Selling to Vietnam’s Market: Frequently Asked Questions

Foreign businesses entering Vietnam’s market should craft a tailored entry strategy that aligns with their objectives and leverages the booming e-commerce sector to effectively engage the country’s tech-savvy consumers.

Entering Vietnam’s market presents unique challenges and opportunities for foreign retailers and investors. Each company must develop a market entry strategy customized to its business goals, operating budget, and compliance deadlines, ensuring it can tap into Vietnam’s rapidly growing e-commerce landscape without compromising profitability or regulatory compliance. Maintaining brand integrity and avoiding additional scrutiny from authorities is crucial for long-term success.

This Q&A guide, featuring experts from Dezan Shira & Associates, explores the common concerns of foreign investors and businesses when entering Vietnam’s market.

Q1. What is the best way to enter Vietnam’s market?

Each business typically adopts a market entry strategy tailored to its objectives, budget constraints, and timelines. However, what companies view as the best approach may not always be accurate, often due to a lack of local insight and limited understanding of Vietnam’s legal framework and cultural nuances.

For foreign companies, selecting the right entry mode is essential for successfully launching operations in Vietnam, particularly in the retail industry. Businesses can consider the following options:

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• Direct exporting: This strategy offers advantages such as control over products, direct customer engagement, and profit maximization, but poses challenges, including navigating complex regulations, tariffs, and logistics.
• Franchising and licensing: This method is attractive because of the expanding economy and middle class, with success cases like KFC and Starbucks adjusting to local preferences.
• Joint ventures: Establishing a joint venture with local firms can ease market entry.
• Digital market entry: The booming e-commerce sector, driven by a tech-savvy population, provides opportunities for brands to establish an online presence and leverage platforms like Shopee and Lazada to reach consumers effectively.

Q2. What factors should be considered when adapting a product for the Vietnamese market?

Vietnamese consumers have their own preferences, values, and cultural perspectives that influence their perception of products. To effectively engage these consumers, businesses must tailor products and marketing strategies to align with these traits. Key considerations include:

• Promoting local and sustainable products: Retailers should dedicate store sections or create displays that highlight locally sourced items and their positive environmental impact.
• Highlighting health labels and certifications: Prominently showcasing health labels on product packaging and in-store displays, along with detailed explanations, can boost engagement, especially as health-consciousness rises among Vietnamese consumers.
• Integrating local design elements: Incorporating traditional Vietnamese materials or design features in products helps build a connection with local consumers and can cultivate a sense of authenticity.

Q3. What are the main distribution channels in Vietnam’s market?

Vietnam’s distribution landscape is primarily divided into three key sales channels. The traditional channels, which include wet markets and small independent stores, dominate the market, accounting for 70 percent of consumer goods distribution and experiencing an annual growth rate of four to five percent. Modern sales channels, such as supermarkets and convenience stores, represent 20 percent of total sales and enjoy a 10 percent growth rate. Lastly, online sales channels, though currently accounting for just 5 percent of sales, are growing rapidly, with an impressive growth rate of 35 to 45 percent. These figures are as per a 2024 industry report. This diverse landscape necessitates a nuanced and adaptable multichannel approach.

A 2024 survey of 15,000 retailers in Vietnam found that 55.7 percent of revenue-growing sellers have adopted a multichannel approach.

Q4. What is the consumer power of Vietnamese consumers?

Vietnam is poised to be a major contributor to the expansion of consumer markets in Asia. Vietnam’s consumer power is steadily growing, driven by its favorable demographic structure. As of April 1, 2024, the country’s population exceeds 100 million, with a significant portion in the working-age demographic.

Vietnam aims to reach upper-middle-income status by 2030 and high-income status by 2050. By 2026, the middle class is expected to comprise 26 percent of the population, a substantial increase from 13 percent (about 13 million people) in 2023.

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In the first quarter of 2024, the average monthly salary for wage earners was approximately VND 8.5 million (US$334.42), marking a notable increase from the previous quarter.

The labor force during this period consisted of around 52.4 million individuals, and with a median age of 35, this young, tech-savvy population is driving a growing consumer market, supported by improving living standards.

Urban growth is set to significantly boost income in Vietnam, with an expected increase of 10 million urban residents in the next decade. This shift will elevate the urban population from 37 percent in 2020 to 44 percent by 2030. Vietnamese cities are expected to emerge as the primary drivers of growth, accounting for around 90 percent of all consumption increases over the next ten years.

While Hanoi and HCMC, known for their large populations and strong middle class, have traditionally dominated the narrative of urbanization in Vietnam, a transformation is on the horizon.

Consumer spending is projected to see substantial growth in smaller cities such as Can Tho, Da Nang, and Hai Phong over the coming decade, fueled by their rapidly expanding middle classes.

Q5. What are the main challenges for foreign stakeholders entering Vietnam’s retail market?

Despite the growth of retail services during the post-pandemic recovery, a lack of skilled, high-quality workers has impeded consistent progress. Retailers are continuously challenged to fulfill the need for professional training and skills enhancement within their teams.

They also struggle with supply chain issues, maintaining quality logistics, and meeting product quantity and delivery schedules.

The competition in Vietnam’s retail sector is also escalating, fueled by the influx of foreign retailers and prominent global brands. As a result, businesses must look beyond price competition.

They need to stay ahead of consumer trends, harness technology, adopt innovative practices, and elevate the value, convenience, emotional connections, and overall shopping experience they provide. These initiatives are essential for addressing the changing expectations of Vietnamese customers.

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