Exporting products directly to retailers – why not?

Vietnamese exporters have been urged to seek to increase their profits by approaching the distributors in the export markets, instead of simply doing the outsourcing for foreign partners.

Pham Vu Duc, a Viet Kieu (overseas Vietnamese) in the US, related that he once tasted defeat with the investment deal worth 500,000 dollars in the past. Several years ago, Duc decided to join forces with his partners to set up a production line on making wooden furniture products in the south of Vietnam.

He planned to bring the products directly to the supermarkets in the US. “I got orders from friends who wanted to import wooden furniture products from Vietnam to distribute directly to consumers,” he said.

However, because of the lack of experience, Duc gave full powers to manage the project to the Vietnamese executives. As a result, the products could not be exported: they were refused because they could not meet the standards set up by the partners. Finally, the project failed completely.

However, Duc still believes that he followed the right way when deciding to make products and export directly to distributors. He thinks that if products can be exported directly to distributors in the US, bypassing the intermediaries, the profits per product would be higher, while the sale prices would be lower and more competitive.

The only mistake Duc made was that he did not consider the fact that the technical management and the production skills of Vietnamese workers were still weak. It was the main reason behind his failure.

However, the failure does not change Duc’s viewpoint that exporting products directly to the distributors in the US is the right way that Vietnamese enterprises should follow.

According to Duc, Vietnam is now a big garment, footwear and wooden furniture exporter. However, most of the enterprises are simply making the outsourcing to the orders placed by foreign traders, the intermediaries, therefore, they cannot get high profits.

“If Vietnamese manufacturers can control the quality of products, and improve the capability of making products, they would be able to think of approaching distributors to earn higher profits,” Duc said.

He has revealed that in September 2011, the representatives of a distribution chain which has the scale nearly as big as Wal Mart’s, would arrive in Vietnam to meet garment, footwear and wooden furniture producers. Duc will act as the “bridge” for the distributor and producers.

“If everything goes smoothly, this will give big opportunities to Vietnamese enterprises,” he said.

The role of distributors in some fields has been highly appreciated since they can help boost exports. Le Ba Ngoc, Secretary General of the Fine Artsand Handicrafts Export Association, said that importers are always the most important guests at LifeStyle Vietnam exhibitions.

“If Vietnamese enterprises can meet importers, especially distributors, they will not obtain more opportunities to sell products,” Ngoc said.

Do Thang Hai, Director of the Vietnam Trade Promotion Agency (Vietrade), said promoting export by inviting foreign importers to Vietnam has been paid more attention by enterprises.

The Ministry of Finance has released the Circular No 88 on the financial mechanism applied to trade promotion activities, stipulating the financial support for inviting foreigners to Vietnam to buy products. The legal document has clearly pointed out that the expenses spent to receive foreign groups of businessmen and organization expenses must not be higher than 0.5 percent of the total value of the contracts signed with foreign partners.

“I believe that the new regulation would encourage enterprises to apply necessary measures to seek importers,” Hai said. “Inviting foreign enterprises to Vietnam, where they can meet Vietnamese manufacturers directly, proves to be a good way to promote trade”.

Tags: vietnam retail industry, Vietnam retail market