Domestic distributors will get into an unequal fight when Vietnam joins the World Trade Organisation (WTO) and retail markets are open. Under the roadmap, once Vietnam enters the WTO, major foreign distribution groups will be allowed to establish joint ventures with domestic enterprises to invest in wholesale and retail business operations. Two years later, they will be entitled to set up wholly-foreign enterprises in Vietnam.

The possibility of Vietnam becoming a full WTO member by the end of this year is drawing near. By that time, domestic enterprises will remain weak in business experience, management capacity and financial resources while they will have to compete with the world leading distributors such as Walmart, Carrefour, Seven-Eleven whose annual earnings hit hundreds of billions of US$, much higher than Vietnam’s GDP.

According to A.T Kearney Consultancy Company, Vietnam is considered the world’s third attractive area for giant retail dealers and foreign investors which have invested in the country or are seeking ways to penetrate the Vietnamese market.

The world leading distributors such as Walmart (the US) and Carrefour (France) have worked out plans to expand markets into Vietnam in the coming time.

In addition,  a series of large investment projects are applying for operation licenses in Vietnam, including a US$15 million project invested by the Lotte group of the Republic of Korea, the Tesco project run by the world’s sixth large retailer of the UK and a project invested by Dairy Farm group of Singapore.

Parkson group of Malaysia has officially opened the first supermarket in HCM City as part of   the 10 trading centres the group plans to invest in Vietnam. Large wholesalers such as Big C and Metro are continuing to open more centres and supermarkets in Vietnam’s major cities.

In the domestic market, modern distribution networks through supermarkets account for only 16 percent while traditional distribution channels such as markets, grocery stores and wholesale and retail shops make up around 84 percent.

According to the Ministry of Trade, modern distribution channels through supermarkets are  now seen in 30 out of 64 provinces and cities across the country. However, these channels of distribution operate at low capacity due to poor management and technical facilities. Meanwhile, forms of business fail to meet international standards.

Saigon Coop Mart, the biggest distributor with 16 affiliated supermarkets is establishing chains. Traditional channels of distribution with a total of  300,000 grocery stores and 200,000 markets show that the country’s goods distribution systems are in disorder and do not comply with any certain standards.

People say if Walmart opens a supermarket, within a diameter of three kilometers, no retail stores can compete. How will traditional Vietnamese channels of distribution such as markets, stores, wholesale and retail shops develop if foreign retail groups penetrate the domestic market?

According to a recent survey, the annual growth rate of modern distribution networks in Vietnam hit 4 percent. It is expected that in the next 10 years the distribution networks will account for over 50 percent of the market to reach the present levels in China and Thailand.

Risk of losing market to foreign distributors

Domestic distribution networks will fall into the hands of foreign groups in the next two years if Vietnamese businesses fail to dominate the market. Therefore, Vietnamese businesses should focus on building and linking supermarkets and trade centres across the country with strong financial resources.

Leading Vietnamese distributors such as Saigon Coop-Mart and Phu Thai have realised the risk and planned to join hands in building a modern distribution network with a total investment of VND6,000 billion.

Pham Dinh Doan, general director of Phu Thai group, said the project will hire foreign consultants to compete with foreign groups.

Mr Doan added that foreign groups often receive strong financial support from their own country and in Vietnam, they hold nice locations to open supermarkets. For instance, Big C and Metro are located on the gateway to Hanoi.

In many countries, foreign groups are allowed to open a limited number of supermarkets or trade centres. But it is not the case in Vietnam. Metro, for example, has eight wholesale centres across the country. If the group join with other businesses to develop some more centres, it is certain that no Vietnamese businesses can compete.

Strategically speaking, anyone who holds sway over distribution networks will control production. A foreign distributor to Vietnam, Walmart for instance, will bring about hundreds of producers to the country. As a result, not only distribution networks will be lost, but also domestic production will encounter difficulties and Vietnamese businesses will depend on foreign distributors. High commission, slow liquidity and tougher choice of goods are imminent measures that foreign distributors are applying to Vietnamese businesses.