Harmonizing conflicts key for Vietnam's distribution industry to thrive
The massive entry of modern retail businesses raises the question whether local small-sized businesses and the traditional market can coexist with modernized industry, according to Korea International Cooperation Agency (KOICA).
Competition between modern and traditional marketsThe issue is related to the development of the Vietnamese distribution market, said KOICA in its research report about Vietnam's distribution industry.
KOICA's representative delivers a speech at the launch of the report.
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The opening or expansion of large-sized stores causes unemployment and socio-economic problems due to the contraction and withdrawal of small and medium-size distribution businesses. That said, small and medium-distributors do not have the resources to compete large companies in terms of management knowhow, capital, organization, facilities, and expertise.
"Addressing this problem would allow the Vietnamese distribution industry to play a role in national economic development and national competitiveness," said Do Phuong Dung, Deputy Director of Asia Africa market department of the Ministry of Industry and Trade at the launch of the report on June 20.
Therefore, it is vital that regulation and policies for the development of distribution industry to be completed in 2018, informed Nguyen Van Ho, Deputy Director of Domestic Market Department (MoIT).
The potential of the Vietnamese distribution market remains huge, according to Yoon Hyun Ki, KOICA's Chief of Research.
"Vietnam's retail distribution market is growing at an annual average of 10% or more, which is expected to increase from around US$95.4 billion in 2016 to US$124.2 billion in 2018. Additionally, A.T. Kearney ranked Vietnam 11th among the top 30 retail markets worldwide," he added.
At present, the Vietnamese market is still dominated by traditional distribution channels, which occupy more than 70-85%. In particular, when it comes to regions such as areas around cities and the outskirts of the country, the traditional market has a significant advantage in the product group of daily consumption goods, such as agriculture and food.
This is because the distribution market as a whole still depends on the conventional distribution network and the majority of Vietnamese consumers prefer to buy in the traditional market.
Currently, there are 8,550 wet markets and 1.3 million grocery stores run by families national wide.
Modern distribution, otherwise, is in its infancy, but the market has significant potential for growth, given the full opening of the distribution market in 2010 and the steady increase in purchasing power resulting from Vietnam's continuous economic growth.
Hanoi and Ho Chi Minh City are prominent consumer markets in Vietnam with 7 million and 8 million people, respectively. The fierce competition in large cities also means distributors are increasingly entering the surrounding cities and suburbs.
The preference of Vietnamese consumers for foreign products is another factor that increased the presence of foreign distributors.
Based on these characteristics, the entry of foreign companies and the rapid opening of stores are leading the expansion of modern distribution.
Foreign distributors are leading the large mart and complex mall market. These include Big C by Thai Central Group, Metro by BJC Group in Thailand, Lotte and E-Mart from Korea, and Aeon from Japan.
More than 20 foreign companies actively invest in various form of distribution, such as convenience stores (e.g., Circle K, Ministop, and Family Mart), hyper-marts, supermarkets, mini marts, and department stores, through direct investment and franchises.
Recommendations for long-term development
Enhancing the contribution of the national economy through modernization and enhancement of productivity of the distribution industry can be considered as the priority concern for the future vision of the win-win cooperation between the Vietnamese retail industry and the small and medium-sized retail industry.
Accordingly, KOICA suggested the first objective is to enhance productivity and competitiveness of distribution industry, as local small and medium-sized retail businesses operate for subsistence.
Secondly, it is necessary to ensure that large-scale stores and small and medium-sized distributors can develop in a balanced manner, resolving the conflict structure caused by the entry or expansion of large stores through forming strategic partnership instead.
Thirdly, the development of Vietnam's distribution industry should be based on building sustainable development models that are consistent with Vietnam's economy and society.
Fourthly, strengthening small and medium enterprises' capability and preemptive win-win cooperation policy.
Fifthly, modernization of traditional markets and consideration for alleys.
Sixthly, seeking action toward new products distribution and new distribution.
As a result, the ultimate goal would be creation of a desirable small and medium-sized retail business model that can embody the values and traditions inherent in Vietnam. In the future, a new type of distribution industry will be developed, the report suggested.
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