The opening of Viet Nam’s retail distribution market this year, as required under the nation’s WTO commitments, has some domestic distributors shaking in their boots, even as others are rushing to upgrade their distribution systems in order to compete effectively with foreign rivals.

The nation began opening its retail distribution market in 2007 as soon as it officially joined the WTO, said Deputy Minister of Industry and Trade Nguyen Cam Tu.

Since January of 2007, he noted, Viet Nam has allowed foreign businesses to form joint ventures with domestic companies in retail distribution, so long as the local partner held a controlling interest.

As of January 2008, the country allowed foreign distributors to contribute unlimited capital to such joint ventures, but the requirement of a local partner remained.

As of January 1, 2009, foreign distributors are allowed to establish 100-per-cent foreign-owned companies, with limitations only on some controlled products. Foreign-owned enterprises will be not be able to distribute liquor, cement, fertiliser, steel, paper, tyres or consumer electronics until January 1, 2010, and will continue thereafter to be barred from distributing rice, sugar, tobacco products, petroleum products, pharmaceuticals, explosives, publications, gemstones, or music or video discs in Viet Nam.

Tu predicted that domestic distribution systems already in place would continue to control 85 per cent of goods.

“So Vietnamese enterprises and households still have a great business opportunity even after the market is completely open, as foreign retailers are likely to focus only on large-scale retail outlets like shopping centres and supermarkets,” Tu said.

Hoang Tho Xuan, head of the ministry’s Domestic Market Department, noted that Vietnamese retailers were experts in Vietnamese consumer habits and predicted they would compete effectively with foreign rivals.

Foreign distributors would need to spend a lot of time learning and setting up business plans suitable to the Vietnamese retail market, Xuan said.

Economic needs test

The global economic downturn was also likely to impact the interest of foreign distributors in investing in a new market, causing them to think twice about the Vietnamese retail market, he said.

“In addition, under current regulations, foreign retail distributors are still required to sell through a single retail outlet, and it isn’t easy to set up a second outlet,” Xuan said. The right of distribution is associated with the establishment of an initial retail outlet only, he said, with additional outlets only approved on the basis of the so-called Economic Needs Test (ENT).

Under the ENT, the foreign-invested company would apply for a separate license for each subsequent outlet, with approvals made on a case-by-case basis based on three criteria: the number of existing service suppliers in a particular geographic area, market stability, and geographic scale.

Tu said the approach was in compliance with WTO regulations while allowing Vietnamese distributors an opportunity to upgrading their distribution systems to be competitive with foreign rivals. There was no danger of foreign distributors crowding into the domestic market and forcing Vietnamese distributors out of business, he said.

As if to support the thesis, Hoang Thi Tuyet Hoa, deputy head of the ministry’s Department of Planning and Investment, noted that no foreign distributors have registered to open a their retail outlet in Viet Nam since the country joined the WTO in 2007.

Over the past two years, only existing foreign retailers like Metro and Big C have registered to open more retail outlets, she said, adding that the Lotte Mart which opened on December 18 registered before Viet Nam became a WTO member.

Still, Tu said, Vietnamese distributors need to prepare carefully for the changing environment.

The nation’s leading retailer, Sai Gon Co.op, has chosen to invest in convenience stores in residential areas as part of its strategy to head off the competition.

Sai Gon Co.op general director Nguyen Thi Hanh said the company opened its latest outlet at a high-end apartment complex in HCM City on December 27, the first of 20 such stores the company plans to open in 2009.

Sai Gon Co.op hopes to open 120 convenience stores by 2012, at an average cost of VND2-10 billion each.

The company has also opened four more supermarkets in HCM City, in the southern province of Ben Tre and in the Central Highlands province of Dac Lac in the past month, bringing the total number of Co.op supermarkets to 34.

Pham Dinh Doan, general director of Phu Thai Group, said Vietnamese retailers should take advantages of their understanding of local consumer culture and habits.

Last year, Phu Thai joined with three other major Vietnamese distributors, Sai Gon Co.op, Hapro and Satra, to establish the Viet Nam Distribution Network Development and Investment Joint Stock Co to strengthen their ability to compete with larger, better-financed foreign rivals.

Amy Wee, Hapro’s Singaporean marketing director, said Hapro could also cooperate with domestic and foreign suppliers in exploiting Hapro’s existing distribution network.

Vietnamese retailers have also sought to strengthen their local position by co-operating with domestic producers of consumer goods to build recognisable trademarks that would attract domestic buyers.

Citimart director Nguyen Thi Anh Hoa said Citimart was promoting the trademarks of fish sauce and other local products it distributes to its retail stores. Sai Gon Co.op has also developed Co.op Mart store brands for dried, frozen and ready-made food products, and Maximart director Nguyen Thi Phuong Thao said the Maximart chain has similar plans.

Phan The Rue, chairman of the Association of Vietnamese Retailers, said that true competitiveness on the domestic distribution market would take two or three years to appear, giving Vietnamese distributors time to improve the competitive capacity of their distribution systems. (VNS)