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Vietnam’s FMCG market pursues growth at home and abroad

Category: Retail

While slowing moderately, in line with general economic trends, Vietnam’s fast-moving consumer goods (FMCG) segment is continuing to expand, with strong areas of potential growth both at home and abroad.

The rate of expansion of FMCG sales in Vietnam’s six main population centres slowed somewhat in the first quarter, according to a survey conducted by market research firm Nielsen, rising by 3.6% year-on-year (y-o-y). This compared to 5.7% growth in the fourth quarter of 2015.

Beverages, including beer, dominated FMCG sales in the first quarter, accounting for 39% of turnover, with milk products contributing 16% and food 15%. This was followed by tobacco products (13%), personal care items (8%), household products (6%) and baby products (4%).

Market challenges

The easing of FMCG sales growth reflects a wider cooling in the Vietnamese economy, with GDP expanding at 5.52% y-o-y in the first half, down from 6.32% for the same period in 2015.

The slowing of sales is also the product of a more sophisticated client base, according to Nguyen Anh Dung, Nielsen Vietnam’s director of retail measurement services.

“Urban consumers are increasingly demanding and expecting better choices. They’re looking for more innovations and new consumption experiments,” he told local press earlier this summer. “With a lack of innovation, FMCG is becoming more basic items, which consumers would still buy, but only at a sufficient level.”

The Vietnamese public’s appetite for new products is both a challenge and an opportunity. According to a recent product innovation study, Vietnamese consumers try more new products than other South-east Asian shoppers, with 88% of Vietnamese consumers saying they bought a new item during their last shopping trip, compared to a regional average of 69%.

This trend is something of a double-edged sword. While maintaining customer loyalty to existing brands is a challenge for manufacturers, this willingness to try new things is also a key advantage for firms breaking into the Vietnamese market or existing players launching new product lines.

However, as trade barriers are lowered as a result of the ASEAN Economic Community and the Trans-Pacific Partnership, Vietnamese FMCG producers are likely to face greater regional and international competition.

Potential remains strong

Though there has been some slowing, medium-term potential in the market is strong, according to a report issued by the Ministry of Industry and Trade early this year. Fuelled by growing incomes and a young and active consumer base, FMCG spending is expected to reach $173bn by 2020, up 23.6% from the $140bn forecast for this year.

Indeed, consumer confidence remained strong heading into the second half of the year. Sentiment in the second quarter was only marginally down on the opening three months of the year, according to an August Nielson survey, with the index at 107 points, two below the first quarter’s peak.

The vast majority of Vietnam’s manufacturing and processing firms also have a positive outlook for the second half, a General Statistics Office survey reported, with more than 90% of respondents expecting production to either increase (55%) or remain stable (35.4%) in the second half of the year.

Market prospects

With Vietnam’s population expanding by 1m per annum, the potential consumer market is significant, and the penetration rate for many FMCGs has yet to be maximised, according to Mai Kieu Lien, CEO of dairy industry leader Vinamilk.

“As in other ASEAN markets, Vietnam’s rapid urbanisation and rising incomes led to a growing adoption of Western styles, which led to a boom in FMCGs,” she told OBG. “However, purchasing power in Vietnam is also one of the lowest in the region, so a localised strategy based on pricing has to be put in place.”

A number of leading Vietnamese FMCG producers are looking further afield for opportunities, with the country’s near neighbours seen as having strong potential.

Kajiwara Junichi, CEO of food manufacturer Acecook Vietnam, told OBG, “Most companies are not focused on South-east Asia, especially Indonesia, as they have their local giants. Laos, Myanmar and Cambodia are good markets to enter, as they are not as mature as Thailand.”

Another area of potential growth is Vietnam’s rural regions, home to roughly two-thirds of the population. According to a report by market survey firm Kantar WorldPanel, household income in rural areas is rising faster than in urban centres, albeit from a lower base.

Sales of domestic FMCGs are already increasing at more than twice the rate of foreign brands in the segment, and Vietnamese brands’ market share in non-urban areas is set to grow from 54% of total FMCG sales in 2015 to 64% by 2020.

This Vietnam economic update was produced by Rey Davis-Tuplano, Editorial Manager Vietnam, Oxford Business Group.

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VIETNAM RETAIL SECTOR BRIEFING 2016

Category: Retail

With increasing incomes, rapid urbanisation together with strong economic growth and young population, Vietnam is nowadays one of the fastest growing retail markets in Asia. The year 2016 has seen a significant emerge in retail sector with many remarkable events such as high-value M&A affairs or serial opening of convenience store chains so far; while the amount of FDI generally maintains robust.
For details of the report, please see attached file here 

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Vietnam Water Sector Briefing

Category: Environment

BBGV is pleased to bring you our latest sector briefing on Vietnam’s water industry. The briefing provides an overview on the country’s water profile, wastewater treatment and climate change. Vietnam has taken steps to improve its water resource management via several initiatives with the support from the international community. Key challenges are also featured alongside the technologies and services in demand.
Full briefing can be viewed here

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Vietnam ICT Sector Briefing

Category: ICT

BBGV is pleased to bring you our latest sector briefing on ICT in Vietnam. The briefing provides an overview on Information Technology and Telecommunication. The findings are further analysed for each IT and Telco’s products and are sum up in two SWOT analyses.


Full briefing can be viewed here

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Vietnam’s agriculture sector at a crossroads Oxford Business Review

Category: Agriculture

By Rey Davis-Tuplano

 

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New trade agreements, as well as a push for value-added processing, should help sustain export growth in Vietnam’s agriculture sector.

A World Bank report released in late September highlighted the need for Vietnam to revamp its agricultural sector to meet demographic, economic and environmental challenges.

The report, entitled “Transforming Vietnamese Agriculture: Gaining more from less”, suggests that the sector needs to boost value-added content and diversify its offerings to increase the country’s market access opportunities.

The recommendations are timely, given that Vietnam’s export market is expected to grow by some 500m people through the recent formation of the ASEAN Economic Community and the forthcoming EU-Vietnam Free Trade Agreement, to take effect in 2018.

From primary production to processing

As one of the mainstays of the Vietnamese economy, agriculture accounted for 17% of GDP in 2014 and currently employs nearly half of the workforce.

However, increasing urbanisation, which is forecast to reach 50% of the population within a decade, combined with a burgeoning middle class, is expected to result in a shift in consumption and employment trends in the sector.

Employment in the primary agricultural sector is predicted to decrease from its current 47% to between 25% and 30% by 2030, although much of this loss should be offset by a strong rise in jobs in the value-added component, with employment rates of up to 40%.

Domestic sales of snacks, processed and ready-to-eat foods have gained momentum in the last decade while Vietnam’s agricultural trade – which has traditionally been dominated by raw commodities – is starting to see a shift as well.

As a result, primary agriculture’s contribution to GDP is expected to decline by 0.5% annually, while agro-industry’s share could nearly double to account for roughly one-fourth of the country’s GDP by 2030, according to the World Bank report.

To this end, Vietnam is also looking to consolidate and scale its operations to meet the needs of agribusiness.

The small scale of most Vietnamese farms makes it difficult for agribusiness to make the most from local production, according to Nguyen Van Khai, CEO of Pan Group, an integrated agriculture and food manufacturer.

“Instead of dealing with one large producer, as is often the case in Western countries, companies operating in Vietnam have to deal with multiple small landholders,” Nguyen told OBG. “If you are dealing with 300 ha in Vietnam, you have to work with 300 people.”

Improving quality for export

While Vietnam’s agricultural exports are on the rise – recording a 11% year-on-year (y-o-y) increase to $10.2bn in the first quarter of 2016, and are expected to grow by between 4% and 6% annually – its products are perceived as being of lower value and quality.

The government is already looking to take suggestions from the World Bank report on board to overhaul the agricultural sector through the greater use of advanced technology and techniques for value-added processing.

According to Nguyen Xuan Cuong, the minister of agriculture and rural development, broadening the base of its export market is also a priority.

“In the long run, we should focus more on official trade with China while expanding our foreign trade with Japan, the US, Australia, the EU and others,” he told local media in September. “This is the right path for agricultural development.”

Currently, some 35% of Vietnam’s agricultural shipments are destined for the Chinese market, a level likely to rise this year, with exports to its northern neighbour rising 47% y-o-y in the first four months of 2016, according to ministry data.

At the end of September, the Asian Development Bank (ADB) lowered its forecast for Vietnam’s economic growth, projecting GDP to expand by 6% this year, down on its initial estimate of 6.7% made in March. The bank also revised its outlook for next year to 6.3% from earlier estimates of 6.5%.

One of the key reasons for the downward revision was the weaker performance of Vietnam’s agriculture sector, with the ADB citing recent drought conditions in the Mekong Delta and Central Highlands regions, along with falling global commodity prices impacting export returns.

Environment for change

In addition to the effects of climatic conditions on output, the environmental impact of poor agricultural practices is also becoming a growing concern for the sector, as Vietnam looks to expand its industry for export.

‘“Business-as-usual’ is no longer an option for the sector – growth has slowed down, it is vulnerable to climate hazards and leaves a large environmental footprint,” Ousmane Dione, country director for Vietnam at the World Bank, said at a press conference in September.

In early October, for example, tonnes of fish washed ashore at West Lake, Hanoi’s largest freshwater lake, while in April an incident at Formosa Ha Tinh Steel’s plant led to fish deaths, local media reported.

In a bid to address environmental issues, a joint delegation from the Ministry of Industry and Trade and Ministry of Environment and Natural Resources is planning to look into factories’ production and waste treatment facilities, which pose a risk to water contamination, according to press reports.

At the same time, the private sector is also looking to boost efforts in this area.

“Resources and waste management are key sectors in which foreign firms are able to contribute to Vietnam’s development,” Guillaume Crouzet, general director of the French Chamber of Commerce in Vietnam, told OBG. “One of the elements that helps a foreign firm decide to invest in Vietnam is access to proper resources.”

This Vietnam economic update was produced by Oxford Business Group.

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Vietnam sharpens focus on regional ties

Category: Doing Business in Vietnam

Vietnam sharpens focus on regional ties
by Rey Davis-Tuplano, Oxford Business Group

 

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The ultimate target is for Vietnam to have achieved the same average indicators for its business environment as ASEAN - 4 countries, namely Malaysia, Thailand, Singapore and the Philippines.

As it takes over as chair of APEC this year, Vietnam will be working towards promoting growth and enhanced regional integration, while also pushing its own reform agenda at home.

Founded in 1989 as a vehicle to promote regional cooperation between Pacific Rim economies, some of APECs core principles, such as free trade, are coming under pressure.

 

Roadblocks to prosperity

“APEC 2017 takes place as the world and our region experience profound and rapid changes,” Bui Thanh Son, permanent deputy minister of foreign affairs, told OBG in a recent interview.

“Prolonged economic stagnation, rising protectionism, anti-globalisation sentiment, terrorism and regional conflicts, along with more complex non-traditional security challenges, are significantly affecting our forum and each member economy.”

While the region faces a rising tide of challenges to development, some stakeholders believe that these could spur a new dynamism as economies look to foster more inclusive and sustainable growth.

“In 2017 APEC will have an even more important role to play in curbing protectionism and promoting the kind of trade that is not only free but also inclusive for all, creating business and employment opportunities for societies,” Bui Thanh Son said.

 

Pressing priorities

Operating under the theme “Creating New Dynamism, Fostering a Shared Future”, APEC will have four key pillars in 2017. The first of these aims to enhance economic resilience, increase productivity, alleviate poverty, narrow the development gap and empower women and girls through structural reform, innovation and human resource development.

The second priority for the year will be to develop greater regional integration and connectivity, seen as crucial to regional economic growth.

The third pillar involves boosting the competitiveness and innovative capacity of micro, small and medium-sized enterprises (MSMEs) – allowing them to better capitalise on the opportunities of the digital age – while the fourth looks to strengthen food security and sustainable agriculture to meet the demand of an ever-increasing population.

 

Home-ground advantage

Vietnam is set to host around 200 activities as chair of APEC this year, including eight ministerial-level conferences and the 25th APEC Summit in Danang.

According to Bui Thanh Son, this could all help add momentum to the region’s economic growth and integration and Vietnam’s own development push.

The third APEC pillar in particular dovetails with the directions of reforms being enacted domestically, with recent moves focusing on enhancing the business environment.

To this end, Vietnam issued its latest Resolution 19 reforms earlier this month – the fourth such package in as many years.

As part of the resolution, the government aims to reduce the processing time required for several types of administrative procedures. This includes lowering the average time taken for construction licence approvals from 82 to 63 days, bringing down the time spent on tax and social insurance payments to 168 hours per year from 540, and speeding up Customs clearance procedures.

Authorities also want to halve the number of days it takes for a company to connect with the state’s water supply to seven days.

The ultimate target is for Vietnam to have achieved the same average indicators for its business environment as ASEAN-4 countries, namely Malaysia, Thailand, Singapore and the Philippines.

The reforms should also help cut costs and the time needed to start a business in Vietnam, making it a more attractive investment destination for potential investors at home and abroad.

 

Business climate change

Furthermore, improvements in these area could help lift Vietnam on the World Banks ease of doing business index, where it ranked 82nd of 190 economies. While this was a nine-place improvement on the “Doing Business 2016” report, the country slipped ten positions in the “starting a business” category.

Areas where Vietnam registered improvements were in paying taxes and trading across borders. Improvements to the former were facilitated by simplifications to tax compliance processes undertaken in the previous Resolution 19 reform drive, which also saw the country implement an electronic customs clearance system to make trading across borders easier, cheaper and faster.

 

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The Queen’s 91st Birthday Party - Sapphire Jubilee

 

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British Ambassador to Vietnam Giles Lever giving welcome speech

 

The BBGV staff had the honour to join The Queen’s 91st Birthday Party – Sapphire Jubilee on Tuesday, 06th of June 2017, along with representatives from Her Majesty's Armed Forces, British Embassy Vietnam, other diplomatic missions in Vietnam and the community of honorary enterprises.

 

The ceremony began by a moment of silence to commemorate the victims of the incidents happened in Manchester and London, and followed by the national anthems of The UK and Vietnam. The attendants then welcomed with the speech from the British Ambassador to Vietnam Giles Lever, the British Consul General Ian Gibbons and HCMC Deputy Chairman Le Thanh Liem, highlighting fruitful achievements in economic and other social aspects from the friendship between UK and Vietnam governments.

 

Also mentioned in these speeches the Incubator Unit concept which The BBGV Business Centre is on the way to put into practise. Our aim is that British and Vietnamese companies can trade together in an accessible and equitable manner… The BBGV Incubator would provide flexi-desk arrangements, meeting rooms and facilities for UK businesses as an additional service for those companies requiring physical office support and services.

 

Clients of the Incubator would benefit from the professional support of the BBGV Business Centre team and network in order to facilitate their business goals in Vietnam. BBGV would assist in connecting to the right individuals and organisations and form partnerships with the Vietnamese business and governmental sectors.

 

The structure - which would require a business visa to be issued – would allow UK companies a quick and cost-effective set up and licensing path in order to identify and meet key business contacts, and deliver business success.

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A brief on Healthcare sector of Vietnam

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Vietnam’s health system is a mixed public-private system, in which the public system plays the key role, especially in policy, prevention, research and training. In 2015, Vietnam had approximately 1,316 hospitals with 2.89 beds per 1,000 populations. The private healthcare sector has grown steadily and the number of private hospitals has grown dramatically in recent years, representing 13.2% of hospitals and 4% beds nationwide. This number highlights opportunities for investors to enter the healthcare market.

 

Healthcare expenditure in Vietnam reached a value of USD13.9bn in 2015 and increased to USD14.9bn in 2016, marking a year-over-year growth of 9.6% in local currency terms. By 2025, healthcare expenditure is expected to reach USD33.7bn, more than doubling over the decade. A large and expanding population, rising incomes and improved access to healthcare services will act as key drivers of healthcare sector growth over the forecast period.

 

In addition to State funding, Overseas Development Assistance (ODA) and private sector funding, PPP is increasingly seen as a potentially important mechanism for Vietnam to improve its growing healthcare system.

 

The medical device market in Vietnam is considered as one of the Asia's fastest growing medical device markets, with a 2015-2020 CAGR of 9.0%. It ranked as the ninth largest market in the APAC region, valued at USD781.8mn in 2015. Most modern health equipment in hospitals is imported as the quality of domestic health equipment in Vietnam has yet to meet the national and international standards. Local production accounts for only 5% of the market. Domestic production is limited to basic items such as consumables. Some multinationals (B Braun, United Healthcare, Mediplast, etc...) have set up plants, attracted by low manufacturing and labour costs.

 

Only local companies can distribute medical devices in Vietnam, foreign companies must therefore sell their products through appointed local distributors and agents. VINAMED (Vietnam Medical Equipment Corporation) is one of the country's leading distributors. Vietnamese buyers, especially in the public sector, generally expect to deal with a local distributor to handle all aspects of distribution, from delivery to after sales service and provision of spare parts.

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Free UK- Import Inquiries Service for Vietnamese Companies

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The Business Centre provides a free service to Vietnamese companies, in the form of first-line confidential inquiries issue on the UK government’s portal: https://opportunities.export.great.gov.uk/.

Import & partnership demand from Vietnamese companies are raised on this portal. The portal targets UK businesses who are keen on exporting to specific countries including Vietnam. Business Centre then connects interested UK businesses to the respected Vietnamese companies.

For the past three months, we have posted 25 inquiries and connected around 18 Vietnamese companies with around 80 UK prospects.

 

Details of inquiry service:

Step 1: Vietnamese companies can submit inquiries to the BBGV Business Centre via phone, email or in person, following the template .
Step 2: BBGV Business Center will upload the inquiries onto the portal within 3 working days
Step 3: Additional quality control measurement will be applied and managed by the UK government (maximum 10 working days)
Step 4: UK companies start bidding within the deadlines. BBGV will assess the capability of interested UK companies and connect the suitable ones to the Vietnamese side.

The service is expected to deliver excellence connection between Vietnamese companies and potential UK exporters, enabling Vietnamese companies to broaden their product portfolios and seek sustainable operational solutions in order to improve their competitive advantages and satisfy customers.

For more information, please visit our website: https://opportunities.export.great.gov.uk/

 

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UK Export Finance (UKEF) Chief Executive Officer visits Vietnam

Chief Executive Officer of UKEF Louis Taylor, during his three-day visit to Vietnam, brought goodwill to foster infrastructure development with a credit financial support package of up to 1.5 billion GBP.

 

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 Louis Taylor together with HCMC Deputy Chairman Le Thanh Liem at their meeting. (Source: HCM City People’s Committee Website)

Mr. Taylor held discussions on competitive long-term packages with public and private project sponsors in Hanoi. On the third day of his visit, Louis Taylor travelled to Ho Chi Minh City and held several meetings, including one with Mr. Le Van Liem – Deputy Chairman of HCMC People’s Committee.  Mr. Liem appreciated the offer from UKEF for the infrastructure progress of Vietnam and looked forward to further investment from UK companies in different sectors, in particular for Healthcare and Education projects. Mr. Taylor expressed a firm belief in the significant progress made by  Vietnam’s economy and, expressed his hope that the with UKEF support that the UK could continue to support the development made to date. 

Louis Taylor also met with UK business leaders in HCMC including the Urban Development Working Group, Mr Kenneth Atkinsion  - Executive Chairman of Grant Thornton Vietnam and Mr Tom Vaizey - Legal Counsel of the Dragon Capital Group. 

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