Macro-enviroment analysis

All company operate in a “macro-environment” shaped by influences emanating from the economy at large, population demographics, societal values and lifestyles, political, and technological factors and closer to home the industry and competitive area in which the company operates. The company‘ s macro-environment includes all the relevant factors and influences outside the company’s bounderies. In this report, we would like to focus on some strategically relevant trends and development of Retailing industry in the outering of the macro-environment

Political
WTO Accession On January 11, 2007, Vietnam formally joined the World Trade Organization (WTO) becoming its 150th member. Accession is politically significant, symbolizing Vietnam’s acceptance into the global economy and the wider international community. It will also reduce the restrictions and tariffs on Vietnam’s exports to other member countries, and encourage further foreign investment: it was US$ 9.87 Billion in the year 2006, already bouyant as liberalization opens the economy up further. Now the foreign players can enter into the retail market with lesser hassles. Beside the opportunities after joining the WTO, Retailing industry also has to face up with the challenges of weak legal framework, restrictive environment, weak intellectual property protection laws…etc Weak legal framework : despite a rash of new laws, Vietnam’s legal framework remains weak. Although the Vietnamese authorities strive to adopt the best practices of other countries, proper implementation and consistent interpretation remains a challenge. Further, the predictability of legal issues is often difficult as the laws are constantly undergoing change and development. The interpretation and implementation of the new competition have Impact on the retail and the consumer industries. Restrictive Environment : the regulatory environment restrictive. Certain sectors deemed sensitive by the government are not open to foreign investors, or are conditional on approval being obtained from relevant state bodies. Weak intellectual Property Protection Laws : The US-Vietnam BTA( Bilateral trade agreement) provides a major impetus for the development of Vietnamese laws protecting intellectual(IP). Vietnam is significant to numerous of treaties aimed at protecting IP rights. Despite of this, in the Civil Code and the new Draft law in practice, brand and trademark protection reamins weak. This is evidence as the sale and distribution of pirated media and counterfeit merchandise remains popular. Furthermore, the new intellectual property law impacts the consumer products industry.

Economic
GDP growth GDP’s growth has continued in 2006, with strong expansion in industry and services. Investment went up in the year 2006 caused by the ongoing improvements in the business

environment and the country’s expected accession to the WTO. The full-year GDP is expected to maintain at 8.2% in Vietnam. Overall GDP has increased by 1.3% from 2001 to 2005. As GDP growth of Vietnam was fairly good in the past and presents the healthy economic position attracted many foreign retail players in the country and will definitely attract many others in the near future. 2001 GDP(% real change pa) Consumer Prices(%change pa:avg) 6.9 -0.4 2002 7.1 3.8 2003 7.3 3.1 2004 7.8 7.8 2005 8.4 8.3 2006E 8.2 7.6

Employment The employment level has increased with a value of 2.86% for the period spanning from 2001 to 2006. This shows increased per head income of Vietnamese, which has influenced the retail market in Vietnam
Vietnam - Employment (in million), 2001-2006E
44 in million 42 40 38 36 34 2001 2002 2003 2004 2005 2006E 37 38 39 40.1 41.3 42.6

Social
Population : according to the latest data, Vietnam’s population is heading towards the 85 million to 84.9 million in the year 2006. The population has increased at a percentage of 1.32% and it is one of the trends for the growth of retail industry in the country.
Vietnam - Population (in million), 2001-2006 86 84
in million

82 80 78 76 2001 79.5

80.6

81.6

82.7

83.8

84.9

2002

2003

2004

2005

2006E

Rural& urban split : Vietnam’s urbanization rate has not grown significantly as it grew by just 2.7% from 1998 to 3002 but because of modernization and industrialization, the population is moving towards urban areas. This is an important factor will affect the retail market in the future

Technology
Internet retailing Internet are now becoming more and more popular in over the world. Vietnamese internet users increased by 11.1% from 2004 to Oct 2005. It is expected that internet users will reach 35% by 2010. So this could be a new way in future for the retailers to meet their consumers.
Vietnam - Internet Penetration (%), 2005& 2010F
40 30 (%) 20 10 0 2005 2010F 11.1 35

Industry’s dominant economic feature
Because industries differ so significantly, analyzing retail industry and competitive environment begins with identifying the industry‘s dominant economic features and forming a picture of the retail industry landscape. And I will focus on three categories :overall size and market growth rate, the pace of teachnological change and vertical intergration. MARKET SIZE Aligned with the other developing countries within Asia-Pacific, Vietnam’s economic growth has expanded robustly. In the context of a growing economy and rising local wealth and aspirations, the retailing industry performed well; it produced a 9% retail value growth in 2005, which was stronger than the respective growth in 2003 and 2004. Local retailers and especially family businesses continue to dominate despite the rising presence of foreign players such as Japan’s The Seiyu Ltd, Hasegawa Vietnam Co, South Korea’s Southern Steel Corp, Malaysia’s Parkson Corp Sdn Bhd, Casino Guichard Perrachon’s Big C and Germany’s Metro Cash and Carry. GROWTH RATE Since 2000, the turnovers of clothes, footwear and cosmetics have increased at the average level of 11 to 14% per year. For electronic wares, the growth rates are different for different

products, for example 6% per year for set TV and 11% for washing machines. Pharmaceutical products have the annual average growth rate of 13% since 2000. PACE OF TECHNOLOGICAL CHANGE Direct selling dominates non-store retailing while internet retailing shows promise. Oriflame Vietnam Ltd is for example. Oriflame Vietnam Ltd is the leading player within non-store retailing, where direct selling was the only channel with significant value sales over the review period. Direct selling is dominated by sales of cosmetics and toiletries products. Internet retailing is in the early stages of development but it showed steady growth and is expected to offer great potential in the future. It is expected to grow fast because of the increasing affordability and availability of computers, and consumers’ familiarity with the internet and electronic payment methods. Previously, Vietnamese business cited high telecommunications and internet service costs, along with poor quality as the reasons for the lack of encouragement to fund good quality websites. However, the number, and quality, of internet service providers is improving and this augurs well for growth over the forecast period. VERTICAL INTERGRATION According to an evaluation of a market research company, the retail market will be affected by modern distribution channels with trend of a more expansion. For example, a survey of modern distribution channels (super market, user-friendly shops...) on two big cities, Ha Noi and Ho Chi Minh shown that the channels grown up from 18% in 2004 to 23% in 2005, while traditional channels (market, foods store and peddling…) dropped from 82% to 77%. This trend indicates obviously the fall of stores in Ha Noi and Ho Chi Minh City from 45,346 to 44,638. In Hanoi,Metro and Big C are powerful retail system. Metro Cash & Group, the German based 1st retailer to enter Vietnam, has expanded its retail-network in to 8 supermarkets – earning US $500 Million annually and a yearly growth of 45%. Also, the group has exported Vietnamese merchandises of worth US$ 70 Million to the other supermarkets that belong to Casino - its mother corporation. Parkson – another major retailer – achieved 35% annual growth from its operations within just two years of its launch in the country. The corporation plans to set up a further 10 trade centers there in future. Forecast specialists say that the trend will go up rapidly in the years ahead when more retail groups coming to Vietnam. In the real situation, there will be a certain gap in awareness among retailers. A short survey of 20 small traders at An Dong Market at the beginning of June 2006 indicated that 16 of 20 small traders confidently believed that supermarkets’ business affect hardly market business. Only 4 of which said that they would affect market business a little. “Market business might be affected by new super markets but just a little. I think that consumers will still choose market due to its diversity goods and reasonable price”, Le Thi Tam, a peg clothes and fabric trader in An Dong market said. Yet, asked if it is not domestic supermarket but foreign supermarket opened nearby the markets, almost traders said they would be the most directly affected.

Key success factors of retailing industry in VietNam
1.Distribution-related KSFs Joining WTO created a competitive market. This also leads to a decrease in price. The reason makes the retail market developing so strong. According to RNCOS analysis, after WTO access, international retailers will try to capture the Vietnam retail market and domestic retail shops that will not be able to compete with them. Most Vietnamese supermarket are small and independent and they couldn’t dream of competing against international giants. The giant international retailers are fully prepared to lose money for an extended period of time, selling products cheaper then Vietnamese competitors, to win the market share, even if it means driving an untold number of local businesses out of business. The largest and strongest of domestic retailers might now consider joining hands to lower prices, improve quality and selection, and become more service oriented. Looking at what is in store, they might create a united force-a strong network of wholesale distributors/dealers and cooperate with large international business groups to effectively be cooped by them. 2.Marketing–related KSFs Retail industry must also invest in advertising and marketing in order to carve out a market share ,with room to grow in all sectors.Several successful marketing campaigns have alreadry been undertaken in Vietnam. Proctor & Gamble successfully entered the Vietnamese market with its Pantene Pro-V brand, thanks in part to advertising through the TV show 'Who wants to be a millionaire?'. Similarly, Unilever focused on developing its Dove brand. Using aggressive marketing campaigns, the company targeted the wealthy city dwellers eager to follow international hair trends. Vietnam has promising prospects in the skin care, colour cosmetics and fragrances markets according to Euromonitor International forecasts, reflecting a growing consumer desire for luxury products. "Vietnam has a large youth market, which is more appearance conscious than previous generations and more willing to spend on pricier, value added and premium products," Dobson stated. "Already, the premium segment is growing fast - a 16 percent compound annual growth rate between 2001 and 2006 in local currency terms." Vneconomy

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