Report in Focus - Foreign retailers get ownership boost in Vietnam

By | 16 January 2009

Vietnam has paved the way for further multinational retail investment in the country after allowing foreign companies to set up wholly-owned businesses there.

The move came into force on 1 January in line with Vietnam's commitments to the World Trade Organisation (WTO), which the country joined two years ago.

Since Vietnam became a WTO member in 2007, foreign retailers have been allowed to own up to 49% of joint ventures with local companies but barred from owning businesses outright.

Now, retailers from overseas can set up wholly-owned operations, although there remain some restrictions on what they can distribute.

From 1 January, foreign retailers will be able to distribute tractors, cars and motorcycles. From 1 January next year, non-Vietnamese retailers will be allowed to distribute all legal domestically-produced and imported goods with the exception of commodities including rice, sugar, cigarettes and pharmaceutical products.

Small, independent retailers continue to dominate Vietnam's grocery retail sector but the opening up of the industry in line with WTO membership creates the possibility of foreign retailers making greater strides into the country.

Until now, the likes of Metro Cash and Carry and South Korea's Lotte Group have made forays into Vietnam, where, according to industry analysts BMI, traditional retail formats still account for 96% of the market.

However, BMI has claimed that Vietnam will see "phenomenal growth" in its mass grocery retail segment between now and 2012. Economic growth - BMI believes the Vietnamese economy will have grown by 7% in 2008, will grow by 7.5% in 2009 and by 8.5% in 2010 - and a rise in tourism to Vietnam will make the market "one of the retail industry's brightest new prospects", BMI said in a recent report on the country's food and drink sector.

In June, management consultants A. T. Kearney named Vietnam as the "most attractive emerging market retail destination" in a study of 30 countries.

Vietnam headed a list that placed India second, Russia third and China fourth.

Expert analysis

Vietnam Food and Drink Report Q4 2008 (download)

Vietnam is one of the most attractive emerging markets in the food, drink and grocery retail sectors, with strong economic growth and personal disposable income on an upward trajectory. The country’s large population also means that there is the potential for a sizeable middle-class to emerge, which could see spending increase on premium goods and luxury items. However, multinationals have yet to really invest in strength in the country and, as such, BMI believes that Vietnam is not fulfilling its true potential. BMI's Vietnam Food & Drink Report provides independent forecasts and competitive intelligence on Vietnam's food and drink industry.

Sectors: Beer & cider, Soft drinks, Spirits, Water, Wine

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