Can Vietnam retailers compete with the big chains?

Retail giants from the US, Republic of Korea (RoK), Japan, EU, Australia as well as other Southeast Asian nations have rushed in and by all appearances are jockeying for position to overrun local rivals for most every product or service.

“Ostensibly, domestic companies don’t match up with these foreign competitors,” say many leading analysts due to their superior state-of-the-art technologies, enormous financial resources, powerful brands, and the world’s best management talent.

Many global experts are under the impression that retailers the likes of WalMart out of the US, German grocer Aldi or Japanese based Lotte or AEON would wipe out the local competition in one fell swoop.

However other industry leaders point to the experience of rapidly developing countries such as Indonesia, Malaysia, India, China and Thailand where smart domestic companies have more than held their own in the face of foreign competition.

Local companies have not only staved off challenges from their foreign counterparts but in many instances triumphed to become market leaders, seizing in many instances new opportunities before the non-native players did.

These experts say one of the mistakes that overseas companies have made far too many times is that they assume because countries like Vietnam are less developed— its markets will eventually look like other western countries.

Vu Thi Hau, CEO and deputy director of Fivimart is one of those experts who believe transnational companies are in some ways competitively advanced over domestic companies but in other ways disadvantaged.

CEO Hau believes cooperation and the blending of both foreign and domestic talent is the formula for future success. “Tapping into this talent was the primary motivation for AEONs purchase of a 30% stake in Fivimart earlier this year,” Hau recently announced in a widely reported interview.

Fivimart operates 20 stores in Hanoi and surrounding northern provinces and the partnering of the two allows the company to benefit from AEONs business management and logistic skills while capitalizing on the advantages of Fivimart’s cultural and procurement knowledge of the local market.

Without disclosing the details Hau hinted the partners have formulated concrete strategies for massive growth of their existing supercentres, supermarket and grocery stores throughout Vietnam.

Nguyen Ngoc Thang, deputy general director of Saigon Co-op is another business leader who thinks the way forward is through cooperation with transnational companies and cashing in on the cultural knowledge of domestic companies.

Western companies often forget that entrepreneurship has recently exploded in Vietnam because of internal reforms. The government has slashed red tape among other things and these changes are stoking competition.

“Vietnam’s retail market has become somewhat fickle” and foreign companies can’t tackle the vagaries of it with strategies they developed decades ago Thang said, while Vietnamese deeper cultural understanding of the market gives them the upper hand in adjusting to the volatility.

Thang said this philosophy has manifested itself in Saigon Co-op’s teaming up with Vinmart in the supermarket retail industry.

“Transnational companies often underestimate the talent of domestic dynamos,” Thang said and cultural knowledge is indispensable to success as much too often their preconceived notions of customers’ needs are faulty.

Home-grown champions are more innovative and adaptable and can overcome shortages related to lack of infrastructure or other obstacles such as a lack of internet access and other customer online services such as e-commerce.

To be certain, “only a fool” say the experts would suggest that domestic retailers don’t face innumerable obstacles coping with the onslaught of competition from foreign companies that has and will continue to flood the market.

However, those domestic entrepreneurs who best understand the nation’s preferences by region or even city, by income level, by age group, and by gender have a distinct competitive advantage.

Those that can also grasp the structures of the markets in which they operate are better situated to develop offerings tailored to niche markets and seize the opportunities to create a large variety of products or services cost-effectively and get a leg up on their transnational rivals.