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Vietnamese companies stumble over in-country distribution barriers   2010-08-11 - Dan tri

Why don’t Vietnamese manufacturers have more success selling goods to their own countrymen?  The vernacular paper Dan Tri says a big problem is poor distribution infrastructure.


High rents hobble Vietnamese retailers


Several years ago, when Vietnam prepared to join the World Trade Organization (WTO), many people asserted that it would be risky to open the retail market to foreign retailers, who would be eager to sell into a market now ranked among the world’s ten most attractive.


Just in the first six months of 2010, Vietnam witnessed retail revenue growth of 16.1 percent, a figure that seems to prove that opening the retail market was a good thing.


Dr. Dinh Thi My Loan, Secretary General of the Vietnam Retailers’ Association, disagrees.  Vietnam’s own retailers aren’t doing so well, she says, because their distribution networks are weak and their operations are small-scale.


Some big supermarkets -- Big C, Saigon Coop Mart, Intimex, Nguyen Kim and Vinatexmart – are the exception to the rule.  Generally the retail market is starved for investment, and this limits opportunities for Vietnamese manufacturers to sell their goods.


At a recent workshop that in HCM City, Loan commented that one square metre of retail premises in a shopping center costs businesses from an average of $65 to as much as $220 per month in rent.  “With such sky high rents, how many businesses can afford to grow their distribution network,” she asked. “When will Vietnamese retailers be able to ‘take off?’”


Besides supermarkets and shopping malls, traditional markets still provide a  good distribution network.  Many consumers still prefer going to traditional markets, where they can buy fresher food.


However, a lot of big traditional markets in prime big city locations have been torn down, to be replaced by upscale shopping malls. The markets are typically relocated in smaller and less convenient quarters.


There’s high potential in the hinterland


Tolce Drah, who surveys retail markets for the European Trade Centre, said he can see high potential for development of retail markets in rural areas which still represent 60 percent of Vietnam’s GDP and are home to 64 million of the nation’s 87 million people.


Especially in these rural areas, bad infrastructure (both an underdeveloped market system and a bad transport system) are impediments for Vietnamese manufacturers who seek to bring their products to rural areas.


In rural areas, there is only one market for every two communes.  In some areas in the northern mountains and the Central Highlands, there is only one market for every five communes.


Business Support Associates (BSA), a consulting firm, says that ten to fifteen companies can be regarded as most successful in developing Vietnam’s rural market, and get twenty to twenty-five percent of their revenues there.  More typically, retailers reap only ten to fifteen percent of their revenues in rural markets.


Cao Sy Kiem, Chairman of the Small and Medium Enterprises Association, agrees that the biggest challenges for the development of the retail network are the inappropriate regulations and underdeveloped distribution infrastructure that obstruct smooth operations.

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