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25 Apr 2008

International Economy

Vietnamese Market: Opportunities for Thai Retail Business (Business Brief No.2144)

With the high economic performance, the Vietnamese people have enjoyed increasing purchasing power along with rising demand for spending. Their changing ways of life and their consumption behaviors, particularly in big cities like Ho Chi Minh City and Hanoi have been favorable to solid growth in retail business in Vietnam. Liberalization of merchandising distribution business in Vietnam under commitments to the World Trade Organization (WTO) have provided an open-door opportunity for foreign retailers – including Thais – to tap into this market. Since January 1, 2007, foreign investors have been allowed to hold up to 49 percent shares in retail businesses. Starting January 1, 2009, the Vietnamese retail market will be open to businesses wholly-owned by foreign investors. Moreover, starting January 1, 2010, foreign retailers will be allowed to sell all types of products and a current ban on franchise expansion will be lifted. However, the liberalization of distribution business in Vietnam comes not only with greater opportunities but tougher competition. Thai retailers have been experienced tougher competition from existing retail giants of many nationalities including Germany, France, Japan, South Korea, Singapore and Malaysia who have already established a presence in Vietnam. Rivalry with local retailers who have dominated the market has also been quite tough amid the hefty rents for retailing locations and office buildings – especially in larger urban areas – which has pushed up business operating costs.
KASIKORN RESEARCH CENTER (KResearch) holds the view that large Thai retailers with long experience in this business, strong investment capital and extensive business networks are likely to be among the winners in the competition there. A good future seems foreseeable for business expansion in Vietnam, especially into department stores and shopping malls, thanks to the advantage of an affinity of cultural backgrounds among ASEAN countries. Moreover, goods imported from Thailand for sale in Vietnam are also entitled to tariff privileges under ASEAN Free Trade Area (AFTA) framework, which is an advantage for Thai retail businesses over western retailers. The establishment of Thai department stores and shopping malls would also offer potential distribution channels for Thai goods and services in Vietnam.
To make their presence felt in the Vietnamese retail market, Thai retailers may focus on construction materials, furniture, other decorative items and electrical appliances to take advantage of the fast-growing construction and real estate there. To achieve this, joint ventures should be sought with Vietnamese partners so as to utilize their established distribution networks. However, focus should be on niche and high-end markets, i.e., affluent Vietnamese, expatriate workers and investors. Emphasis should also be placed on brand creation and product designs to differentiate ourselves from made-in-Vietnam goods or cheaper products from China.
Apart from the intensifying competition in the Vietnamese retail market and hefty rents on retail trade premises, significance should also be given on varied demand in different regions, consumer behaviors, plus the local traditions and culture which are key to retail procurement and distribution. Despite the fast growing economy and the changing lifestyles of Vietnamese, most of them are still true to the conservative traditions.

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