Foreign invasion threatens domestic retail market share

By Bach Duong, Bui Hong Nhung   May 20, 2016 | 01:11 am PT
Vietnam’s retail market is expected to reach $179 billion in revenue by 2020, but it looks like it will be difficult for local companies to claim their slice of the pie amid cut-throat competition from foreign rivals.

At a workshop held on May 18, Vietnam’s top officials as well as economic experts discussed the opportunities and challenges facing Vietnam’s retail market.

Overview of the market

Vietnam is seen as a lucrative destination in the eyes of foreign investors as the country has a population of more than 90 million, of which young people account for 60 percent.

Deputy Minister of Industry and Trade Do Thang Hai said at the workshop that Vietnam is listed the in top five Asian retail markets in terms of development speed. The country also ranks 28 on the global table of attractive retail markets.

“By 2020, the number of middle-class citizens with a high demand for shopping will have tripled the current figure,” Hai said.

Since November 1, 2015, Vietnam has allowed foreign retailers to set up 100 percent foreign-owned enterprises under its commitments to the World Trade Organization. This gives them access to supply sources and ideal business locations to operate from.

Following this step, the country joined the ASEAN Economic Community at the end of last year and signed the Trans Pacific Partnership in February this year.

“In 2016, more than 93 percent of imports from ASEAN will be exempt from tax duties, meaning Vietnam’s products will be unable to compete with Thailand’s. The possibility of domestic production falling is high,” said Dr. Ngo Tuan Anh from the National Economics University.

Foreign enterprises dominate retail market

It is estimated that international corporations currently make up more than 50 percent of Vietnam’s retail market share.

Many M&A transactions have been concluded by giant retail companies from Thailand, Japan and Korea since 2015.

In Vietnam, Japanese investors own a chain of shopping malls named AEON as well as stakes supermarket chains Fivimart and Citimart. Korean firms run their own Lotte Marts and chains of convenience stores. Leading supermarkets like Metro, Big C and Nguyen Kim are now in the hands of Thai retail giants.

Foreign investors not only dominate the retail market but also swap Vietnamese products off the shelves for their own items.

Dr. Nguyen Thanh Binh from the Banking Academy said that Thai investors have dedicated areas at the main entrances of Metro supermarket to showcase Thai products. They also allocate the best locations in the supermarkets to a wide range of goods such as clothes, house ware, cosmetics and food that are all made in Thailand.

Local firms show signs of weakness

The dominance of foreign companies in the domestic retail markets has raised questions about the competitiveness of Vietnamese enterprises.

Dr. Binh from the Banking Academy said that the biggest problem confronting Vietnamese retail firms is that they lack connections with one other. Only big names like Vingroup and Saigon Co.op are able to compete with foreign rivals.

Vu Vinh Phu, chairman of the Hanoi Supermarket Association, said that Vietnam’s retail companies cannot compete with external firms on price. He added that a bottle of vegetable oil sold in a locally-owned supermarket is always more expensive than the same product sold in a foreign-owned supermarket.

"Vietnam’s retail enterprises have used hundreds of billions of dong from the government to prevent price hikes but the prices are still high. Personally I think there might be other interests involved.”

The chairman added that some local companies are sold to foreign investors after receiving incentives from the Vietnamese government, making it difficult for the government to control the network of local supermarkets.

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