Foreign retailers challenge survival of domestic firms

Growing foreign retailer presence

Vietnam’s Global Retail Development Index (GRDI) jumped from 50.8 in 2016 to 56.1 in 2017 following the move of leading retailers from Japan, France, and Thailand into Vietnam and a series of mergers and acquisitions (M&A).

Vu Vinh Phu, a retail economist said Vietnam’s open policy has paved the way for foreign retailers to enter the domestic market, and their growing presence in the country has forced domestic retailers to change. Vietnamese supermarkets, for example, are thoroughly researching consumer tastes and increasing their cooperation with small producers, Phu said. Particularly, a leading domestic corporation - VinGroup - is working with farmers to produce safe agricultural products carrying its Vineco brand, Phu added.

Vietnam’s retail sector has been expanding rapidly since it opened up to 100 percent foreign ownership in 2009 and companies from Thailand, the Republic of Korea and Japan have entered the market.

According to the World Bank, Vietnam’s middle class currently accounts for 13 percent of the population but is expected to rise to 36 percent by 2026 as the population exceeds 120 million. In comparison, Thailand, for example has an aging population of around 68 million, of which the middle class accounts for around 35 percent.

Better policies needed

Phu pointed to discriminatory policies that favor foreign retailers. Foreign retailers benefit from preferential policies in choosing a good location and enjoy exemptions or reductions in corporate income tax, while domestic retailers do not benefit from those incentives, he said. Many localities are offering preferential policies for foreign retailers, unintentionally causing pressure on domestic retailers, he added.

To deal with the increased flow of foreign goods into Vietnam, domestic retailers need to minimize intermediary costs through e-commerce. The government should encourage large domestic corporations to develop e-commerce platforms to keep up with this retail trend, Phu said.