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What is behind the retail joint ventures?
The fact that a series of joint ventures in the retail sector have been recently established has raised a question about market development strategies used by retailers over the last two years, since Vietnam began opening the retail market under WTO commitments.
A noteworthy occurrence that can be observed is the establishment of a series of retail joint ventures between Vietnamese and foreign partners. Nguyen Van Nam, a well known economist, who is the former Head of the Trade Research Institute and former Member of the Prime Ministerial Research Team, said that the establishment of retail joint ventures is a foreseeable trend. He said that the question now is what the joint ventures will bring.
According to Nam, domestic retailers have their own reasons to cooperate with foreign distributors: they want to take full advantage of the strong points the foreign partners have. Meanwhile, foreign partners, who still do not well understand Vietnamese market, think that it would be better to cooperate with Vietnamese retailers who understand Vietnamese market and Vietnamese tastes. Besides, many foreign distributors try to cooperate with domestic enterprises also because they want to obtain retail premises in advantageous positions.
“However, now the worry is that it is very likely that in the future, foreign partners will purchase the capital contribution of Vietnamese partners in the joint ventures to get the right to develop the retail networks themselves,” Nam has warned.
In 2010, the second year after Vietnam officially opened its distribution market, there were many cooperation deals. Vietnamese G7Mart, for example, has cooperated with Japanese Ministop, while Vietnamese Phu Thai Group has cooperated with Japanese Family Mart, a private enterprise that has cooperated with Lotte to set up a supermarket in district 11 in HCM City.
Analysts have voiced that the cooperation between domestic and foreign distributors is unavoidable. However, another question has been raised as to which products the retail joint ventures will distribute, and if domestically made goods will still have their positions on the shelves of supermarkets.
The analysts believe that in the first stage of operation, the joint ventures will be wise enough to continue selling Vietnam made goods. However, no one can say for sure if, in the next years, the foreign retailers will import goods from other countries to sell on the domestic market. If this occurs, Vietnamese producers and distributors will suffer. This proves to be the biggest worry now for both domestic manufacturers and traders.
Though domestic retailers have been reassured that they will be protected with a tool called ENT (Economic needs test) with which, Vietnam has the right to grant license to open second and subsequent retail points to foreign distributors, if it does not think that more retail points are necessary. However, in reality, many big foreign retailers have been successful in expanding their operation in Vietnam.
Big C, for example, has 14 distribution points nationwide, including the five points set up in 2010. Metro Cash & Carry also has 13 retail points, including the one opened in Vung Tau City in late 2010. Meanwhile, Lotte has revealed a plan to obtain 30 supermarkets in Vietnam by 2018.
Nguyen Vinh Phu, Chair of the Hanoi Supermarket Association, also said that Vietnamese retail market is a delicious cake which foreign distributors will never miss.
However, an analyst said that there is no need to worry about foreign distributors only distributing imported products. “Consumers will decide which products they should sell,” he said.
vietnamnet, Dau tu
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