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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.

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t a special market in the small town of Vinh Gia in southwestern An Giang Province, community members are rummaging 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 Vietnamese 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 companies’ 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 occurring in the rural provinces, where approxi-

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. “Nobody’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 prospered 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 workforce, 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-

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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 construction 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 education and employment in the city, where service sector jobs in fields like retail, telecommunications 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 majority of goods sold in the countryside have been Chinese imports supplied by wholesalers, who often choose the cheapest products for distribution, 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 Vietnamese 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, multinational 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 importance of hand-washing to prevent disease, a major issue in Vietnam, according to the World Health Organization.

“It was more an education-driven campaign,” 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 message 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 arduous work—attending trade fairs in far-flung provinces, gaining the market sellers’ trust and following up to make sure products are reaching 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 international 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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