Foreign players bite into food sector

October 31, 2012 | 10:54
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Foreign companies are aggressively expanding into Vietnam’s food market, with Thailand’s CP Group an outstanding player. Nguyen Chi Nguyen, general secretary of the Food and Foodstuff Association of Ho Chi Minh City, talks to VIR about the sector’s landscape.

CP Group has plans to develop a retail chain of 10,000 outlets in Vietnam. Does that mean the firm will control the market?

CP is a multi-business group and one of Thailand’s most powerful corporations in agriculture, animal feed production, and food products with high quality and safety. Entering Vietnam in 1988, CP has taken well-organised steps to penetrate the market based on a farm to fork model. It covers all production steps, from feed, breeders’ livestock farms, slaughter houses to the distribution system across the country. CP has already have farms and factories in all parts of the country.

In the area of food, CP built a food processing plant in southern province of Dong Nai in 2001 and has just built a new one in former Ha Tay province, now part of Hanoi. This shows that CP wants to dominate not only in the south, but also anywhere.

Recently, many foreign companies have jumped into the food business and this means it is a very lucrative market with great potential. This puts extreme pressure on domestic enterprises.

Can domestic firms stand against this foreign wave of expansion?

I think Vietnamese enterprises now hold half or a maximum 60 per cent of the domestic market.

The reason is domestic companies are too weak, in terms of finance, experience, human resources and so on, while their foreign competitors are too strong. Therefore, they need to pay close attention to the foreign wave of expansion. However, I believe that it’s not easy for foreign firms to dominate the local food market, because Vietnamese companies also have their advantages.

First, as for food items, flavour and taste play an important role besides food safety. This is an advantage for domestic enterprises. Foreign firms need time to understand the problem.

Second, foreign enterprises in Vietnam often build modern distribution systems such as high-end retail stores and supermarkets. However, it is Vietnamese tradition that many people go to convenience stores or retail points in their neighbourhoods and small markets near their home. This also matches well with the distribution way of domestic enterprises.

Vietnamese companies have advantages in flavour, taste and distribution. However, if they do not build up competence based on those advantages, they may fall behind foreign companies.

Given the A to Z production, foreign companies’ aggressive expansions in Vietnam are gaining momentum. What do you think Vietnamese firms should do to counter the situation?

To be able to cope with robust competition from foreign firms, the first solution must be something like government support. The government needs to allow businesses to access capital more easily, reduce taxes, support local companies in human resources development and improving knowledge of international commerce. In addition, it is necessary to develop technical barriers in accordance with World Trade Organization commitments, but strong enough to protect domestic enterprises.

On the business side, first of all, domestic companies must review their business schemes. If the plans are not appropriate, change them. Cutting costs is another must.

The second solution should be to develop the distribution systems through partnerships with weaker companies. It’s clear that the partnership culture of Vietnamese companies is too weak.

Third, customer service activities must be done regularly and better, focusing on customer tastes.

Fourth, domestic companies need to join hands with business associations to create more synergies and improve their competitiveness. If they continue to stand alone, they will not be able to compete against foreign enterprises.

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