Distribution and Sales Channels in Vietnam

An Expert's View about Sales in Vietnam

Last updated: 4 Mar 2011

Import Trading Rights: Vietnam, under both its WTO Commitments and its domestic laws, extends import and export activities to “all foreign individuals and enterprises (including foreign-invested enterprises).”

 

In effect, with the import right, a foreign-invested company: (i) can be the importer of record; and (ii) can sell its imported products to distributors (licensed wholesalers or retailers) in Vietnam; but (iii) with just the import right alone, it cannot sell its imported products to final consumers.

 

Vietnam has reserved the right to import certain goods to state trading companies. In brief, these goods are: cigars and cigarettes; crude oil; newspapers, journals and periodicals; and records, tapes and other recorded media for sound or pictures (with certain exclusions).

 

Companies that do not have their own import license must work through licensed traders, who typically charge a commission of between one and two percent of the value of the invoice. Under Vietnamese law, the importer is the consignee. Therefore, it is important to identify a reliable importer with the ability to clear merchandise through customs quickly and efficiently. If a licensed third-party importer is used, the importer will handle customs clearance. If a foreign invested firm imports products directly, it will have to make arrangements to handle customs clearance at the port. This can be potentially burdensome. Many foreign firms have complained that the administration of customs can be opaque and inefficient. Importers have claimed that duty classifications for the same product differ from inspector to inspector, and that even the same inspector may charge different rates for the same item at different times. Should the importer disagree with the classification, it can appeal before the local customs' office, Customs' HQ in Hanoi or an administrative court. Companies also complain that corruption remains a problem in the customs clearance process. Despite prosecution of corrupt customs officials at many levels, the use of “facilitation fees” to expedite customs clearance is not an unheard-of occurrence. Customs issues will continue to play an important role particularly with recent import licensing hurdles including automatic import licensing rules, new country of origin rules, and more aggressive enforcement of customs duty collections.

 

The right to import does not include the right to organize or participate in a goods distribution system in Vietnam.

 

Distribution Services: According to Vietnam’s WTO Commitments, 100 percent foreign-owned companies may engage in distribution services (including wholesale or retail sales) of most legally imported or domestically produced products as of January 1, 2009. Distribution services include commission agent sales, wholesaling, retailing and franchising (franchise branches will be permitted in 2010).

 

Wholesaling: According to Vietnamese law “wholesaling” means the activity of selling goods to other business entities and organizations. This activity does not include the activity of selling goods directly to the final consumer or end user.

 

Foreign companies engaging wholesalers in Vietnam should examine the investment certificate or business registration certificate of each reseller or distributor to make sure that the reseller is properly licensed to engage in wholesaling or retailing of the products sold to them. Retailing: Fully foreign businesses without equity limitation can engage in retailing activities as of 2009. According to Vietnamese law “retailing” means the activity of selling goods directly to the end user (Decree No. 23, Article 3.8). Being licensed to engage in retail services would enable the foreign-invested company to sell directly to end users, without having to go through a licensed local distributor.

 

A company licensed to engage in retailing has the right to establish a single retail sales outlet. Subsequent outlets are subject to approval from the relevant local Department of Planning and Investment (DPI). Local authorities will take into consideration the "master plan" of the province, including the "economic needs" of the proposed establishment that takes into consideration such factors as available parking and access roads, the number of retail sales outlets already in the locality, and population density. To date, this so-called "economic needs test" has been limited to large retail establishments such as department stores and bulk retailers, and shopping malls.

 

Some products are excluded from Vietnam’s commitment to open distribution services. Foreign Invested Enterprises (FIEs) are currently prohibited from distributing cigarettes and cigars, books, newspapers and magazines, video recordings, precious metals and stones, pharmaceutical products and drugs, explosives, processed oil and crude oil, rice, cane and beet sugar. In recent years, Vietnam’s retail landscape has been going through rapid transformation, providing more outlets for proper display and marketing of products. A number of Western-style mini-markets and convenience stores (e.g., MaxiMart, Metro, CitiMart and Saigon Coop) are cropping up in the major urban areas. While anecdotal reports suggest that shoppers perceive the mini-marts as expensive and per customer sales are still fairly low, most experts agree that this trend will continue to gather pace, as it has among Vietnam’s more developed neighbors. At the moment, these kinds of outlets are said to account for a small percentage of total retail trade, and most consumer purchases continue to take place at traditional street-side shops or official “wet” and “dry” markets organized by district governments. Nevertheless, these new retail outlets are expanding rapidly in major cities and offer promising opportunities for distributing a wide-range of U.S. consumer goods.

 

Shopping center developments are also mushrooming in Vietnam. The Saigon Superbowl and Diamond Plaza in Ho Chi Minh City, the nation’s first large-scale entertainment and retail centers, along with Parkson’s Plaza and Huong Vuong Plaza, are in full operation. Although Ho Chi Minh City leads this sector, similar developments are taking place in Hanoi.

 

Showrooms and service centers for specialized products such as electronics, appliances, automobiles, and industrial goods are also increasing. General Electric (GE) Company’s Appliance Division and Lighting Division have launched chains of retail outlets and industrial equipment manufacturer Parker-Hanafin and air conditioner giant Carrier have opened similar outlets in HCMC. These developments are changing the way the wealthier and more cosmopolitan segments of urban Vietnamese shop. Still, apart from these pioneering projects, retail outlets consist mainly of family-run market stalls or small street-front shops.

 

Warehousing: Manufacturing companies can warehouse their processed products. The situation tends to be more complicated for trading companies, which, even though importing their own brand products, are considered rendering a service to their parent companies. Therefore, they are subject to WTO phase-in, e.g., foreign investors should operate through a 51 percent joint venture until 2014 or outsource this activity with a licensed local warehousing company or their distributors (See Table Below). Concerns are raised as to the ability of local entities to implement properly international standards. While a small number of foreign-invested warehousing operations offering modern and efficient facilities have been established in recent years, warehouses and other storage infrastructure in Vietnam are for the most part quite basic.

 

Climate control

is rare and security may be a problem. Tracking and processing of inventories is primarily manual, and the physical movement and handling of goods is similar in practice with other less developed nations in the region.

 

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Posted: 16 June 2010, last updated 4 March 2011

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