While many experts voice the concern that when Vietnam has to open its market fully the market will be swallowed by giant foreign retail groups, others say this is not the case.

Recently released surveys show that Vietnam is an attractive market with a high growth rate. However, in fact, in the eyes of most leading retail groups in the world, Vietnam is no more than a ‘potential market’, or a ‘noteworthy market’ due to its high growth rates in recent years.

The two most important things to foreign retail groups when they are considering investing in a market are the income of consumers and the scale of the market. Meanwhile, Vietnam’s average income per capita is very low compared to their standards, less than $1,000 per annum, while the market scale is $20bil. That explains why to date, only one of the 10 leading retail groups in the world, Metro, has come to Vietnam. Other giants like Wal-Mart, Tesco, Target and Costco remain outside. Meanwhile, in China alone, Wal-Mart has over 100 retail points.

It has been oft repeated that foreign retail groups will flock into Vietnam to build large and modern retail centres and convenience stores when Vietnam opens its doors, leaving no business opportunities for small Vietnamese retailers.

However, in fact, this could likely do more good than harm. Giant retailers will arrive only when Vietnamese people’s incomes improve. If so, there will be more jobs in the non-retail sector, which means less pressure on jobs in the retail sector.

Moreover, when the national economy develops well, the market will become bigger in scale, which means bigger slices of cake for both local and foreign retailers.

In fact, distribution is not a sector with a high concentration level.

The market share in retail and food retail services:

Source: Regulatory reform in retail distribution, Olivier Boylaud and Giuseppe Nicoletti

The above table shows that there is little need to worry that a few foreign retailers will control the domestic retail market. Even in countries which have developed distribution services, like the US and Japan, the 10 leading retailers in the world hold no more than 10% of the market shares, while the other 90% are divided into smaller ones.

The concentration level seems to be higher in food retail distribution. The table shows that the US is the country with the highest concentration level, where the world’s 10 leading groups hold 38% of the market share. However, in order to obtain such a high market share, every retailer needs to set up tens or hundreds of supermarts, which proves to be unfeasible in Vietnam as the country has the right to refuse licencing supermarts if it thinks that these supermarts are unnecessary.

History has shown that not every giant can succeed in doing business in every market. The habit of local consumers always decides whether retailers succeed in their home markets. Vietnamese consumers, like in many countries in the world, have the habit of buying fresh food at small markets which offer products at reasonable prices instead of supemarts which offer frozen food.

That explains why in Poland, where consumers have the same habit as Vietnamese consumers, the 10 leading groups only hold 2% of the market share. In South Korea, the giant Wal-Mart had to leave the market as it could not provide products in a way suitable to the tastes and habits of local consumers.

Source: Thuong truong