December 20, 2014
– At the moment, foreign distributors and retailers are vigorously deepening their presence on the domestic market while sidelining domestic counterparts. Such a penetration is also manifested in the number of mergers and acquisitions which allow foreign enterprises to increase their market share.
During last month’s sitting many lawmakers expressed their concern about the underdog position of domestic distributors and retailers although Vietnam has implemented the Economic Needs Test (ENT) prior to licensing. However, these barriers have been so far ineffective.
This problem was posed by Nguyen Ngoc Hoa – a legislator who is also chairman of Saigon Co.op, one of the leading supermarket chains in Vietnam – to Minister of Industry and Trade Vu Huy Hoang. “What would become of the local retail system?” asked Hoa. The situation may have an adverse impact on domestic production because local distributors are no longer in control of distribution network.
“We do not fling the door totally open, but have a road map for it,” said Minister Hoang. Yet reality is a different story. In line with Vietnam’s commitment to the World Trade Organization (WTO), the country has allowed foreign retailers’ business from 2007 and the establishment of wholly foreign-invested companies from 2009. Vietnam’s scheme outpaces those of countries in the region.
Hoang affirmed that the ministry had successfully assuaged concern over the retail market domination. According to him, there are 900 modern retail outlets nationwide, with more than 70 of which being foreign-owned. Vietnam’s total retail sales are estimated at nearly VND3,000 trillion this year, of which foreign retailers account for just 3.4% (The figure was 3.8% five years ago). Foreign distributors are also banned from trading in nine sensitive commodities at their outlets.
Such optimism of the industry and trade minister is simply astonishing. Lawmaker Nguyen Ngoc Hoa soon indicated that those figures were irrelevant to the reality in the domestic retail market where local enterprises in the sector are being cornered by their foreign rivals.
“Despite the fact that there are 70 foreign-invested retail outlets, their revenues are four to five times higher than ours,” said Hoa. Moreover, as these facilities are in prime locations thanks to their sound financial capability, local distributors are forced to move to less favorable places.
On the other hand, the proportion of retail commodities mentioned by Minister Hoang includes fuel and gold that Vietnam still retains its monopoly. If these items are separated from the group of daily necessities, the market share of foreign retailers will be much more remarkable.
Furthermore, it is not true that foreign retailers are not allowed to distribute essential goods, as everyone can easily buy rice, one of the nine commodities classified as “sensitive,”
retail outlets.
ENT, the only remaining technical barrier always mentioned by Minister Hoang, is in fact an ineffective barrier. In accordance with ENT regulations, a retailer’s application for a second store onwards must be processed by the ministry for its appropriateness of location in line with the zoning plan. The trouble is such appropriateness remains a mystery to both foreign investors and retailers.
Many local distributors and retailers have sought transparency regarding these regulations at quite a few business forums. As a matter of fact, no one could explain why two retail facilities of the same foreign investor were licensed to be installed within an 800-meter to one kilometer radius. Take Big C in Hanoi as an example. The Big C store on Tran Duy Hung Street is just one kilometer from another Big C store at The Garden. Furthermore, if WTO regulations had not been applied to Metro prior to 2007, its 19 stores would not have been licensed to establish so easily over the past two or three years without a single penny of corporate income tax paid by the company.
(By Lan Nhi)