Vietnamese businesses destroy each other with low prices

I understand what he said, given my own experience.

I’ve worked in many countries and with many partners. I’ve seen that Vietnamese people are very smart, quick to learn and work hard. And they are always ready for competition.

However, instead of competing by renovating their products or services, Vietnamese people, in places that I’ve been do, tend to focus on lowering their prices.

Consumption-wise, this is not a wrong move, if not to say it benefits consumers. But, when you look at the big picture it’s not good for entire industries.

For example, the profit margin of shops selling Vietnamese essentials in Japan is usually only half of the sector’s average, leaving them little funds to expand into big chains.

Meanwhile, there are many chains in other countries, as they have an unwritten agreement to maintain a certain level of prices and profit.

A friend of mine in France recently had to sell his Vietnamese restaurant. He did pretty well in the first three years because his restaurant was the only one selling Vietnamese food in town. But then another Vietnamese restaurant opened, offering a similar menu at prices more than 15% lower.

Many online shoppers in Vietnam don’t list their prices publicly and only share them privately with interested customers. They are afraid that once they list their prices, their rivals will offer a lower prices and take all their customers.

Workers at a Vietnamese garment factory in Thu Duc City, November 2023. Photo by VnExpress/Thanh Tung

According to economic rules, price reduction is very good for boosting consumption. But also according to economic rules, lower prices mean the businesses will pay lower taxes and have smaller funds to allocate for research and development. That’s why many multinational corporations do not join the price reduction race.

R&D expenses at large businesses often take up 3-5% of the revenues. The rate is as high as 30% in biotechnology sector, and around 15-20% in software, semiconductor sectors.

A business will need to spend more on R&D when they first open, or transformational stages (when it wants to introduce new products or break into new markets).

Multinational corporations are reluctant to compete with Vietnamese SMEs, not because they cannot. They can totally crush the competitors. But if they do that, there will be few new products introduced to the market, so the competition will happen at the consumers’ expense.

Thus, consumers should welcome businesses trying to earn a reasonable profit margin.

*Pham Trung Tuan is a consultant at N&S Partners, a business consulting and research company based in Tokyo.