(Vietnamnet) – Distribution and retailing is one of the most detailed and thorny issues during Vietnam WTO negotiation. As negotiable result, foreign enterprises are able to freely do business in Vietnam in 2009. In the next 20 months, how will Vietnamese enterprises prepare for this?

Consumers are more familiar with retailing through shops, supermarket, from the smallest one likes a convenient store to the huge supermarket chain of Metro.

There is, however, one industry that does not often show up flashily but it has got high profit and large scale: distribution.

Distribution is a profitable industry

Father of Taiwan Acer Computer Company has set up a model called his name, “Stan Shih’s smile”

The model represents the chain of added value in which processing and assemble industries’ value is the lowest. On one side, producing components and spare parts has higher value, researching and designing has the highest added value. On the other side, at the top of added value are distribution, retailing and services.

Stan Shih’s model is made for electronics but it has been demonstrated in many other industries and become a classic in every business management programs.

One clear example is that the founder of Microsoft has become the richest person in the world by standing at the top of left hand in the model, while the Walton, the richest family in the world, is standing at the top of right hand with distribution and retailing chain named Wal-Mart.

Joining distribution is not easy

According to data of Research & Market organization in Ireland, in 2006, market value of the distribution has reached US$ 3.6 trillion.

While every enterprise has opportunity to join into the retailing industry, not everyone can join into distribution. In one country, one product can appear in thousand retailing store but one producer often has only some distributors who are considered very carefully and sticked by firm conditions of contract. This is easy to understand because distribution enterprises are sweetheart between producer and market.

This is more important for foreign companies who want to import products into one country. The bigger the companies are the higher requirement for distributors is: capital size must be relevant to turnover, and financial ability must be good and prestigious enough to “follow” international rules.

Unfortunately, there has been no Vietnamese distributor meet the requirement.

Weaknesses of Vietnamese distribution

Because Vietnamese distribution is not strong and professional enough, the basic principles of distribution is breaking but both producers and customers have to temporarily accept.

First, it overlaps between distribution and retailing. One example is that from April 2007, FPT announced to take part in mobile phone retailing market. However, it is the distributor for Nokia, Motorola, Samsung, etc. at the same time.

One enterprise who has leading position in the market (according to Vietnamese Competition Laws, one enterprise is considered the leader if it holds over 30% market share) simultaneously distributes and retails makes other retailers feel uneasy. Competition Control Bodies in other countries have specific regulations for this situation: one enterprise is allowed to do so in particular scale and proportion only.

Second, because of the shortage of competent distributor, one enterprise can distribute a lot of competitive products. FPT distributes mobile phone for Nokia, Motorola and Samsung is one of the examples. It is certain that producers do not like this and they unstoppably look for an opportunity to have their own distributor.

Third, as in retailing, distribution must have competition. Competition ensures the effectiveness of the distribution at the lowest cost, thus, benefits both producers and customers. Example of FPT showed that Vietnam hasn’t got a lot of enterprises who are strong enough in both capital and prestige to create competitive environment in distribution.

Vietnamese giants should step into soon.

On April, 2007 Nokia announced its new distributor: Petrosetco Tourism and Oil & Gas Service Company (member of Vietnam Petrolimex)

At once, giant Petrosetco clinking with plenty of money hired a group of top specialists, even the ones that post-graduated from Harvard (The number of these people is rare in Vietnam).

This is the good news for the market. Customers and retailing enterprises can see that distribution channel of the producers has been broaden up and more competitive.

Producers found that more and more Vietnamese giants recognize opportunities and take part in distribution industry.

Investors found more opportunities when Vietnamese enterprises are accepted to play in international giants’ playground.

Let consider: if quantity of new mobile phone sold in Vietnam market in 2007 is about 9.5 million, with average price of VND 2 million a phone, the turnover then is about VND 19 trillion. If mobile phone distributors receive only 1.5% commission, the amount of money they get is VND 285 billion (excluding commission and profit of retailing).

Foreign “giants” will step into in the next 20 months. What are they finding? In 2006, AT Kerney Consulting Company has ranked Vietnam distribution and retailing the second place in the world for its potential. New China News Agency aired that the Metro Cash and Carry Group in Vietnam grew at the rate of 47%/year.

Vietnamese “giants” like Petrosetco is getting a foothold in the distribution market. What’s about the others? Time is running up.

One more point is that Vietnam distribution is stronger not only means higher profit of distribution but also helps Vietnamese retailing enterprises strengthen when they can avoid disadvantage of monopoly.