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The race to gain market share in the retail sector is getting fiercer. Photo: H. Diu.

FDI "lands" in the retail sector

Vietnam's distribution market has great potential for growth due to its large population (about 96 million) and young population structure (60% of the population is aged 18-50). It is forecast that household spending will increase by 10.5% per year on average and will hit US$714 per month by 2020.

Meanwhile, the coverage of the modern retail system is much lower than many countries in the region (Vietnam only accounts for 25% of total retail sales, while the Philippinesis 33%, Thailand is 34%, Malaysia 60 %, Singapore is 90%).

According to the Domestic Market Department (Ministry of Industry and Trade), recently, the wave of domestic capital and foreign direct investment (FDI) continues to "pour" into Vietnam's retail sector. In the market, several retail distributors, including domestic and foreign enterprises, have been holding a major market share, competing with each other and leading in new retail trends.

Big foreign retail corporations like Lotte, Central Group, Aeon, Circle K, K Mart, Auchan and Family Mart have promoted the strategy of penetrating and expanding the retail market in Vietnam.

A representative of the Domestic Market Department said: "This shows that the potential of Vietnam's retail market is huge but the race to gain market share in this field is also increasingly fierce."

In the near future, when the EVFTA comes into effect, the commitment to open markets for services, investment, and distribution will also be the reason why large enterprises of EU members promote investment in the distribution and retail sector of Vietnam.

Meanwhile, most Vietnamese enterprises are small and medium-sized with limited resources. Only a few large Vietnamese enterprises such as Saigon Co.op, VinCommerce, Thegioididong, Bach hoaXanh, Satra and BRG Retail have enough capacity to compete and affirm their position in the retail market.

No concept of "home ground" yet

Focusing on the EVFTA's deep assessment, the Domestic Market Department said that Vietnam's distribution market would face many challenges and be affected by the opening process.

The system of policies and laws could not keep up with market fluctuations. Infrastructure and regulatory laws for e-commerce differedbetweenour country and other countries. Those would be food hygiene and safety in circulation of imported goods on the domestic market, difficulties in balancing economic development, trade and social development as well asenvironmental protection.

Along with that was fierce competition between domestic distribution firms with limited capacity compared to large distribution enterprises of EU countries which have very strong potential. It might lead to the possibility that domestic distribution enterprises were susceptible to acquiring orgaining market share by foreign enterprises.

A representative of the Domestic Market Department said the time to implement and enforce commitments in the new generation FTAs in general and the EVFTA in particular would be a big obstacle for Vietnam.

With regular FTAs, total duration of implementation of all commitments is 10 years. With the EVFTA, Vietnam will have to fulfill its commitments in just 5-7 years and many provisions will have to be implemented right after the agreement comes into effect, while many arrangements will have to be implemented after 2-3 years.

Vietnam's development level is medium and low. Therefore, the implementation of the EVFTA commitments also means that Vietnam must open the market for goods and services from the EVFTA's partner countries, at that time there will be no concept of "home ground".

For groups of goods Vietnam has weak competitiveness such as agriculture, animal husbandry, fisheries and some service industries face many challenges.

The Department of Domestic Market also pointed out the connection between FDI enterprises and domestic goods suppliers was weak. The FDI sector may operate separately instead of playing a common role as a growth catalyst.