AEC and challenges to the retail sector

(Vietnam Logistics Review)ASEAN Economic Community (AEC) founded at the end of 2015 is a remarkable event, marking an advancement in economic integration of southeast ASIA with long-term target of boosting free flows of goods, investments, skilled labor and capital. The article tries to analyze challenges to the retail sector - a predictably easily-vulnerable sector when joining AEC.

AEC AND ASEAN’S PREPARATIONS

ASEAN has a population of 600m. people (9% of the world population) with the 2014 total GDP of around USD 2.500 billion – a potential market to international retailers. According to Economist Intelligence Unit’s forecast, Asian retail market will keep progressive growth of around 6.8%, equally to USD 11.800b. In 2016, six largest ASEAN retail markets, including Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, are predicted to have USD 1.160b.

There is no surprise that international and Asian retailer as Carrefour (Europe), Metro Cash& Carry (German), Big C (France), Aeon, Family Mart (Japan), Lotte Mart (Korea) have been paid attention to the expansion into the area. At the same time, the Government and local retailers are in preparation for AEC in a hurry.

In policy, the Singapore government keeps putting emphasis on the construction of an advanced infrastructure and encouraging new forms of shopping as online and mobile shopping. The Malaysian government has issued strict regulations and standards to shopping centers: foreign retailers should have at least 30% of local shares. In addition, the government has had strategies for its retail sector by focusing on luxury goods as fashion and jewelry with the name of “Malaysia high class”, indicating that the country is a place for shopping duty-free high-grade goods.

For stronger integration to Vietnam market, Thailand has had projects, credit funds, and cooperation centers with Vietnam enterprises. In addition, they have also hired Vietnamese counselors and had Vietnamese training programs for Thai officers who have work relating to Vietnam.

VIETNAM RETAIL SECTOR AT THE START OF AEC

Forecast from research company Satista (Germany) showed Vietnam retail market is able to reach USD 100bn pa in 2016, similar to that from Economist Intelligent Unit. Another report from CB Richard Ellis (CBRE) showed Vietnam has emerged as a potential retail market in the most 10 attractive markets in Asia in 2014 when international retailers said they would choose Vietnam as an investment market with the same rate as Hong Kong and Singapore, second only to China. Large cities as Hanoi, Danang and HCMC are in top 10 of the busiest retail markets of Asia Pacific.

With AEC, Vietnam enterprises not only compete to one another and other of different sectors, but also compete with ASEAN ones. It is noted that Vietnam committed not to limit production sources in foreign retail business. Therefore, they are able to sell products either from Vietnam source or from foreign countries at their shops and supermarkets. As a result, with a strong integration from foreign retailers, Vietnam products hardly to have their places at supermarkets’ shelves.

In 2015, the local retail market has received a new foreign flow of investments when Vietnam allow to form 100% foreign capital companies. In fact, when AEC not coming into operation, foreign retailers have had activities in Vietnam market. Companies as Metro Cash& Carry (Germany), Big C (France), Aoen and Takashiyama (Japan), Circle (the U.S), Lotte and E-Mart (Korea), Dairy Farm (Hong Kong), Parkson (Malaysia), Fair Price (Singapore)… have had plans of increasing capital and opening new shopping centers. Coming to Vietnam in the middle of 2005, Shop& Go (Singapore) has been the chain of convenient stores with 110 stores and keeps expanding.

Especially, Thailand has had many large groups integrating Vietnam market as CP Group, Berli Jucker (BJC) and recently the leading retailer Central Group. B’Mart (Thailand). Thanks to their purchasing the chain of Family Mart stores (Japan), they have the dense covering rate of 96 stores, expectedly to reach 300 stores in 2018. Thai billionaires also take control of super market systems and shopping centers as Metro, Nguyen Kim. Recent research showed 52% of Thai enterprises said their biggest opportunities would be in Vietnam local market. Most of Thai retailers said Vietnam market has similar features to Thailand’s, so that it will be easy to integrate the market and they have distribution experience with the kind of market.

At the same time, Vietnam has only a few of remarkable retailer: Saigon Co.op currently has 72 Co.op Mart supermarkets, 86 Co.op Food stores, nearly 200 Co.op stores, 01 Co.op Xtra Plus and Sence City Shopping Center; Dong Hung Co. has 26 Citimart supermakets; An Phong Co. has 6 Maximark shopping centers. SATRA has 2 super markets and 42 Satra Food stores; Nhat Nam Co. has Fivimart supermarket chain; Hanoi Trading General Company has a number of super markets and Harpo stores… There was a noted event that Vingroup bought supermarket chain from Ocean Retail Group and changed its name to VinMart Retial Group and held 10% of registered capital of Vinatex ( the owner of retail chain Vinatex Mart). With the new brand, Vingroup shows ambition of repaint the local retail painting: build or buy 100 VinMart supermarkets and 1,000 convinient stores to 2017, and build 9 shopping centers nationwide.

Under pressure from foreign competitors, a number of Fivimart’s and Intimex’s stores have been reduced at some cities of minor markets. Besides, local retailers choose to cooperate with foreigners instead of developing themselves. For example, Trung Nguyen has been a partner to Aeon to open the chain of convenient stores Ministop in Vietnam. Saigon Co.op- Vietnam leading retailer has JVed with Singapore NTUC FairPrice Mart in 2010 to open Mega supermarket. Another leading retailer- Phu Thai- cooperated with Family Mart to for VinaFamilyMart JV, with major stocks from Phu Thai.

The expansion of Vietnam products to ASEAN countries’ markets has not been satisfactory. Most Vietnam retailers have not had long-term strategy to make good use of AEC to expand to regional market. In fact, only those of good brands and having good distribution network are able to enter super markets of the regional countries’. Most of Vietnam products have difficulty due to dense technical barriers in other countries and there is no Vietnam retailer having investments abroad.

SUGGESTED SOLUTIONS

First, the Government should pay more attention to the infrastructures, policies and administrative procedures relating to business activities, especially in the field of retail. For example, Vietnam has set up criteria and applied testing economic needs in public (ENT) in issuing licenses for foreign business who has direct investments in Vietnam. In fact, they have not seriously applied. Using ENT as a helpful tool to protect local young retail sector and local enterprises is a must-do in a potential market as Vietnam’s.

In the situation of fierce competitions in the retail market, local enterprises should have information about AEC progress, markets’ features, ASEAN countries’ laws and competitors. Tax tariffs will be gradually removed, enterprises should meet requirements in technical barriers, rates, intellectual property rights and distribution network of local countries to make good use of the opportunity. Thus, there should be close connection between the Government and enterprises in trade promotion work and training on market information.

In addition, each enterprises should find its own business method: innovating their distribution system, promotions, branding, diversifying retail forms, changing methods of productions… Vietnam’s enterprises should improve their management abilities, professionalize their distribution from their supply chains and services and diversifying their goods sources. To deal with competition pressure and to seize opportunities, some enterprises choose to joint venture with foreign partners to make good use of their brands, capital and experience. Others have prestige from manufacturers and providers as Coop mart, Maxi mark, Satra Foods. They start taking parts of local retail market. The basic matter is how local production enterprises can have strong development with retail ones.