Vietnam’s potential future market will be more exciting, fast growing and challenging

By:  |  at 10:08 AM | International Trade  

Experts at the Vietnam Future Market 2016 Summit organized by Vietnam Supply Chain shared common views for the bright future of Vietnam economy and expected that Vietnam market in the coming years would be exciting, challenging and fast growing. Mr. Julien Brun, Managing Partner of CEL Consulting and Co-Founder of Vietnam Supply Chain, highlighted that Vietnam future market would be driven by the optimistic, but value conscious consumer base. Rural consumer base is another key driver for future market as the urban market is becoming more saturated. While the supply of logistics facilities and developments of infrastructure is increasing, the quality issues such as road safety and suitable configuration still persist. TPP is another important factor affecting the future landscape, and it is to be noted that while TPP is beneficial to Vietnam, there is still a lot of preparation needed before Vietnamese firms can reap its benefits.

Consumer behavior

Vietnam consumers are at the transition phase between traditional and modern, technological savvy lifestyles, giving opportunities for e-commerce and modern retail businesses. Vietnamese consumers remain optimistic of the future, despite the increasing cost of living. Consumer confidence index record the highest level in Q1, 2016. 

 

However, although optimistic, Vietnamese consumers remain conservative in their spending and focus more on spending that help securing the well-being of their families. Vietnamese consumers on average spend 10-12% of their salary on children education, and the pharmaceutical industry records 20% year-over-year growth, as well as household products also see an upswing in spending. 
FMCG is becoming saturated at 2-3% annual growth. 

Retail landscape

Convenience and Modern Trade will see tremendous growth in the coming years as preferred shopping places (300% convenience channel growth). The growing awareness in food safety & hygiene will make consumers become more cautious in choosing shopping places and consequently switching to safer channels.

Promotion is likely to remain a big factor affecting consumer buying decision. Comparison among supermarket operators show that Saigon Co.op and BigC stands together as having best offers for consumers, while VinMart and FamilyMart have the best offers among operators in the convenience channels.
Consumer media usage

Consumers are spending more time on smartphone and Internet devices than on television and traditional media. As 77% survey respondents have used smartphones and 57% of whom spend 3-4 hours/day using smartphones. 

However, although consumers are watching less TV, annual TV advertisement spending remains high at 1.7 billion USD (90% total advertising spending, with 10% year over year growth). The underlying reason for the high TV advertising spending as speculated is that advertisers and companies are still unfamiliar with digital advertising and is spending on habit. But the inevitable trend for advertising in the future will be digital as the younger generation move up and become the majority in the consumer base.

Warehousing, industrial real estate 
Regarding the logistics and industrial estate development in Vietnam, Mr. Greg Ohan, Director from CBRE noted that the supply of ready built warehouse in Binh Duong, Dong Nai, and HCMC are increasing. Warehouse supply is developing in tier 2 cities. The demand for warehouse in e-commerce business is also increasing fast.

Rapid development of ready-built factories centers around Dong Nai, Binh Duong, HCMC, Long An, Bac Ninh, Hai Duong, and Hai Phong. While in general, the land price has been increasing quickly, rent price at these estates has remained stable at 2.8 USD/sqm. 

Mr. Greg Ohan highlighted the emergence of Hai Phong City as a future industrial and economic center of Vietnam, following the Vietnamese Government direction to level up Hai Phong to special class city in 2020. Special economic zone development has allowed Hai Phong city to develop better logistics infrastructure (highway, sea port). The new highway reduces 50% travelling time between Ha Noi and Hai Phong. Establishment of 6 industrial parks in HP already 80% filled with tax exemption to attract investors.
Free Trade Agreement and the TPP

Free trade agreement and the effects of TPP to the Vietnam economy is another key topic covered during the discussion. While TPP will be good for Vietnam economy, it will be very challenging for SMEs to reap its benefits as the rule of origins requires good record keeping practices, which are generally poorly managed by local SMEs. Minimum 5-year documentation of origins retention is required by TPP.

Obligations to environmental compliance is another key challenge as non-compliance behaviors becomes liable for punishment, and tightening of the laws makes exploitation more difficult. SOE will need comply with non-discriminatory rules, and in general all businesses in Vietnam will have to comply with the intellectual property, trademark & copyright protection.

However, it is important to note that while TPP effectively eliminate the tariff barriers to trade, another the big issues for Vietnam is still the non-tariff or technical barrier to trade such as product quality, compliance such as food safety. Cross border e-commerce and digital services will also exploit the benefits of TPP. 

It is important to note that the non-duty condition is a staging implementation that can take 10-15 years depending on products. Therefore, it is an opportunity for developing countries such as Vietnam a chance to prepare to upgrade logistics & supply chain.

TTP is expected to increase exports of manufactures by 34%, imports of consumer and production goods by 27%, create more confidence for FDI and stronger link to the international supply chain. Increased productivity resulting from competition pressure and momentum for reforms boosting growth and opportunities.

E-commerce in Vietnam

To touch on the e-commerce sector, it is highlighted that although there are many challenges and issues with the e-commerce sector in Vietnam, the future will be positive.

Vietnamese consumers have strong wish for value for money, variety of choices, shopping experience, but generally lack of trust in products. Trust is very low for e-commerce in Vietnam, similar to the USA 20 years ago. But there has been significant increase of trust in the last 4 years. Price is still the key drivers for e-commerce shopping, while convenience is not yet a key driver as it should be. 

E-commerce businesses are looking at how to serve rural consumers better, as they see that rural consumers will be the one that get the most benefits from e-commerce as they will have more options and accessible to products otherwise not available to them. The development challenge for e-commerce businesses is how to fully sync the shopping flows (buy anywhere, return anywhere). Delivery-wise, motorbike with the high flexibility and suitability to the urban landscape will continue to be the main type of delivery vehicles.

Rural market development 

The importance of the rural market is also paramount, and as the current speed of rural development is too slow for e-commerce, many e-commerce businesses have to develop their own logistics network spanning key provinces and cities in Vietnam, and perhaps much more in the future.

Experts also agreed that rural areas will be more and more important for Vietnam. Large companies should be the pioneers to invest and build the market in the provinces.

Distribution & Logistics vision next 5-10 years
There are a few key points stressed by experts at VFM 2016 Summit about the future state of distribution and logistics in Vietnam:

  • Internet based (integrate with disruptive technology like Uber, Grab, similar companies into current network)
  • Safe, standardized logistics practices
  • Infrastructure development helps reaching rural markets and decreasing transportation time between key cities & economic hubs.
  • Real time tracking
  • The emergence of logistics service providers specializing in rural areas. However, these service providers must also have good IT capability.
  • With Thai investors taking over and buying shares of key retailers in VN, the rise in Thai imports will likely take place. But it is still unclear whether VN is ready for this.

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