Vietnamese consumer behavior towards imported goods

Recently, Vietnam was a host for organizing Asia Pacific Economic Cooperation APEC Leaders’ Meeting on November 10 and 11, 2017 in Vietnam that was considered to be a close-knitted coope

Nguyen Thi Kieu Khanh (Kiki) Master class

Dr M Akerib Swiss UMEF University, Geneva Campus

November, 2017 Nov

Consumer Behavior Assignment

Describe Vietnamese consumers’ evolving attitudes toward imported goods You must consider the role of market and ideological factors in forming consumer preferences Ideally, consumers should behave purely rationally, reacting only to the quality of a good, prices, and their own limited budgets In which country a good is produced should not be important However, in reality, rather than being guided by market signals, Increasingly in many countries consumer views of goods are determined by political factors and moods, which change considerably with time

Table of Contents

Introduction 3

Discussion 3

I Vietnam - a developing country locating in Asean area 3

II Imported goods in Vietnam 7

III The consumer behaviors of Vietnamese people to imported goods 9

Conclusion 14

References 14

According to JLL City Momentum Index 2017 and World Economic Forum, Vietnam is considered as one of the most dynamic countries in the world with two large cities (Ho Chi Minh City and Hanoi) were last year named in a list of the top ten cities that have successfully grown up technological change dramatically

Moreover, Vietnamese consumers have exhibited a strong tendency to value products from more developed countries (e.g., Nguyen and Smith, 2011; Shultz and Pecotich, 1994) Additionally, Grey Group (2008) provides evidence that this tendency for foreign products is rather widespread; 77% of Vietnamese consumers surveyed indicated a preference for foreign products over domestic equivalents Thus, the imported products play an important role to Vietnamese consumer behavior when shopping, relating to the quality and prices

This report illustrates how Vietnamese consumer behaviors and attitudes to imported products Moreover, it identifies the importance of market, lifestyle, country of origin and political factors to the consumer preferences

Discussion

I Vietnam - a developing country locating in Asean area

1 Economy factors

The political and economic reforms launched since 1986, which have transformed Vietnam from one of the poorest in the world, with per capita income around US $100, to lower middle income status with per capita income around US $2,100 by the end of 2015 Vietnam’s per capita GDP growth since 1990 has been among the fastest countries in the world, averaging 5.5 percent a year since 1990, and 6.4 percent per year in the 2000s

Therefore, with a steadily increasing GDP and stable inbound FDI trends, Vietnam is considered as one of the most popular markets for foreign investors in the ASEAN Region The GDP is expected to reach 350 billion USD in 2020 Moreover, with a population of more than 92 million people, it is forecasted to comprise 43% of the country’s total population by

2030 Nevertheless, Vietnam has remained far from becoming a liberal economy: government subsidization and stated-owned enterprises are major determinants

Recent economic growth has delivered positive societal impacts Rapid urbanization and improvement of living standards have reduced levels of poverty and exclusion from 20.7% in

2010 to just over 13% in 2014 Therefore, Vietnamese population is currently on average, better-educated and has a higher life expectancy then most countries with a similar per capita income

2 Political factors

Vietnam, at first, appears to be a one-party ruled socialist state, which differentiates with western liberal democracy The government has strongly been pro-foreign investment since joining the WTO in 2007 and continues to pursue this effect Thus, the government tends to liberalize and attract foreign investors to Vietnamese market

Foreign investments are particularly encouraged by the Government of Vietnam Since 2006, Vietnam cut down almost the taxes to imported goods from ASEAN, especially some products get 0-5% of tax The products, at least 40 percent originating from ASEAN, will be reduced the tax Therefore, foreign investors working in ASEAN Region can export the goods

to Vietnam with lower costs

Moreover, Vietnam is a relatively self-sufficient country in terms of food production As disposable incomes keep growing – in turn of driving technology and infrastructure improvements – imports are, however, expected to rise Importantly, the market for high-value food products in Vietnam is substantial and contains a variety of categories

Furthermore, Vietnam continues to develop its regional and global relations It has a close relationship with Europe and America, regarding new bilateral and multilateral trade agreements: The European Union – Vietnam Free Trade Agreement (EVFTA) and Vietnam’s entry into the Trans Pacific Partnership (TPP) Recently, Vietnam was a host for organizing Asia Pacific Economic Cooperation (APEC) Leaders’ Meeting on November 10 and 11, 2017

in Vietnam that was considered to be a close-knitted cooperation for trade among countries Take the goods exporting from European Union to Vietnam as an example, total trade in goods between the EU and Vietnam amounted to 38€ billion, while total exports from the EU

to Vietnam accounted for around 8€ billion It is important to note that the EU’s exports to Vietnam increased by 25% The top five EU agriculture food exports to Vietnam and their respective market shares in 2015 were: raw hides, skins and furskins (12%), pet food (9%), malt (8%), spirits, liqueurs and vermouth (7%) and milk powders and whey (7%)

Specially, European Commission President Jean-Claude Juncker and former Vietnamese Prime Minister Nguyen Tan Dung announced that the EU and Vietnam had agreed negotiations on a free trade agreement (FTA) The EU-Vietnam FTA has already achieved widespread coverage with 65% of EU exports to Vietnam entering duty-free Therefore,

consumers from both sides will benefit from lower prices and exporters from strengthened competitiveness, and the agreement will be implemented in 2018

Graph 1: The relationships between Vietnam and other countries via Cooperation,

Partnership and Agreements

As illustrated in the graphic above, Vietnam has been agreeing in several agreements, cooperation, and partnership with some key countries in RCEP, ASEAN Region, APEC and TPP, EU’s FTA, especially in trading goods

Furthermore, Vietnam has implemented the tariff reduction schedule as agreed in ATIGA: Many items imported from Thailand have enjoyed preferential tariffs as per Schedule of Commitments in the ASEAN Trade in Goods Agreement (ATIGA) So far, Vietnam has eliminated import tariffs on approximately 90% of total tariff lines and will eliminate tariffs on 98% of tariff lines by 2018

3 Market factors

The very first step to doing business in Vietnam is to identify a local import partner or representative, or to otherwise develop a relationship with one of the established goods trading and distribution companies Such distribution companies can extend the distribution

relationships to several areas: supermarkets, hotels and restaurants, and wet- and open-air markets, independent and specialty retail shops

Additionally, Vietnam’s retail food landscape is largely dominated by traditional wet markets and small independent stores ideally for small-quantity, high-frequency food purchases With low rental and operations costs, traditional retailers benefit from offering convenience, package-size flexibility and low prices, especially for fresh food Modern grocery retail accounts for only 15% of overall grocery sales in Vietnam whereas traditional retailers account for 85% Moreover, the electronic and technology products are favored to buy in supermarkets, specific technology stores and shops

Sea and air are the more used shipping options for entry of goods in Vietnam, especially Haiphong city, Da Nang and Ho Chi Minh City are most frequently international seaports, and Noi Bai and Tan Son Nhat are the most crowed international airports in Vietnam

Moreover, Vietnam is a market where personal relationships are important This requires an investment of time and personal presence Legal issues can be very complicated, a local lawyer is considered essential to implement Vietnamese laws and regulations

Corruption is not only a widespread obstacle, but “a part of the game” that has to be accepted

by most companies, since it is easier than an unproductive controversy Favoritism is sometimes practiced by authorities towards local state-owned enterprises

Distribution of imported goods in Vietnam follows one of the four basic models as follows:

 Exporters => Importers/Distributors => Big Modern Retailers

 Exporters => Importers/Distributors => Wholesalers => Retailers

 Exporters => Local Agent => Importers/Distributors/Wholesalers=> Retailers

 Exporters=> Big Modern Retailers (Metro, Saigon Coop, Big C, Maximart, Citimart, Fivimart)

The first and second options are the most channels of distribution in Vietnam Most goods importers in Vietnam are distributors They usually directly move their imported products to big retailers in urban areas, and let wholesalers and their agents help distribute their products

to thousands of small retailers in both center and outskirt areas Due to low purchasing power, most modern retailers source through importers and distributors

Modern retailers (supermarkets, hypermarkets, mini-marts, convenience stores and department stores) appeal to a growing number of consumers in many key urban areas in Vietnam They have grown dramatically in recent years, from 2 supermarkets in the early stage (1996/1997) to more than 420 in 2012 Before 1996, open-air wet markets and non-staple food small private shops were the norms, yet in the most recent decade, Vietnam’s urban economy has begun a steady transition away from the traditional trade to modern trade

Most of the supermarkets and shopping centers (department stores) are based in Ho Chi Minh City and Hanoi

Thus, to conclude this chapter, economy, political (government policy) and market factors pay an essential part to expand the imported goods in Vietnam in current years until now

II. Imported goods in Vietnam

Vietnam has been integrating into the economy growth in a globalized world after joining WTO and several bilateral and multilateral agreements Therefore, the Vietnamese market has currently appeared a hundred of products and goods from all over the world

Specially, Chinese products have been the first key imported ones to Vietnam, accounted for one fourth goods imported in Vietnam in the half year of 2017, according to General Department of Vietnam Customs

China South Korea ASEAN Japan EU United States

27.1

22.5

13.6

7.7

Countries export goods to Vietnam

(in billion USD)

Figure 1: Countries export goods to Vietnam (in billion USD)

As illustrated in Figure 1, China is the largest partner to export products to Vietnam with 27.1 billion USD The South Korea market stays in the second with 22.5 billion USD and then ASEAN achieves 13.6 billion USD Japan has 7.7 billion USD whereas EU and United States are 5.8 and 4.8 billion USD, respectively

Moreover, Vietnam has frequently imported raw materials (44%), consumer goods (48%) and integrated circuits, equipment and tools (8%) from other partners, as the following figure

44.00%

48.00%

8.00%

Total percentage of imported goods in Vietnam

Raw materials Consumer goods Integrated circuits, equipment, tools

Figure 2: Total percentage of imported goods in Vietnam

Source: General Department of Vietnam Customs, 2017 Recently, Thailand imported goods have become popular for Vietnamese consumers According to a report by the Asian-African Market Department (Ministry of Industry and Trade), the five largest import categories from Thailand to Vietnam in the first eight months of 2017 contributed significantly to Thailand's trade deficit of household appliances and components (US $646 million), fruit and vegetables (US $618 million), petrol and gasoline (US $406 million), plastic materials (US $403 million), and automobile parts (US $340 million)

For vegetables and fruits, Vietnam imports $410 million (accounting for 44.3% of the total import value of vegetables and fruits from the world in 2016), being 10 times higher than Vietnam's export turnover of vegetables and fruits to Thailand) Moreover, Thailand has established a solid distribution channel and is continuing to expand in Vietnam Leading retail groups in Thailand such as Central Group, TCC Group have traded, merged retail chains in Vietnam recently and continue to expand in Vietnam Seeing the current situation of imported goods in Vietnam, these products are originating from several countries, especially China, Asian, Europe, Japan, etc with specific needs that Vietnam cannot produce in their country However, Vietnam can

produce and sell these fruits and vegetables in some cases but they tend to consume from another countries Why does it happen now in Vietnam? It will be relevant to Vietnamese consumer behaviors to imported goods in the next part

III The consumer behaviors of Vietnamese people to imported

goods

There are different kind of needs and wants which share a set of values and common cultural experiences for Vietnamese consumers, relating to the ages, gender, family structure, social class and income, government policy, and the cultures between the South and North area

In the previous part, I explained the details of government policy, economy and market factors in Vietnam in the recent years Then, I would like to bring the insights of Vietnamese consumers and how their behaviors to the imported products in this chapter

1 Vietnamese consumers insights

Annually income and spending flexibility

Vietnamese consumers have a power to buy anything they need and want According to Nielsen Global Survey 2016, the annual income of Vietnamese people is divided into two parts: less than $5,000 (containing 33 percent) and a range of $5,000 to $19,999 (52 percent) Moreover, 10 percent of consumers feel free to spend money on any field, whereas 34 percent will buy the products that they like to use, and the rest has just had enough amount of money for goods consumption