challenges and difficulties, and strive to compete effectively with foreign investors when the Vietnamese retail market fully opens in 2009.
II/ CURRENT STATE OF ACTIVITIES OF VIETNAMESE RETAIL ENTERPRISES
1. Factors affecting the business development of Vietnamese retail enterprises
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Figure 4: Michael Porter's 5 competitive forces model:
1.1 Supplier
Source: “Retail Management” , Micheal Levy
- Goods suppliers: Joining the WTO opens up opportunities for free trade between Vietnamese enterprises and many other enterprises from 150 member countries around the world.
- Infrastructure suppliers: The demand for rental is too high, supply cannot meet the demand. This puts great pressure on distributors because if they build new business locations themselves, it will require huge costs, the costs for other expenses will be limited, not creating a competitive advantage.
1.2 Potential competitors
The higher the risk level from the entry of potential competitors, the greater the threat to the profit pie and market share of the current business. Currently, in the industry, there are potential competitors which are large foreign retail corporations with financial potential, brand, management methods, sales and experience in investing abroad such as: Wal-mart, Carrefour, Tesco.... The ability of potential competitors to enter the industry depends on the following factors: The attractiveness of the industry, barriers to entry, and resistance of businesses in the industry.
Industry attractiveness : Vietnam as the world's most attractive market:
+ First: With a population of 84 million people, the consumer demand of Vietnamese people is very large.
+ Second: Vietnam's economic growth rate in recent years has been extremely impressive (Table 1 - Vietnam's economic growth rate in 2001-2006)
).
+ Third: The modern retail system in Vietnam only accounts for 10% of the total retail industry revenue. A large market segment (the remaining 90%) is waiting for the "invasion" of the modern distribution channel system.
+ Fourth: The performance of the “predecessors” such as Metro Cash and Carry, Big C… is considered good and very successful. Other giants have the basis to follow their path, penetrating this lucrative market.
+ Fifth: The domestic retail system is still fragmented, has many shortcomings, and has limited competitiveness. The "golden moment" of the Vietnamese retail market has come, this opportunity only lasts for a short time and certainly the "retail giants" will not miss this opportunity.
Barriers to entry : Retail business requires large investment capital, management experience and high professionalism. However, with multinational retail corporations with large capital, modern technology, experience, and especially professionalism in purchasing and sales management, they have enough confidence to invest anywhere. Thus, the barriers to entry are not very high.
Resistance of enterprises in the industry : Saigon Co-op Mart and G7 Mart have recently been actively implementing plans to expand their distribution systems. These are necessary steps for domestic retail enterprises to create advantages before the world's leading retail corporations enter the Vietnamese market. According to Mr. Dang Le Nguyen Vu - Chairman of the Board of Directors of G7 Mart, G7 Mart will be a counterweight to foreign retail corporations. This shows that the resistance of enterprises in the industry is very fierce against the move to enter the industry of potential competitors.
1.3 Customers
- The customers that retail businesses aim at are the end consumers. Along with the development of the country, people's consumption habits also change. Shopping at supermarkets and shopping malls has become a habit because the goods in supermarkets are beautifully displayed, you can choose your own products without being bothered by anyone, and a special convenience is that you don't have to bargain when buying here... Moreover, as people's lives improve, consumers are increasingly concerned about product quality, food safety and hygiene, nutritional factors...
- Vietnamese retailers have an advantage due to their understanding of the customs and shopping habits of the people in the country; understanding the business methods in each locality.
The opportunity for Vietnamese enterprises is huge when they can collect information quickly from familiar markets without facing language barriers and customs like foreign corporations.
- In addition, domestic retail businesses also have the advantage of receiving support from domestic consumers. Although this support has only stopped at a few movements such as "Vietnamese people use Vietnamese products", it has also contributed to encouraging domestic businesses to develop.
- Customers are mainly individuals, buying in small quantities, they are price takers. Because customers are single buyers, the cost of switching customers is almost non-existent.
1.4 Substitute products
Vietnamese retail businesses organize the distribution of goods in the form of modern distribution channels with systems such as: Supermarkets, shopping malls, convenience stores... Therefore, the alternative products of retail businesses here are traditional distribution channels in the form of: Markets, food stores, street vendors...
- In Vietnam today, traditional distribution channels account for a very large proportion of 85% of the total retail output of the country, while modern distribution channels only account for 15%. Therefore, goods are distributed mainly through traditional distribution channels.
According to a recent survey by the Department of Domestic Market Policy of the Ministry of Industry and Trade: The rate of traditional markets operating effectively still accounts for 97.7%. Although having to compete with many modern forms of distribution, the number of traditional markets built or renovated has continued to increase rapidly in recent times with a diversity of types and levels. Goods sold through supermarkets only account for 10% compared to 40% through markets and 44% through traditional stores. In addition, according to survey data on consumer opinions
Up to 90% of Vietnamese housewives still buy goods at traditional markets. Thus, traditional distribution channels still play an important role in the retail system.
- However, in the current development trend, this pressure tends to decrease. Along with the increasing income and living conditions of the people, the demand for goods consumption is also constantly changing, specifically the demand for higher quality goods with accompanying value-added services. Therefore, modern distribution channels are being widely accepted by consumers. In fact, the number of stores in Ho Chi Minh City and Hanoi in the traditional distribution channel is decreasing from 45,346 stores to
44,638 stores are a testament to the new transformation trend. 9 Thus, the
The difference in the ratio of 8.5:1.5 will quickly change in the direction of increasing the proportion of modern distribution channels and decreasing the proportion of traditional distribution channels.
1.5 Internal competition
To assess competitive pressure among businesses in an industry, we consider aspects such as: Industry demand characteristics, industry structure, and barriers to exit from the industry.
On the demand side of the industry : With the growth rate of the retail industry at about 30%/year and the average income per capita increasing, the modern consumption trend is developing. That confirms that the Vietnamese retail market is in the growth stage.
Regarding the structure of the industry : Due to the attraction of the Vietnamese retail market, not only domestic distributors but also foreign distributors appear more and more, with different forms. The appearance
9 Source: “ Domestic distribution businesses compete to accelerate ”, www.dddn.com.vn
Foreign corporations with financial potential, management skills, and experience are really a concern for domestic enterprises with limited capital, management skills, logistics, and professionalism.
Regarding barriers to exiting the industry : In the retail industry, the biggest barrier is capital. Investment capital for convenience stores or investment in supermarkets or shopping malls is very large. For example, to open a Best & Buy convenience store like Citimart requires an investment capital of 3-4 billion VND.
Thus, it can be seen that the competitive pressure in the Vietnamese retail market is increasing. Therefore, domestic retail enterprises must constantly improve their competitiveness, increase innovation and improve themselves to be able to stand firm and develop.
2. Current status of Vietnamese retail businesses
2.1 Domestic retail businesses are increasingly expanding their scale.
In recent times, the Vietnamese retail market has witnessed a rapid and strong progress of domestic retail enterprises through the emergence of a series of supermarkets, convenience stores and shopping malls...
As of March 2007, the Ho Chi Minh City Union of Trade Cooperatives had a chain of 20 Co.op Mart supermarkets, including 14 Coop Marts in Ho Chi Minh City and 6 Coop Marts in the provinces; Intimex Import-Export Company with a chain of 10 Intimex supermarkets; An Phong Company Limited with 5 MaxiMart supermarkets; Dong Hung Trading and Service Company Limited established 10 CitiMart supermarkets and specialized stores; Nhat Nam Joint Stock Company with a chain of 7 supermarkets under the Fivimart brand... Trung Nguyen launched a chain of more than 1,000 convenience stores under the G7 Mart brand; A series of businesses operating in this type of convenience store were also born, such as the 24/Seven convenience store chain of Hoang Corp Joint Stock Company; the V-24h store chain of Vina Distribution Joint Stock Company... and many other large and small supermarkets from North to South of two large enterprises, General
Hanoi Trading Corporation (Hapro) with the brand name Hapro Mart and Saigon Trading Corporation (SATRA)…
2.2 Domestic retail enterprises are weakest in after-sales service
Service issues become very important in attracting and retaining customers when foreign retail giants are not only strong in capital and management skills but also very professional and attentive in service and after-sales service.
The survey results of the Vietnam Association for Standards and Consumer Protection (Vinastas) in October 2007 showed that more than 70% of Vietnamese consumers were not satisfied with after-sales service. When customers complained to businesses about buying counterfeit goods, 31% were not resolved, 49% were allowed to exchange the goods, and 20% were not resolved decisively, leading to prolonged delays.
Warranty “torture” of customers is also a common occurrence. Vinastas’ social survey shows that with 94% of customers requesting warranty, only 8% of businesses are attentive, 36% of businesses refuse to provide warranty. Regarding the attitude of employees in handling the problem, only 24% are happy, 42% are upset and 34% show no attitude. In addition, many sales staff also show a challenging attitude, causing frustration, making consumers discouraged and giving up on filing a lawsuit.
Ms. Vu Thi Nga, Head of the Consumer Protection Department, said: “Many businesses sell smuggled goods of unknown origin, so they do not fulfill their warranty obligations. Some businesses do not fully fulfill their warranty obligations, such as: violating repair time, forcing consumers to pay for repair and transportation costs…” 10
For most Vietnamese businesses, after-sales service has not yet become a major part of their business philosophy. After a business sells a product and receives payment, it is considered that the transaction has been completed.
10 Source: “ After-sales service: Weakness of Vietnamese retail enterprises ”, www.itpc.hochiminhcity.gov.vn
The rest is considered not the responsibility of the business anymore. Poor after-sales service has clearly shown the "buy and sell" sales method of Vietnamese retail businesses.
2.3 Domestic retail enterprises have links with each other but they are still loose and fragmented.
Association is to create strength and support each other, helping retail businesses expand their market exploitation capabilities, save training and purchasing costs; to counter foreign corporations, to protect the rights and voices of Vietnamese retail businesses. Association or merger is a necessary step to increase financial potential, network, human resources and proactively source goods.
The trend of association between domestic retail enterprises is increasing, such as: the association between Saigon Coop (Ho Chi Minh City Union of Trading Cooperatives) and Satra (Saigon Trading Corporation) or the association between Saigon Coop and Phu Thai Group. Recently, four leading enterprises in the distribution sector in Vietnam, Satra, Hapro, Saigon Co.op and Phu Thai Group, have joined together to establish Vietnam Distribution System Investment and Development Joint Stock Company (VDA) with a total capital of 6,000 billion VND... Especially the establishment of the Association of Vietnamese Retailers (AVR) with 130 members on October 16, 2007.
However, the connection is still loose and only formal. According to Ms. Nguyen Thi Hong Huong, General Director of Vinatex Mark supermarket system, the connection is very necessary but "must be truly for the common benefit". Commenting on the connection and joint venture between domestic retail enterprises, she said: The parties involved are still "still defensive with each other, making the connection not really strong". According to Mr. Vu Vinh Phu, Chairman of Hanoi Supermarket Association, the community spirit between "domestic" supermarkets and shopping malls is currently very weak, each person is doing their own thing. Therefore, the problem is when the domestic market opens, with the influx of foreign retail systems, will domestic enterprises