Evaluating the development level for Vietnamese retail system in the context of globalization

The article will study the criteria to evaluate the development level of a retail system in the context of globalization. Based on the establishing criteria, the article will evaluate the development level for Vietnam’s retail system in the international integration. From the analysis of the current situation, the paper proposes some policy recommendations for Vietnamese retailers to develop their retail system in the international integration. Đề tài Hoàn thiện công tác quản trị nhân sự tại Công ty TNHH Mộc Khải Tuyên được nghiên cứu nhằm giúp công ty TNHH Mộc Khải Tuyên làm rõ được thực trạng công tác quản trị nhân sự trong công ty như thế nào từ đó đề ra các giải pháp giúp công ty hoàn thiện công tác quản trị nhân sự tốt hơn trong thời gian tới.

EVALUATING THE DEVELOPMENT LEVEL FOR VIETNAMESE RETAIL SYSTEM IN THE CONTEXT OF

GLOBALIZATION Nguyen Huu Tan1 - Nguyen Thu Thuong2 - Nguyen Thi Lien3

ABSTRACT: Internationalization and its development effects have been typical trends on the global

retail market in the past few years The trade development, trade revolution and changes in marketing

channel have influenced the expansion of large, global retail systems These systems enter the markets of

developing countries and change their structure and the manner of doing business The retail system plays

an important role in the development of the national economy during the integration period At present,

there is almost no measurement of the overall development level of the national retail system The article

will study the criteria to evaluate the development level of a retail system in the context of globalization

Based on the establishing criteria, the article will evaluate the development level for Vietnam’s retail system

in the international integration From the analysis of the current situation, the paper proposes some policy

recommendations for Vietnamese retailers to develop their retail system in the international integration

Keywords: retail system; globalization; international integration

1 INTRODUCTION

After more 30 years of implementing the renovation policy, Vietnam has been deeply integrating into

the international economy Vietnam has achieved many important achievements in developing a

socialist-oriented market economy in general and retail system in particular For many years, Vietnamese retail market

is in the Top 10 of the most attractive retail markets in the world Vietnam’s retail system is growing rapidly,

combining both traditional and modern sectors with the participation of many other economic sectors

However, besides the achievements, Vietnam’s retail market still has many shortcomings The

establishment and development of the Vietnamese retail system takes place spontaneously for a long time,

lacking planning and management This has caused many conflicts and the instability of the market The retail

system shows many limitations, including small scale, weak purchasing power, low efficiency, dominance

of traditional retail (76%), and minority of modern retail (24%) The distribution is not effective; goods

are supplied with poor quality, unhealthy and unsafe for consumers There are so many intermediaries that

leads to the fact that selling price is higher than the actual value This causes major shortcomings in the

retail system, badly affecting production and social life

In addition, becoming a member of the World Trade Organization (WTO), signing AFTA with strategic

partner countries, participating in CPTPP negotiations have given Vietnam not only many opportunities,

but also big challenges for Vietnamese retail system Therefore, it is necessary to have criteria to evaluate

the development level of a retail system in the context of globalization

* Faculty of Corporate Finance, Academy of Finance

** Faculty of Corporate Finance, Academy of Finance

*** Center of Foreign language and Information technology, Hoa Lu University

2 LITERATURE REVIEW

2.1 Theory of retail system development

Development is the process in which someone or something grows or changes and becomes more

advanced Therefore, the process of development of a thing, a phenomenon is often associated with the

change in the direction towards the better, more complete and higher level Therefore, the development is

often seen as a process of change in both quantity and quality It is a close combination of the completing

process of the internal elements of things

Retailing is the activities involved in the selling of goods to ultimate consumers for personal or

household consumption The retail system is understood to be a collection of organized components

with structural and functional links to achieve target goals Therefore, the implications of retail system

development in the international integration include the growth of the retail system, the change of structure

and the increase in quality

Accordingly, development of the retail system is considered as a process of changing both quantity and

quality of the system In terms of quantity of development, it contains an increase in size and growth of the

retail system In terms of the change of quality, it includes changes in the internal structure of the retail system

However, all the qualitative and quantitative changes in the retail system of each country need to

be put in the context of globalization and development trends in the retail sector Consequently, the retail

system will develop sustainably in the current economic environment

2.2 Criteria for evaluating the development of the retail system in the context of globalization

Based on the references about the evaluation methods of retail system’s development and knowledge

about the contents of developing retail systems in the international integration, the article has reviewed the

retail system’s development in focusing on the specific criteria as follows:

First, the scale and growth of the retail system A retail system is considered to grow when its market

scale is large enough and its growth rate is regular To assess the increase of market scale, we use the

growth of total retail sales of goods, services and consumption at actual price And total retail sales of goods

and services often depend on different factors such as population, economic growth rate, average income,

participation of domestic economic sectors and foreign investment

Second, the transformation and development of retail and the relationship between the traditional

retail types and the modern retail types When a nation’s retail system integrates deeper into the world

economy, the retail system has to move and develop to keep up with the general trend of the world So,

it is easy to notice that in the period of integration, the modern retail types are becoming more and more

dominant in a nation’s retail system

Third, the network of retail systems To help the retail system grow, the national retail system needs

a rapid increase in retail network The increase includes quantity, scale and the wide, equal distribution,

minimal gap in development level in the network of retail systems The retail network which is considered

through the distribution of retail chains includes markets, trade centers, supermarkets, and retail stores in

provinces of the country

Fourth, the retailer’s competitiveness in the retail system The retail enterprises’ competitiveness plays

an important role in improving the retail system’s development To evaluating retailer’s competitiveness,

we need to use some factors such as number of retail business, capital, ability to raise capital, business scale

and quality of human resources, etc

Fifth, the infrastructure development of the retail system, logistics and logistics distribution in the

retail system It is necessary to have an advanced and modern technical infrastructure system to improve

rapidly the process of supplying retail goods from manufacturers to consumers at all stages of transportation,

preservation, packaging and storage

3 RESEARCH RESULTS

3.1 The development status of Vietnam retail system in the period of international economic integration

3.1.1 The scale and growth of the retail system

Vietnam accelerates the process of integration, participates in the World Trade Organization and signs

AFTA agreement with ASEAN countries Since then, Vietnam retail has made strong changes, always

ranked high in the global retail development index (GRDI) and become one of the most attractive retail

markets for foreign investors From 2007 to present, total retail sale of goods and services is always growing

at a high level, the scale of the retail system is expanding, contributing 15-16% for GDP

Table 1 Scale and growth rate of total retail sales of consumer goods and services in the period 2007 – 2017

Year Total retail sales (VND billion) Speed increase (%) price index Consumer

(%)

Real Retail Growth (%)

Source: Statistical Yearbook of the year, General Statistics Office

The Table 1 shows that the scale of the retail system has increased over the years It reached about

3.912.000 VND billions, increased 5 times compared to 2007 Besides, the average annual growth rate of

retail sale in the period 1996 - 2001 (after Vietnam joined ASEAN and before the BTA is in force) was

13.25%/year, it was 18,25%/year in the period 2002 (after the BTA is in force)

Hence, integration has contributed to promote Vietnam’s retail system development However, the

average growth rate of the retail system decreased from 2011 to 2016, it was 6,5%/year After integrating

into the world economy, Vietnam’s retail system has grown but growth rate is not as high as we expected

This proves the unstable growth of Vietnam’s retail system in this period

3.1.2 Retail types in the Vietnam retail system

Traditional retail types: Vietnam retail system is established and developed with both traditional

elements and modern elements, between big production and small production However, traditional

retail system (traditional market, store, moving sale) is more dominant, accounting for 76% of the

entire retail system in Vietnam Vietnam is a developing country with a not very high living standard

Thus, the traditional retail types are suitable for their low income level Vietnam has more 8.600

traditional markets They are concentrated in the Red River Delta (1.843 markets), the North Central

and Central Coast (2.488 markets), the Mekong Delta (1.751 markets) Vietnam has over 2 million

stores in the form of traditional stores, they appear from the urban districts to the suburbs The stores

scales are small, they are located near crowed areas Their proportion is 38 – 40% of total retail sales

of goods and services

Civilized and modern retail types: When Vietnam integrates into the world and the regional

economy, the retail has been modernized constantly to be able to adapt to the global modern retail

trend The modern retail types are trade centers, supermarkets, convenience stores, specialized stores,

E-commerce According to statistics, the number of new supermarkets increased about 20% in the

period from 2008 to 2017 The number of new trade centers increased about 72% Thousands of

modern stores are located widely throughout the country Modern retail market share accounts for

about 24% of total retail sales, it increases 2 times compared to the time before Vietnam joined WTO

This shows that there is a big transformation in the type of retail organization in the direction from the

tradition trade to modern trade

Table 2 Number of supermarkets and trade centers for the period 2008-2015

Year supermarkets and trade Total number of

centers

Number of trade centers supermarkets Number of

Source: Statistical Yearbook of the year, General Statistics Office

Although these modern and civilized retail types has just developed for 10 years, it has confirmed its

position in the entire retail trade of the country Its share is over 24% in the retail system, but it contributes

to over 45% of the total of goods retail sales Consumers highly appreciate the products with features of

quality, safety, style, design and packaging products which are bought in the modern retail types

Table 3 Evaluating the quality, safety and design of goods in supermarkets and trade centers

The level of consumer confidence in modern retail is increasing (Table 4) This shows that these retail

types are liked more than the traditional retail types in Vietnam

Table 4 Consumer credit for retail types in the Vietnamese retail system

The growth of modern retail types has significant steps, but the rate of modern

retail model in Vietnam remains is at 24%, it is lower than other countries in the region: China (64%),

Indonesia (43%), Thailand (46%), and Malaysia (53%)

3.1.3 Network of retail system

The circulation of retail goods is distributed through the network, which includes market, supermarket,

trade center and store

Retail network is distributed through traditional types (the popular type is market) Due to the daily

needs of consumption, the traditional types have been built, expanded, upgraded, and distributed relatively

in each region and locality They meet consumer’s needs well in the country

Table 5 Number of markets by province in the period 2008 - 2015

Total 7.871 8.495 8.528 8.550 8.547 8546 8568 8660

Red river delta 1.717 1.745 1.771 1.782 1.798 1.815 1.823 1.843

Northern Midlands

and Mountains 1.236 1.393 1.404 1.423 1.407 1.429 1.442 1.439

North Central and

Coast 2.325 2.475 2.462 2.427 2.457 2.466 2.482 2.488

Mekong Delta 1.676 1.767 1.779 1.782 1.739 1.726 1.708 1.751

Source: Statistical Yearbook through the years, General Statistics Office

However, the rate of the distribution types is not suitable in local areas For example, markets are

concentrated mainly in the crowed areas: Red river delta is 22% in 2015 but South East is 9%

Retail distribution network through trade centers, supermarket This distribution network is more

and more popular in Vietnam It becomes an efficient distribution network and brings much revenue for

investors It satisfies the consumer’s demand for modern shopping which is increasing rapidly in Vietnam

Table 6 Number of trade centers and supermarkets at provinces in 2008 - 2015

Area 2005 2009 2010 2012 2014 2015 2005 2009 2010 2012 2014 2015 Supermarket Trade center

Northern

Midlands and

North Central

Source: Statistical Yearbook through the years, General Statistics Office

Thus this type of distribution is suitable all over the country They concentrated in 2 big cities (Ha noi

and Ho Chi Minh city) 70% of the types are in the cities And 20% of the types are in other areas, of which

19 provinces only have 1 or 2 supermarkets

3.1.4 Competitiveness of Vietnamese retail enterprises

Number of retail enterprises Integration has made the number of retail businesses increase According

to statistics, the number of retail businesses has increased from 18,444 enterprises in 2005 to 34,666

enterprises in 2009 (increase 2 times) Moreover, economic sectors that take part in the retail system are

more numerous and diversified There are 3 groups: domestic distribution companies (state companies and

private enterprises), foreign distribution corporations and small household

Capital and ability to raise capital According to GSO statistics, capital size of all enterprises is

generally low in Vietnam In 2014, there are about 37.635 retail enterprises There are 6.570 enterprises

(their capital is under 0,5 billion VND, occupied 19%), 7.004 enterprises (their capital is from 0,5 to one

billion VND, occupied 20%), 17.656 enterprises (their capital is from 1 to 5 billion VND, occupied 51%),

3.482 enterprises (their capital is from 5 to 10 billion VND, occupied 10%) So many Vietnamese enterprises

are small in size

Quality of human resources in Vietnamese retail businesses Because most of them have small scale,

their employees are often small in number In addition, the scale of labor is small and organizing parts are

unprofessional A person is both a sourcing and sales staff This is not specialization in division of labor so

organizational capacity and their experience will not be guaranteed

3.1.5 Economic and technical infrastructure of the retail system

There are about 1.200 enterprises, which provide logistics service in Vietnam They are concentrated in

Ho Chi Minh City and Hanoi It is possible to classify the logistics industry in Vietnam: transport operators,

infrastructure enterprises, warehouse operators, logistics software as enterprises, consultancy, inspection

and finance

Most of these enterprises are of small and medium scale, their capital is about 4-6 billion VND,

their labors are unprofessional These Vietnam enterprises are agents, subcontractors in the logistics

transfer for international logistics service providers There are about 25 multinational logistics

enterprises operating in Vietnam, but they occupy 80% share of logistics in Vietnam So logistics

services are fragmented, many intermediaries, lack of technology investment, unprofessional in

Vietnam It does not create value-added chains and it is difficult to be trusted by clients and this also

affects retailers when they use logistics services

3.2 A general assessment of the development level of Vietnam’s retail system during the period of international

economic integration

Generally, the Vietnam retail system has made remarkable progress in quantity and quality In terms of

quality, there is a significant change in the percentage between traditional and modern retail types, network

development, competitiveness of retail enterprises, and possibility of joint venture

Firstly, Vietnam’s retail system increases in both speed and scale over the years The reason of such

results is due to some factors such as Vietnam is one of the most populous countries with a large consumer

market, Vietnam has high economic growth rate that makes the market size is expanded, average income

increases, the expansion of Vietnam retail system shows that the retail system is playing an important role

in the economy

Secondly, Vietnam’s retail system is modernized towards modern and civilization trend so that it can

adapt to the general retail trend of the world The retail structure has changed considerably: in the past, share

of traditional retail was 100%, but now share of modern retail type is 24% of total retail sales There are

significant changes in the type of retail organization, which moves from traditional types to modern types

Thirdly, the competitiveness of retail businesses has improved significantly Due to market requirements,

Vietnamese retail businesses are expanding constantly and improve competitiveness in the retail system

In general, the workforce has been trained gradually in marketing skills, communication, customer care,

business management qualifications The mode of business management is developing towards the direction

of civilization, modern and professional

Fourth, technical infrastructure and commercial infrastructure are invested, strengthened and upgraded

gradually Beside of direct sale, retailers also use the form of television sales and online sales

Fifth, the Vietnam’s retail network has expanded tradition distribution types (market, store, moving

sale, etc.) and modern distribution types (supermarket, commercial center, modern store, etc.) This met

consumption demand and use goods of consumer

So after integrating into the world economy, the Vietnam’s retail system has made a big progress with

civilization and modernity trend Now, Vietnam’s retail system is making great changes: retail scale is

increasing, goods is more various, price is more competitive, the business environment is clearer, system

retail’s distribution is growing stronger with the links between domestic and abroad, the mode of organizing

and managing the business are modern and civilization trend

In addition to the achievements, the development process of Vietnam retail system still has limitations

and weaknesses:

- The size and speed of retail growth is fast but not stable The scale of the retail system is smaller than

that of other countries in the region and in the world

- The structure of the retail type is still the traditional retail types, modern retail types are only a

small part (24%) Retail types develop spontaneously; they are not organized into a system and placed

under the control of State The retail system develops disorderly, the laws and interests of consumers are

not respected, and the advantages of retailing are not promoted The fact that consumers for their quality,

design, value modern retailers highly and sales services, but they have a small market share in the retail

system and consumers go to shopping in here less than in traditional market

- Commodity prices are unstable, lack transparency and the quality of the goods supply is not

guaranteed, this affects seriously consumer confidence

- The retail network is distributed unreasonably There are big differences between regions, between

urban and rural areas There is a difference in the level of development

- The competitiveness of Vietnamese retailers is still limited At present, most of the enterprises are

of small scale, lack of capital, backward management level And the method of business is not advanced

Business strategy is not paid attention properly

- The technical infrastructure of the retail system is limited It lacks uniformity and does not meet

regional and international standards This has bad effects on the retail system’s development in the period

of integration

4 CONCLUSIONS AND RECOMMENDATIONS

The findings show that in the period of international integration (2005 – 2017), Vietnam’s retail system

has developed significantly in quality and quantity but there are still many shortcomings and weaknesses

that need to be improved The causes of this condition are:

- The management and administration of the government for the retail system is still weak and

inadequate The state does not have appropriate strategies for the development of retail distribution systems,

appropriate policies to encourage the development of modern retail, suitable policies on price management,

food hygiene and safety The commercial infrastructure is backward, high quality human resources are

insufficient

- Retail businesses have some limitations such as: Vietnam’s retail business is still confused in improving

competitiveness (capital, technical level, staff and facilities); the link between domestic enterprises is weak

so it is difficult to compete with foreign enterprises

To develop the retail system sustainably in the process of international economic integration, we

should do:

- To review the legal system and create a more favorable environment for the development of

Vietnam’s retail system Vietnam must change the legal documents in accordance with WTO’s rules to

create transparency and a favorable business environment

- To strengthen the organization and management of the retail system: Improve the quality of legal

documents, the quality of administrative procedures; decentralize management between the Industry and

Commerce Ministry; establish a system for managing goods quality, origin of goods, use duration and

quality of food hygiene and safety; Strengthen the implementation of the Law on Consumer Protection

- Complete the policy system for the development of retail systems to fit to each retail type At present,

the Vietnam’s retail system exists in parallel with two types of retail outlets (modern and traditional retail)

Both types have advantages and disadvantages Thus, the government needs to change the policy system

to suit each type

- Develop technical infrastructure and science and technology infrastructure for the development of

the retail system This is one of the reasons that hindered the development of the Vietnamese retail system

Weak infrastructure in technology and science leads to difficulties in good source and reaching consumers

- Strengthen the ability of joint ventures, links between Vietnam’s retail enterprises In the period of

international integration, Vietnamese retailers should face the loss of protection from the state, accept the

equal competition with the world’s leading retailers in the local market The abilityof joint ventures is,

therefore, one of the most important factors to develop

REFERENCES:

1 Deloitte, Global Powers of Retailing 2015 - Embracing innovation.

2 General Statistics Office, Statistical Yearbook through the years

3 Ministry of Industry and Trade, WTO and Vietnam distribution system, Labor Publishing House