t he next new
battleground
Local and international businesses have found an alternative to shrinking export
markets in the last place anyone expected: rural Vietnam.
Tom DiChristopher explores the new frontier.
Photo by Fred Wissink.
A t a special market in the small town of
Vinh Gia in southwestern An Giang
Province, community members are rummag-
ing through a range of Vietnamese products,
many of which aren’t regularly available to
them. But despite the flurry of activity, one
elderly man is content to stand by a booth set
up by national supermarket chain Co.op Mart,
attempting to divine the secret to a machine
that reads the packaging on products and
displays their prices on a little screen.
“It was the first time in his life seeing that
kind of machine,” says Tran Nguyen, deputy
manager of the nonprofit Business Studies
and Assistance Center (BSA), as he recalls the
scene. “I think that’s a good point, because
our programme is bringing modern life, the
modern trade, to that area.”
Since March of this year, BSA and its Viet-
namese member companies have been setting
up these markets to introduce consumers
to their products and establish distribution
networks. It's a new trend that was largely
brought about by the effects of the global
financial crisis, throughout which many com-
panies’ export and outsourcing contracts have
been slashed.
“They lost this very big market,” says Tran,
“so they have to come back to the Vietnamese
market.”
But even before Vietnam’s export markets
began to shrink, a transformation was occur-
ring in the rural provinces, where approxi-
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mately 76 percent of the country’s population
resides. When consumer research firm TNS
began assessing the rural market a few years
ago, they found something no one expected:
there are more than 17 million consumers in
rural Vietnam that earn 1.5 million VND or
more, roughly three times as many as in urban
Vietnam (about 5 million).
“Seven out of ten consumers are actually in
rural Vietnam, and they’ve been ignored up
until the last year or so,” says Ralf Matthaes,
managing director of TNS Vietnam. “No-
body’s ever paid attention to the rural market
because they’ve thought (a) they’re poor and
(b) because of the difficulties of distribution
in the past, it made it very expensive to bring
product into rural Vietnam.”
Now that the assumption has been turned
on its head, companies are scrambling to
locate these rural consumers. The potential is
so huge that Matthaes says rural Vietnam has
become “the next new battleground.”
rural prosperity
There’s no simple way to determine the root
cause of this growth in consumer earning;
likely these 17 million consumers have pros-
pered since Vietnam’s economic awakening
for a number of reasons. However, it’s possible
to identify trends that have affected individual
household income, namely agricultural devel-
opment, access to credit, export growth and
manufacturing.
The agriculture and aquaculture sector,
which employs more than half of the work-
force, has seen some of the biggest changes
since the end of collective farming in the
early 90s and the subsequent rise of land-use
rights. According to the World Bank, yearly
agriculture growth has averaged 4 percent
since 2000, thanks largely to increased
productivity due to market-based incentives
and modernisation of farming methods. The
export factor is closely related; in the span
of just 10 years Vietnam has gone from a
net importer to a net exporter of agricultural
products. Today, Vietnam is the global leader
in pepper exports, second only to Thailand in
rice exports and a top-ten seafood exporter.
Though it’s still an emergent phenomenon,
Matthaes says access to credit in rural areas
has also been significant: “You know that old
saying, ‘It’s better to teach them how to fish
than to give them fish?’ Well, now they have
credit to buy a fishing pole.”
During a December 2007 seminar that
focused on rural credit access, the State Bank
of Vietnam reported that although supply was
not yet adequate to meet demand, total loans
in the agricultural sector had increased tenfold
from a decade earlier, reaching 192 trillion
VND (nearly US $11 million) in 2007.
Manufacture, spurred largely by booming
export markets, has also contributed to this in-
come growth, as more rural Vietnamese leave
the farm for the factory. For example, more
than 2 million Vietnamese—about a quarter
of the 8-million strong industry and construc-
tion workforce—are employed in Industrial
Parks and Export Processing Zones. While life
is notoriously difficult, a factory worker who
earns 1 to 1.5 million VND per month might
save up and send home about 500,000 VND.
For families whose children gain an educa-
tion and employment in the city, where service
sector jobs in fields like retail, telecommunica-
tions and tourism and hospitality are found,
domestic remittances can be more generous.
Ngoc, a 36-year-old office worker, is from
central Quang Ngai Province and moved to
HCM City when she was 19 to study and
work. She says it’s still common for migrants
from Quang Ngai to live on 20,000 to 50,000
VND per day so they can send home about
1 to 1.5 million VND each month, or for one
parent to live and work in the city while a child
attends university there.
“Every generation,” says Ngoc, “they do
nearly the same thing.”
Before she married nearly 10 years ago,
Ngoc says she’d send home about 70 percent
of her monthly earnings, approximately 3 to 4
million VND. Sang, a driver at her office, says
he still sends home about 70 percent of his
paycheck. Their co-worker, Dao, sends home
more than 90 percent of her salary because
her children reside there.
meeting rural needs
Despite this growth in prosperity, Vietnamese
consumers remain cost conscious both in
rural and urban markets. However, unlike city
dwellers, rural consumers haven’t had many
options until recently. Traditionally, the major-
ity of goods sold in the countryside have been
Chinese imports supplied by wholesalers, who
often choose the cheapest products for distri-
bution, regardless of quality. Not surprisingly,
they inspire little loyalty.
“The Vietnamese would much rather have a
Vietnamese product over a Chinese product,”
says Matthaes. “So there’s great opportunity
for the domestic market, especially Vietnam-
ese companies who can come in on a good
price point.”
There is, however, a more formidable player
in the market. Recognising the potential and
able to shoulder the cost of research, multi-
national companies like Unilever, P&G and
Nestle began developing distribution networks
a few years ago and now tailor their messages
to rural consumers.
A recent campaign devised for Unilever’s
Life Buoy brand soap by Ogilvy & Mather
Vietnam's product activation branch, Ogilvy
Action, for example, sought to educate rural
communities in wet markets about the im-
portance of hand-washing to prevent disease,
a major issue in Vietnam, according to the
World Health Organization.
“It was more an education-driven cam-
paign,” says Alex Clegg, managing director
of Ogilvy & Mather Vietnam. “Obviously on
the back of that, that’s a message that comes
from Life Buoy, but it’s also a genuine mes-
sage in terms of building good hygiene habits
in the rural community for health purposes.”
For many Vietnamese companies, however,
developing distribution networks remains the
priority, says BSA’s Nguyen Tran. It can be ar-
duous work—attending trade fairs in far-flung
provinces, gaining the market sellers’ trust and
following up to make sure products are reach-
ing the shelves—but it’s the first step towards
acquiring customers.
In this regard, the competition is stiff, says
Matthaes: “If you’re Pepsi, you’ve got seven
sub-brands … it all goes on the same truck. If
you happen to be fish sauce maker number 11,
well, you’ve got one product. Imagine what
the cost of getting one product to each of the
distribution points is, compared to getting 10
products for the same price. Volume speaks
volumes when it comes to distribution.”
Still, the race to reach consumers in rural
Vietnam is far from finished. While inter-
national companies leverage their market
share and local companies attempt to inspire
consumers to buy Vietnamese, they can both
bank on what Matthaes believes is a simple
truth: “People are the same everywhere;
there’s a level of aspiration. It’s just part of the
evolution of consumerism.”
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