Environment analysis and strategy orientation for local retailers in Vietnam

Vietnamese government to protect local firm from competition of foreign retailers. Based on the data that is collected from investigation from consumers, experts’ opinion and other sources from secondary data as well as the previous study of the author, this study has examined strategic situation of the local supermarkets in Vietnam and generated TOWS analysis to formulate solid strategies for local supermarkets in order to leverage their competitive advantages in Vietnam

ENVIRONMENT ANALYSIS AND STRATEGY ORIENTATION

FOR LOCAL RETAILERS IN VIETNAM

Nguyen Thi Uyen *

Vietnam University of Commerce

SUMMARY

After January 11, 2015, Vietnam will fully open retail market to foreign companies what create significant pressure on local retailers In-depth study about strategic situation and strategy orientation of Vietnamese supermarkets should be useful not only for the local supermarkets but also for Vietnamese government to protect local firm from competition of foreign retailers Based

on the data that is collected from investigation from consumers, experts’ opinion and other sources from secondary data as well as the previous study of the author, this study has examined strategic situation of the local supermarkets in Vietnam and generated TOWS analysis to formulate solid strategies for local supermarkets in order to leverage their competitive advantages in Vietnam

Key words: Vietnam Local supermarket, competitive advantage, business environment, TOWS

analysis, strategy formulation

INTRODUCTION TO THE STUDY*

Vietnam became the WTO’s 150th member

on 12 January 2007 that brings to local

supermarkets with both opportunities and

challenges due to this internationalization

With high potential retail market, Vietnam

has been attracting many foreign retailers and

this generates many threats on local

supermarkets Especially under WTO

commitments, from January 11, 2010 to

January 11, 2015, Vietnam has given the right

to set up joint venture to provide services

related to production, in which foreign

investors can own up to 50 percent of the

charter capital of the joint venture Having to

fairly competed with foreign firms even in

their home market remains a big challenge for

domestic retailers

In the changeable environment with tough

competition, the enterprises cannot do well

without environment scanning; identifying

strategic factors to formulate strategy solidly

The strategy formulation is the development

of long-range plans for the effective

management of environment opportunities

and threats, taking into consideration

corporate strength and weaknesses The

formulation of strategy forces organizations

to examine the prospect of change in the

future and to prepare for change rather than to

*Tel: 0979118679; Email: uyendhtm@gmail.com

wait passively until market forces compel it Therefore, a deep study on accessing current strategic situation of local supermarket environment, and formulate solid strategies for the local retailers is indeed necessary for local supermarkets in Vietnam It does not only make sound with Vietnamese retailers but also create the significance to Vietnamese Government who wants to protect local retailers from competition and expansion of global retailers in Vietnam

METHODOLOGY Chandler (1962) defined strategy as "The determination of the basic long term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals" The strategies exist at several levels in any organization - ranging from the overall business (or group of businesses) through to individuals working in it

Strategy formulation begins with a scanning

of the external as well as internal environment To formulate effective strategies, managers in an organization need

to be aware of realities in the business environment Analysis of external environment helps to identify the possible threats and opportunities while analysis of internal environment helps to identify

strengths, weaknesses and the key people

within the organization

The ten schools of strategy formation

proposed by Mintzberg et al (1998) gives an

overview of the development in the field of

strategy process and demonstrate the nature

of its complexity Of which, design School -

It sees strategy formation as achieving the

essential fit between internal strengths and

weaknesses and external threats and

opportunities The formation of SWOT

matrix results in four sets of possible

strategic alternatives after matching the

company’s internal strengths and

weaknesses with the external opportunities

and threats

Based on the related theory and the results of

previous study of the author about the “key

determinant of retail performance in

Vietnam”, the author has created the research

model for this study as shown in figure 1

Of which, Macro environment includes the

political and legal, economic, social and

cultural, technological factors The industry

environment includes factors of competitors,

suppliers, buyers, substitutes and new

entrants The internal environment includes the firm-specific characteristics such as: firm

size, economy of scale (Douglas & Donald, 1969; Reid, 1984), retail market strategy

(Michael and Barton, 2004); influence of

technology (Melvin and Harriet, 1992); marketing, experience, location (Roger,

Daekwan, Jeffrey, 2006); Experiences

(Douglas & Donald, 1969); human resource (Melvin and Harriet, 1992); Location and property (Clifford Guy, 1994; Stepenson,8th edition); merchandise, product lines, square feet of store space (Robbins, 2004; Angie and Sarah, 2004 )

The strategic situation of the local supermarkets will be explored based on the data that is collected from investigation from consumers, experts’ opinion and other sources from secondary data as well as the previous study of the author Three groups of environment factors (macro environment, industry environment, internal environment)

By using SWOT matrix, this study generates alternative strategies and recommendations for local supermarkets

Figure 1 Research Model of Environment Analysis and Strategy Orientation

(Adapted from the Strategic Decision-Making Process, Wheelen and Hunger 2001)

Data analysis of Strategic Situation of Local supermarket

External environment

As one of the countries having the fastest economic growth in the region and several forces,

many of which are interconnected: for example, increasing incomes, urbanization, more female participation in the labor force and openness to foreign investment, opening in lifestyle of young people, Vietnam is a potential and attractive market to foreign retailers worldwide In the period

of 2009 - 2011, although the world’s economy in general and Vietnam’s in particular were

Macro environment scanning

Industry

Environment

Analysis

Strategic Alternatives Strategic Factors

Best strategies

Internal Environment analysis

severally affected by the economic downturn,

the retail industry in Vietnam still saw

impressive growth In 2011, total retail sales

and consumer service revenue reached VND

2,004 billion, up 24.2 percent compared to the

previous year In 2012, that number reached

VND 2,320 billion, up 16 percent compared

to 2011 Although it has dropped out of the

top 30 attractive retail markets in the world in

2013, according to economic experts, the

Vietnam market still attracts great interest

from large retail corporations in the world

The report “Vietnam Retail Market Forecast

to 2014” says the modern retail channels will

play a crucial role in the future growth,

improving their position in the market

Increasing purchasing power, changing

lifestyle, and influence of western culture are

some of the key growth drivers in the

country's modern retail market, it says, adding

that, during the next few years, a short wave

of consolidation will emerge as foreign

retailers are trying to consolidate their

position and deepen their market penetration

Furthermore, Vietnam has a very receptive

attitude towards welcoming FDI and

developing Trade relations The government

is committed to improve the country's

business and investment climate So the retail

market industry in Vietnam is attracting many

international retail groups all over the world

So Vietnamese retail businesses are meeting

with difficulties to compete with foreign

rivals and are struggling to survive (Dinh

Thanh, 2011)

However, Vietnam’s application of Economic

Needs Test (ENT) requirement before

allowing foreign retailers to open the second

retail outlets is a favorable factor for local

retailers The Departments of Industry and

Trade will use many criteria to decide

whether to grant licenses to the opening of

supermarkets or not

In term of Technological environment, an

estimated 2.0% of Vietnamese households

have a broadband-enabled computer,

representing a significant increase from the

0.1% of households in 2005 The rapid uptake

is partly as consequence of the ease and low price of connection According to the Ministry of Information and Communication, Vietnam’s internet penetration is at 35.6 percent of the total population For number of internet users, Vietnam has been ranked seventh highest among the countries with high internet use in Asia, by Internet World Stats, that creates potential opportunity for

promoting well online marketing as well as

online retail to support offline retail in this market However, it also results in the strong substitute from online retail

In term of industry environment, according to the statistics from the Association of Vietnam Retailers, modern retail channel accounts for only 20 percent, so the market to exploit remains big and plan, by 2020, Vietnam will have raised this rate to 45 percent The country currently has about 130 commercial centers, 700 supermarkets, over 1,000 modern retail outlets, concentrating mostly in Hanoi and Ho Chi Minh City

To meet the increasing living standard, the traditional trade will be instead by modern trade day by day The consumption from traditional market with unstable and smaller size could not compete with modern retailers

in gaining power of bargaining with suppliers The modern retailers with bigger size than traditional retailers have more advantages in negotiating with suppliers However, the cooperation among local supermarkets and suppliers are still very weak So in expert’ opinion, the suppliers actually do not have strong bargaining power with modern retail chains and they still have many difficulties with this cooperation (Ms Dinh Thi My Loan, General Secretary of the Association of Vietnam)

In term of threat of new entrants, current competitors, all of experts said that the current and potential foreign competitors are very strong competency especially after being a member of WTO Under WTO commitments, from January 11, 2010 to January 11, 2015, Vietnam has given the right

to set up joint venture to provide services

related to production, in which foreign

investors can own up to 50 percent of the

charter capital of the joint venture After

January 11, 2015, Vietnam will allow the set

up of enterprises with 100 percent foreign

capital It means that Vietnam's retail market

will be fully open to foreign companies,

which will create significant pressure on local

businesses (Investment and Trade Promotion

Centre, 2006)

According to Investment and Trade

Promotion Centre of HochiMinh City,

recently, Vietnam's retail market has also

welcomed the participation of many big

names in the world such as Auchan, one of

the largest retail groups in France, which

announced plans to invest US$500 million in

Vietnam retail market, NUTC Fair Price

However, most of current participants are

supermarkets and hypermarkets, so the

segment of convenient store is still available

The threats of new entrants and the degree

of rivalry are strong negative forces The

bargaining power of consumers also

increases along with the greater number of

strong competitors and new comers The

customers with higher living of standard

bring opportunities for modern retail

expansion but also threats of higher requirement from customer

The substitutes from traditional retailing, online retailing should be taken into account

by the modern retailers The active and young population is enjoyable with online shopping while the older generations prefer to keep the habit of shopping at traditional market The fact indicated that the consumers with traditional shopping habits prefer buying from traditional market than going to modern supermarket Hang Da Market after upgrading

is an example proving for this reality A lot of Vietnamese people prefer the convenience of the traditional market where they don’t have

to go to car park and just take a few minutes

to finish daily shopping on the way they go back home from work Especially, the fresh food in traditional market is currently a significant strength of traditional market

Internal environment

By using the questionnaires with 5 point rating scale to measure respondents’ evaluation by asking them the degree of variable that ranked from (1) to (5) toward positive extension, the statistics results from

185 respondents who are quite familiar with shopping at supermarket indicates as follows:

Table 1 Mean statistics of respondents for characteristics of local supermarkets in Vietnam

Statistics Location Space Layout Brand Sales

Force

Promo-tion

Product Diversifi-cation

Product Quality

Competitive Price

Added Value Service

After sales service

Mean 3,0919 2,2108 2,6000 2,8000 2,6108 1,9081 2,0108 4,1027 2,0054 1,9946 2,7027 Std Deviation ,83222 ,74738 ,49123 ,40109 ,65929 ,53891 ,63408 ,70344 ,63842 ,62985 ,45831

The statistics indicated that local supermarket evaluated at quite high level of location convenience and product quality It means that the customers find the convenience from the local supermarket locations and these supermarkets are good at product quality However, the competency in brand, layout, sales force and after sales service still moderate, especially they are quite weak at space, promotion, value added services, product diversification and price

It is also transparent that the local retailers will understand customer needs more deeply than the foreigners do Being Vietnamese firms, local retailers are also familiar to business manner of Vietnam This will help them to easier in penetrating the local market Saigon Co op Mart has taken good advantages of this strength; it localized products such as increasing fresh food at supermarket to meet the customer requirement

However, except Saigon Coop mart, most of

local small-size supermarkets are small and

slightly poor at competitive price They do

not have the deep cooperation with suppliers

so the price is not competitiveness

Comparing to grant foreign retailers, the

local supermarkets are les competitive in

price (Viet Trung, 2011)

The fact also indicates that marketing

program plays important role in retailing

performance Advertisement, promotional

program, supported services for

entertainments at shopping places are

employed well at foreign supermarkets while

still poor at the local firms Attractive

promotional programs at foreign

supermarkets such as Big C always attach

crowded customers

Discussions and Recommendations

There is no doubt about the positive effect

from modern retail that AT Kearney, in its

15 years analysis, indicated, “modern retail

drives the economy through increased productivity, investments in capital stock, new job creation and lower prices” Vietnam has potential market for retail industry and need to stimulate the retail industry as a key driver of the economy

However, experience from Thailand shows that the monopolistic power and over-expansion of foreign modern retailers can disrupt the local economy and culture The global retailers has put local traditional retailers and suppliers at a competitive disadvantage and ultimately put those that are unable to adapt out of business Thus, finding strategic solution to enhance local retailers is necessary to create a sustainable development for retail industry

To formulate solid strategies for local supermarkets based on careful environment scanning, the SWOT matrix is quite match in this situation and it can illustrate as follows:

Table 2 SWOT Matrix for Local Supermarkets in Vietnam

Strengths:

 Young and dynamics

 Understand well local customer needs

 Familiar to business manner of Vietnam

 Reliable quality

Weakness:

 Weak financial resource

 Small size, poor space

 Poor product line

 Slightly poor competitive price

 Moderate in sales and Management Skills

 Poor after-sales service

 Poor relationship with suppliers

 Poor marketing and R&D competency

Opportunities

 fair and healthy

market

 Growing market

 High demand for a

new and modern retailing

 Favorable Culture and

social trend

 Regulation to

constraint expansion of

foreign retailers

SO strategies

- Market Penetration strategy: focus

on R& D and Marketing to strengthen image and services

- Niche marketing: setting up local convenient store or small size of supermarket which match to local customer needs

- Being First mover to take advantages of government policy in constraining expansion of foreign retailers

WO strategies

- Diversification strategy: diversify product lines

- Merge and alliance strategy: small local firm should integrated to enhance capacity

- Strong Integrated with suppliers

- Focus on Marketing and R&D Combine online marketing with traditional marketing

 Niche markets of

convenient retail still

available for modern

retailers

Threats

 Direct competition

from giant international

retailers

 Higher requirement

from customers

 Modern Retail

expansion generate

higher bargaining power

for customers

 Competition in

setting up the sustainable

relationship with

suppliers

ST strategies:

- Niche market focus: setting up local convenient store or small size to avoid direct competition of foreign supermarket

- Apply e-commerce software such as CRM, CPM, EPR to strengthen competency and avoid threats

- Take advantage of online marketing

to stimulate firm attractiveness

WT strategies

- Strong Integrated with suppliers

- Merge and alliance strategy: small local firm should integrated to enhance capacity

- Focus on Marketing and R&D

- Growth strategy with higher investment

- Apply e-commerce software such as CRM, CPM, EPR to reduce operating cost and strengthen relationship with partner

The TOWS matrix plays an important role in suggesting the strategic alternatives so the theories

of strategy formulation should consider the TOWS matrix as an important part in the process of generating the solid strategies

REFERENCE

1 Cox Roger and Brittain Paul (2004) Retailing: an introduction, Prentice Hall

2 Guy Clifford (1990) The retail development process: location, property and planning: London and Newyork

3 Stephen (2005) Organizational Behavior: Prentice-Hall

4 J Calantone Roger, Kim Daekwan, B.Schmidt Jeffrey, Cavusgil S Tamer, (2006) The influence of internal and external firm factors on international products adaptation strategy and export performance: A three-country comparison, Journal of Business Research,59, pp 176-185

5 Miller, A and Dess, G G (1993), Assessing Porter's (1980) Model in Terms of Its General isability, Accuracy and Simplicity, Journal of Management Studies, 30(4)

6 Miller, D., & Friesen, P H (1983) Strategy making and environment: The third link, Strategic Management Journal, 4, pp 221-235

7 Nguyen Thi Uyen, The Key determinants of retail performance in Vietnam, MBA thesis of University of the Thai Chamber of Commerce

8 Porter, M E (1985) Competitive advantage: Creating and sustaining superior performance

9 Tanabe Mario, Claudio De Angelo Flisoni and Alexander Nicholas (2004) The effectiveness of

Strategic planning competitiveness in the Brazilian supermarket sector, Jounal of Retailing and

consumer services,11(1), pp.51-59

TÓM TẮT

PHÂN TÍCH MÔI TRƯỜNG VÀ ĐỊNH HƯỚNG CHIẾN LƯỢC

CHO CÁC DOANH NGHIỆP BÁN LẺ NỘI ĐỊA TẠI VIỆT NAM

Nguyễn Thị Uyên *

Đại học Thương mại

Việc mở cửa hoàn toàn thị trường bán lẻ cho các công ty nước ngoài vào ngày 11 tháng 1 năm

2015 của Việt nam sẽ tạo ra những sức ép lớn cho các nhà bán lẻ trong nước Chính vì vậy, việc nghiên cứu sâu về tình thế môi trường để định hướng chiến lược cho các các siêu thị trong nước hiện nay đang là vấn đề cấp thiết đối với các siêu thị nội địa cũng như chính phủ trong việc bảo vệ các siêu thị này trước sự cạnh tranh khốc liệt từ các siêu thị nước ngoài Trên cơ sở nguồn dữ liệu thu thập từ điều tra khách hàng, ý kiến chuyên gia và các nguồn thứ cấp cũng như từ chính nghiên cứu trước đây của tác giả, bài viết này chỉ rõ tình thế chiến lược của các siêu thị trong nước và vận dụng mô thức TOWS để định hướng chiến lược cho các doanh nghiệp này nhằm tạo ra lợi thế cạnh tranh trên thị trường bán lẻ Việt nam

Từ khóa: Siêu thị nội địa của Việt nam, lợi thế cạnh tranh, môi trường kinh doanh, phân tích

TOWS, hoạch định chiến lược

Ngày nhận bài:09/4/2014; ngày phản biện:25/4/2014; ngày duyệt đăng: 26/9/2014

Phản biện khoa học: TS Nhâm Phong Tuân – Đại học Quốc gia Hà Nội

*

Tel: 0979118679; Email: uyendhtm@gmail.com