach international markets. So far, domestic enterprises are weak at creating innovative designs of products. This also affects domestic and international branding. Enterprises need to understand that this process has a very high added value. Most large corporations in the world have relocated their manufacturing facilities out of their residing countries but model designing centres are still located in their home countries.

The second factor is the quality and stability of products. Mr Tuan said some companies now have detailed strategies to target medium and upmarket segments. However, asynchronous production and management processes cause a high frequency of mistaken goods. This woe seriously deteriorates the reputation of companies. In some cases, this factor drives inadvertently to foreign goods. “If companies choose to manufacture medium-quality products and ensure a high stability, this will create stronger standing and development momentum than approaching upscale segments in the midst of insufficient competencies,” said Mr Tuan. An important element to build up domestic and international consumer confidence is the attainment of quality certification. The system of standards will make consumers confident in using Vietnamese goods.

The third important factor is the price. Some resounding local products, which used to be sold well, were tagged higher prices than the affordance of consumers and they soon fell into oblivion because consumers shrugged off. Besides, the diversity of products is also very important. Many Vietnamese companies still lack specific product development strategies for rural and remote areas while multinational corporations have outlined very promising strategies to make inroads into these areas.

In addition, Vietnamese enterprises need to build links of distributors, retailers and producers and strengthen cooperation between large and small enterprises.

VCCI

Tags: Vietnam domestic market, Vietnam economic, Vietnam economy