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Retail Business in An Emerging Economy: The Case of Vietnam: by Trinh Thuy Anh - Tran Tuan Anh
Retail Business in An Emerging Economy: The Case of Vietnam: by Trinh Thuy Anh - Tran Tuan Anh
2(1) 2012 67
ABSTRACT
In the recent decades, emerging economies have developed rapidly attracting
foreign direct investment and advanced services, especially in the retail business sector.
This research paper aims to point out the trend of retail business in a Southeast Asian
emerging country, Vietnam. Retail business in Vietnam is more attractive due to its
young population occupying 65% of the national population who maintain optimistic
shopping behaviors. Since 2008, the negative impact of the global financial crisis and
Vietnam’s economic instability have affected the Vietnam’s retail market negatively. It
seems that potential retail market is on the decrease when the attractive index of the
retail market was number one in 2008, number sixth in 2009 and number fourteen in
2010 in the world. This research assesses whether an emerging economy like Vietnam
would continue to be an attractive destination for international retail market and
what deterred big retailers from investing in Vietnamese market? Furthermore, are
local retail businesses ready for competition? If so, what is the current trend in a
rapidly changing and risky environment as Vietnamese economy is experiencing at
the moment.
This research employs integrated statistical comparison and analysis. Demand
and supply model in retail business is employed to identify the trend of retail business in
Vietnam. Furthermore, this paper proposes strategies for retail business development in
Vietnam in order to refocus the role of government to support the development of retail
business.
Our assessment suggests that Vietnamese businesses which utilize modern
business concepts have grown swiftly while local businesses that follow traditional
retail channel are under increased pressure for change due to market competition.
The urban market remains attractive to domestic and foreign investors while the
rural market is largely unexplored. Consequently, a combination between modern
and traditional concepts could be utilized to promote and exploit full potentials of
Vietnam’s retail business. This adaptation, which requires businesses to shift from
traditional concepts into modern concepts, demands drastic change in business
modeling such as size, structure and business practices. The research also provides
policy suggestions including improvement of facility development, refining local
supply chain, and simplifying procedural logistics for businesses to help them
smoother this transition.
Keywords: retail, Viet nam, emerging economy
1
Ho Chi Minh City Open University.
68 Ho Chi Minh City Open University Journal of Science- No.2 (1)2012
Many strong domestic retailer was Saigon Coop with the sales in 2009
brands have quickly dominated the retail reaching 498 million USD.
business. The most prominent was the Besides the growth of supermarket
formation and growth of supermarkets trading daily necessary goods and consumer
as Co.opMart, Hapro Mart, Big C, Fivi goods, specialty stores and convenience
Mart… Until late 2010, Co.opMart has stores are also developed. Supermarkets
had 50 supermarkets in the country; that sell electronics, electrical appliances,
Meanwhile, Hapro Mart, owned by Hanoi telecommunication equipment such as
Supermarket Joint Stock Corporation, has Nguyen Kim chain, Best Caring’s and
had 30 supermarkets; Fivi Mart has had Mobile World also ranked in the Top 500
15 supermarkets; Big C, foreign retail big retail businesses in Asia Pacific. The
business, has established 14 supermarkets success of those companies has confirmed
in major cities throughout the country. The the position of this type of retailing in
presence of these supermarkets has been Vietnam retail business.
promoting the modernization trends in Currently in Vietnam, the convenience
retail channels in Vietnam. store chain is actively expanding its
The growth in size and retail sales distribution channel throughout big cities
has taken many Vietnam retail businesses in the country. The biggest convenience
to the list of TOP retail businesses in Asia store chain is G7 Mart with about 500
Pacific. Until 2010, Vietnam has had 10 convenience stores. This kind of store has
retail companies which ranked in the TOP been quickly developing during the last
500 retailers in Asia Pacific ranked by few years. Many companies in Vietnam
Retail Asia Magazine coordinating with are investing to expand the convenience
market research firms KPMG and Euro store, especially in big cities like Ho Chi
monitor. Leading in the top of this list Minh city and Hanoi.
(31/12/07)
Total Market 8.173
aggregate
market 21,7%
Urban 1.772
proportion
78,3%
1 Markets Rural market 6.401
Proportion
Wholesale
markets of
market 92
agricultural
products
Retail market 8.081
(estimated
2 Shopping centers Center 70
number)
3 Supermarkets Supermarket 350
70 Ho Chi Minh City Open University Journal of Science- No.2(1)2012
Small shops of
4 individual business Shops 900.000
household
Companies operating in 2006
5 the retail sector Company 55.000 Survey data
Million
7 Household business 2,9
household
had bigger scales now, and especially foreign retail companies are becoming
goods are more diversified. The sales more and more drastic, especially in big
technology has been invested towards cities of Vietnam such as Ho Chi Minh
computerization and automation, creating city, Hanoi, Danang, Can Tho. With
a modern environment in the retail service. their advantages in capital, experience in
The coming of foreign retail enterprises developing emergent markets and modern
created competitions, speeding up the retail technologies, foreign enterprises
development of local businesses. Many have many advantages entering Vietnam
domestic enterprises such as CoopMart learnt market. According to a research of
from foreign corporations the experience of Vietnam Retail Association, although
retail system management, and then applied having difficulties in approaching Vietnam
modern business management in different market, foreign enterprises have their own
fields such as sourcing and exploiting goods initial success when entering. Vietnamese
supplies and improving their marketing, consumers rapidly adapt to professional
sales, logistics, personnel management and trading environment and advanced
retail operations. This is the inherent weak business policies of foreign enterprises.
point of local supermarket systems that are Threat of losing market share to foreign
in the phase of forming and developing. enterprises is completely a possibility for
Some local supermarkets focus on their local business in a near future.
loyal customers. Lots of loyal customer Together with advantages and
care programs are implemented. Some challenges to Vietnam retail industry in the
supermarkets develop goods with their process of global economic integration,
own brand name. This is a new trend in difficulties in world economy recently
the Vietnam retail market while adopting had definite impacts on the market
modern retail technologies of the world. development.
At the moment, own-brand names in 3. MACROECONOMIC FACTORS
fields of food, confectionery and washing AFFECTING THE RETAIL MARKET
substance have been in a trial period with
Global economic crisis recently
some initial success.
has negatively affected the economic
Besides some positive effects, development of Vietnam. Growth rate of
economic integration also brought to Vietnam GDP was high whereas that of
Vietnam retail enterprises some problems. other developing countries decreased in
Competitiveness between domestic and recent period.
Figure 2. Growth rate of Vietnam GDP
Figure 4. Vietnam average income per capita (dollars) during 2001 – 2009
Thanks to the growth of GDP, the period of gold population level with
income of the population has increased 60% of the population aging less than 35
almost 3 times during the past 10 years years old. Young population structure is a
which has spurred the growth of personal good factor that affects the growth of the
consumption. retail industry because young consumers
This has led to the increase of have high demand in procurement and
total retail sales. In 2010, the total retail they adapt to various types of modern
sales reached about 77.8 billion dollars shopping. Furthermore, with about 72%
that was 4.7 times higher than that in of population that live in rural areas
2001. Forecasting for the coming years, whose income have been improving, retail
the growth rate of retail sales will be business have had a source of potential
maintained about 25% annually. consumers with high purchasing power.
Population structure Consumers in rural areas have accustomed
With a population of 86 million, to traditional retail types such as markets
Vietnam is one of the major markets in and small shops. This will promote the
Southeast Asia. Moreover, in terms of development of markets and small shops
population structure, Vietnam is in the in rural areas in the near future.
74 Ho Chi Minh City Open University Journal of Science- No.2(1)2012
time Vietnam officially opened its retail this market? A.T. Kearney evaluated
market under WTO commitment, why big Vietnam as one among potential markets
brands in retail business like Wal-Mart, according to Foreign Direct Investment
Tesco, and Carrefour have not entered Confident Index.
Figure 8. 2010 Foreign Direct Investments Confident Index
One of the main reasons that the to invest in Vietnam retail market. Local
leading retail businesses worldwide have authorities must continuously improve
not entered Vietnam market is the size of the retail industry planning and simplify
the market. Only big cities such as Hanoi, administrative formalities, especially
HCMC, Da Nang, Can Tho are suitable formalities for investment licenses. They
for modern retail models like supermarket, must also give more detailed instructions
hypermarket, shopping center. Other in order that enterprises can approach and
places have limited purchasing power. carry out the investment projects.
Moreover, when opening the 2nd retail Vietnam retail market is a potential
outlet, foreign enterprises have difficulties market with a population of about 86
to get permission from the authorities. The million. However, about 60.4 million people
permission must be complied with local (70.4% of the population) live in rural
planning and with local requirements. The areas. This sector needs to be planned for
government needs to be explicit in legal the development of distribution channel in
system and administrative reform, giving accordance with the specific characteristic
favorable conditions to foreign business of the residents. Up to 2020, traditional
Ho Chi Minh City Open University Journal of Science- No. 2(1) 2012 77
retail forms will still remain and develop to the economy development during
in rural areas. Therefore, the government the integration process into the world
should create good conditions to plan the economy. The growth rate of this
development of markets coordinating with market is always high and stable. In the
modern retail forms such as supermarket coming period, forecasted by experts,
and shopping centers. This then can give this growth rate will be maintained 20%
ways to the development of retail markets per annual. In accordance to the market
in these areas. development, forms of retail business
One modern form of shopping having will change conformable to consumers’
been established in Vietnam is e-commerce. buying behaviors. Modern retail types
Although Internet growth rate in Vietnam such as supermarkets, shopping centers
has recently increased remarkably, and specialty stores will be developed in
e-commerce is not yet developed. Many parallel with traditional forms. Foreign
reasons lead to this slackness. One main retail business will penetrate and expand
reason is the lack of legal regulations retail channel in Vietnam, creating
for e-commerce development. Most competitive environment in retail industry.
enterprises implementing e-commerce Today, Vietnam is facing some difficulties
in Vietnam have difficulties in payment from macroeconomics such as high
system. Until the end of 2009, the rate of inflation and decline of economic growth.
credit card payment is only 1% out of total These factors have negative impacts on
expenditure in Vietnam. Today, Vietnam the market development. However, being
is still lack of legal regulations on the a developing country with a big and
rights of both enterprises and consumers young population who has high demand
in e-commerce. These obstacles must of consumption, retail industry still have
be overcome for the development of lots of development potentials. In order
e-commerce. to maintain this growth, the government
must play a supportive role with suitable
6. CONCLUSION
policies, especially for e-commerce, rural
Vietnam retail industry has played markets and advantage environment to
an important role and involvement help retail business develop firmly.
REFERENCES
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