Vietnamese consumer behavior towards imported goods

Consumer Behavior Assignment Nguyen Thi Kieu Khanh (Kiki) Master class Dr M Akerib Swiss UMEF University, Geneva Campus November, 2017 Nov Topic: Describe Vietnamese consumers’ evolving attitudes toward imported goods You must consider the role of market and ideological factors in forming consumer preferences Ideally, consumers should behave purely rationally, reacting only to the quality of a good, prices, and their own limited budgets In which country a good is produced should not be important However, in reality, rather than being guided by market signals, Increasingly in many countries consumer views of goods are determined by political factors and moods, which change considerably with time Table of Contents Introduction .3 Discussion I Vietnam - a developing country locating in Asean area .3 II Imported goods in Vietnam .7 III The consumer behaviors of Vietnamese people to imported goods .9 Conclusion 14 References 14 Introduction According to JLL City Momentum Index 2017 and World Economic Forum, Vietnam is considered as one of the most dynamic countries in the world with two large cities (Ho Chi Minh City and Hanoi) were last year named in a list of the top ten cities that have successfully grown up technological change dramatically Moreover, Vietnamese consumers have exhibited a strong tendency to value products from more developed countries (e.g., Nguyen and Smith, 2011; Shultz and Pecotich, 1994) Additionally, Grey Group (2008) provides evidence that this tendency for foreign products is rather widespread; 77% of Vietnamese consumers surveyed indicated a preference for foreign products over domestic equivalents Thus, the imported products play an important role to Vietnamese consumer behavior when shopping, relating to the quality and prices This report illustrates how Vietnamese consumer behaviors and attitudes to imported products Moreover, it identifies the importance of market, lifestyle, country of origin and political factors to the consumer preferences Discussion I Vietnam - a developing country locating in Asean area Economy factors The political and economic reforms launched since 1986, which have transformed Vietnam from one of the poorest in the world, with per capita income around US $100, to lower middle income status with per capita income around US $2,100 by the end of 2015 Vietnam’s per capita GDP growth since 1990 has been among the fastest countries in the world, averaging 5.5 percent a year since 1990, and 6.4 percent per year in the 2000s Therefore, with a steadily increasing GDP and stable inbound FDI trends, Vietnam is considered as one of the most popular markets for foreign investors in the ASEAN Region The GDP is expected to reach 350 billion USD in 2020 Moreover, with a population of more than 92 million people, it is forecasted to comprise 43% of the country’s total population by 2030 Nevertheless, Vietnam has remained far from becoming a liberal economy: government subsidization and stated-owned enterprises are major determinants Recent economic growth has delivered positive societal impacts Rapid urbanization and improvement of living standards have reduced levels of poverty and exclusion from 20.7% in 2010 to just over 13% in 2014 Therefore, Vietnamese population is currently on average, better-educated and has a higher life expectancy then most countries with a similar per capita income Political factors Vietnam, at first, appears to be a one-party ruled socialist state, which differentiates with western liberal democracy The government has strongly been pro-foreign investment since joining the WTO in 2007 and continues to pursue this effect Thus, the government tends to liberalize and attract foreign investors to Vietnamese market Foreign investments are particularly encouraged by the Government of Vietnam Since 2006, Vietnam cut down almost the taxes to imported goods from ASEAN, especially some products get 0-5% of tax The products, at least 40 percent originating from ASEAN, will be reduced the tax Therefore, foreign investors working in ASEAN Region can export the goods to Vietnam with lower costs Moreover, Vietnam is a relatively self-sufficient country in terms of food production As disposable incomes keep growing – in turn of driving technology and infrastructure improvements – imports are, however, expected to rise Importantly, the market for highvalue food products in Vietnam is substantial and contains a variety of categories Furthermore, Vietnam continues to develop its regional and global relations It has a close relationship with Europe and America, regarding new bilateral and multilateral trade agreements: The European Union – Vietnam Free Trade Agreement (EVFTA) and Vietnam’s entry into the Trans Pacific Partnership (TPP) Recently, Vietnam was a host for organizing Asia Pacific Economic Cooperation (APEC) Leaders’ Meeting on November 10 and 11, 2017 in Vietnam that was considered to be a close-knitted cooperation for trade among countries Take the goods exporting from European Union to Vietnam as an example, total trade in goods between the EU and Vietnam amounted to 38€ billion, while total exports from the EU to Vietnam accounted for around 8€ billion It is important to note that the EU’s exports to Vietnam increased by 25% The top five EU agriculture food exports to Vietnam and their respective market shares in 2015 were: raw hides, skins and furskins (12%), pet food (9%), malt (8%), spirits, liqueurs and vermouth (7%) and milk powders and whey (7%) Specially, European Commission President Jean-Claude Juncker and former Vietnamese Prime Minister Nguyen Tan Dung announced that the EU and Vietnam had agreed negotiations on a free trade agreement (FTA) The EU-Vietnam FTA has already achieved widespread coverage with 65% of EU exports to Vietnam entering duty-free Therefore, consumers from both sides will benefit from lower prices and exporters from strengthened competitiveness, and the agreement will be implemented in 2018 Graph 1: The relationships between Vietnam and other countries via Cooperation, Partnership and Agreements As illustrated in the graphic above, Vietnam has been agreeing in several agreements, cooperation, and partnership with some key countries in RCEP, ASEAN Region, APEC and TPP, EU’s FTA, especially in trading goods Furthermore, Vietnam has implemented the tariff reduction schedule as agreed in ATIGA: Many items imported from Thailand have enjoyed preferential tariffs as per Schedule of Commitments in the ASEAN Trade in Goods Agreement (ATIGA) So far, Vietnam has eliminated import tariffs on approximately 90% of total tariff lines and will eliminate tariffs on 98% of tariff lines by 2018 Market factors The very first step to doing business in Vietnam is to identify a local import partner or representative, or to otherwise develop a relationship with one of the established goods trading and distribution companies Such distribution companies can extend the distribution relationships to several areas: supermarkets, hotels and restaurants, and wet- and open-air markets, independent and specialty retail shops Additionally, Vietnam’s retail food landscape is largely dominated by traditional wet markets and small independent stores ideally for small-quantity, high-frequency food purchases With low rental and operations costs, traditional retailers benefit from offering convenience, package-size flexibility and low prices, especially for fresh food Modern grocery retail accounts for only 15% of overall grocery sales in Vietnam whereas traditional retailers account for 85% Moreover, the electronic and technology products are favored to buy in supermarkets, specific technology stores and shops Sea and air are the more used shipping options for entry of goods in Vietnam, especially Haiphong city, Da Nang and Ho Chi Minh City are most frequently international seaports, and Noi Bai and Tan Son Nhat are the most crowed international airports in Vietnam Moreover, Vietnam is a market where personal relationships are important This requires an investment of time and personal presence Legal issues can be very complicated, a local lawyer is considered essential to implement Vietnamese laws and regulations Corruption is not only a widespread obstacle, but “a part of the game” that has to be accepted by most companies, since it is easier than an unproductive controversy Favoritism is     sometimes practiced by authorities towards local state-owned enterprises Distribution of imported goods in Vietnam follows one of the four basic models as follows: Exporters => Importers/Distributors => Big Modern Retailers Exporters => Importers/Distributors => Wholesalers => Retailers Exporters => Local Agent => Importers/Distributors/Wholesalers=> Retailers Exporters=> Big Modern Retailers (Metro, Saigon Coop, Big C, Maximart, Citimart, Fivimart) The first and second options are the most channels of distribution in Vietnam Most goods importers in Vietnam are distributors They usually directly move their imported products to big retailers in urban areas, and let wholesalers and their agents help distribute their products to thousands of small retailers in both center and outskirt areas Due to low purchasing power, most modern retailers source through importers and distributors Modern retailers (supermarkets, hypermarkets, mini-marts, convenience stores and department stores) appeal to a growing number of consumers in many key urban areas in Vietnam They have grown dramatically in recent years, from supermarkets in the early stage (1996/1997) to more than 420 in 2012 Before 1996, open-air wet markets and nonstaple food small private shops were the norms, yet in the most recent decade, Vietnam’s urban economy has begun a steady transition away from the traditional trade to modern trade Most of the supermarkets and shopping centers (department stores) are based in Ho Chi Minh City and Hanoi Thus, to conclude this chapter, economy, political (government policy) and market factors pay an essential part to expand the imported goods in Vietnam in current years until now II Imported goods in Vietnam Vietnam has been integrating into the economy growth in a globalized world after joining WTO and several bilateral and multilateral agreements Therefore, the Vietnamese market has currently appeared a hundred of products and goods from all over the world Specially, Chinese products have been the first key imported ones to Vietnam, accounted for one fourth goods imported in Vietnam in the half year of 2017, according to General Department of Vietnam Customs Countries export goods to Vietnam (in billion USD) 27.1 22.5 13.6 7.7 China South Korea ASEAN Japan 5.8 EU 4.8 United States Figure 1: Countries export goods to Vietnam (in billion USD) As illustrated in Figure 1, China is the largest partner to export products to Vietnam with 27.1 billion USD The South Korea market stays in the second with 22.5 billion USD and then ASEAN achieves 13.6 billion USD Japan has 7.7 billion USD whereas EU and United States are 5.8 and 4.8 billion USD, respectively Moreover, Vietnam has frequently imported raw materials (44%), consumer goods (48%) and integrated circuits, equipment and tools (8%) from other partners, as the following figure Total percentage of imported goods in Vietnam Raw materials Integrated circuits, equipment, tools Consumer goods 8.00% 44.00% 48.00% Figure 2: Total percentage of imported goods in Vietnam Source: General Department of Vietnam Customs, 2017 Recently, Thailand imported goods have become popular for Vietnamese consumers According to a report by the Asian-African Market Department (Ministry of Industry and Trade), the five largest import categories from Thailand to Vietnam in the first eight months of 2017 contributed significantly to Thailand's trade deficit of household appliances and components (US $646 million), fruit and vegetables (US $618 million), petrol and gasoline (US $406 million), plastic materials (US $403 million), and automobile parts (US $340 million) For vegetables and fruits, Vietnam imports $410 million (accounting for 44.3% of the total import value of vegetables and fruits from the world in 2016), being 10 times higher than Vietnam's export turnover of vegetables and fruits to Thailand) Moreover, Thailand has established a solid distribution channel and is continuing to expand in Vietnam Leading retail groups in Thailand such as Central Group, TCC Group have traded, merged retail chains in Vietnam recently and continue to expand in Vietnam Seeing the current situation of imported goods in Vietnam, these products are originating from several countries, especially China, Asian, Europe, Japan, etc with specific needs that Vietnam cannot produce in their country However, Vietnam can produce and sell these fruits and vegetables in some cases but they tend to consume from another countries Why does it happen now in Vietnam? It will be relevant to Vietnamese consumer behaviors to imported goods in the next part III The consumer behaviors of Vietnamese people to imported goods There are different kind of needs and wants which share a set of values and common cultural experiences for Vietnamese consumers, relating to the ages, gender, family structure, social class and income, government policy, and the cultures between the South and North area In the previous part, I explained the details of government policy, economy and market factors in Vietnam in the recent years Then, I would like to bring the insights of Vietnamese consumers and how their behaviors to the imported products in this chapter Vietnamese consumers insights Annually income and spending flexibility Vietnamese consumers have a power to buy anything they need and want According to Nielsen Global Survey 2016, the annual income of Vietnamese people is divided into two parts: less than $5,000 (containing 33 percent) and a range of $5,000 to $19,999 (52 percent) Moreover, 10 percent of consumers feel free to spend money on any field, whereas 34 percent will buy the products that they like to use, and the rest has just had enough amount of money for goods consumption Source: Nielsen Global Survey, 2016 Graph 2: Annual income and spending flexibility in Vietnam with statistics In addition, spending on housing, food, and transportation, for example, accounts for almost 60% of consumer expenditure in Vietnam Consumers, therefore, have become independent in their spending on other items and tend to look for value-for-money and reasonable quality, while coveting fashionable items As identified as the figure below, the consumers increase their spending in mostly medicine and health care, food and education from 2010 to 2016 10 Figure 3: Average Consumer Price Index, 2010-2016, in Vietnam Vietnamese consumers are increasingly health-conscious and try to avoid high medical expenses by keeping themselves healthy To be detailed, the price of medicine and health-care products increased by 45.6% in 2013 and 22.5% in 2016, rising up spending on health goods and medical services, which account for about 5% of total consumer expenditure Such concerns extend to other products such as clothing, footwear, electrical appliances and household items Lifestyles and culture There are several lifestyle dimensions existing among Vietnamese consumers which have an influence on their ethnocentric buying tendencies These dimensions were family orientation, self-consciousness, fashion orientation, explorer/adventurism, community orientation, practicality, homebody, health orientation, cost conscientious and conservatism (Kucukemiroglu, Harcar & Spillan, 2007) 11 In details, Vietnamese consumers always prefer brands with a popular and great reputation Reputable brands not only appeal to consumers due to their design or function, but also because they are often promoted as being of international quality while projecting a healthy image Hence, Western, Thailand, Japan, Korean, US products and quality suppliers with a reputation in the international markets could have an advantage in tapping Vietnam’s consumer demand From my point of view, Vietnamese people have understanding about foreign products as highly qualified products, which is greater than local ones from the roots of their minds, or their attitudes are toward the purchase of foreign products in ancient ages In addition, due to booming internet applications and mobile phone, the Vietnamese are familiar with the lifestyles of advanced countries Youngsters are particularly influenced by Korean and Japanese movies and pop stars, and in turn the related fashion trends And because of its history, French heritage and Western dining habits are widespread Thus, Vietnamese consumers have been surrounded by hundred kinds of global products, which local products hardly defeat with Low, middle- and high-class level Despite the tight budget, Vietnamese consumers purchase more higher-end products than they were in the past In particular, officers and younger professionals with higher salaries usually look for branded products, and are used to comparing local and imported items This is along with the improvements in incomes of the middle-class households, which are now accounting for about 23% of the total in the country As the Vietnamese economy opens up, consumers prefer quality products and fashionable items From the point of view of the budget constraint, middle-income consumers are largely looking for mid-range items with fashionable design and reasonable quality This has attracted the attention of many foreign brands, which were already being popular by the country’s economic potential As a result, in major cities such as Ho Chi Minh city, Hanoi and Da Nang, where most households of higher income reside, consumers can enjoy a wide variety of choice for fashionable products of both local and international brands However, low-income people prefer using their domestic products or their fresh food that they can grow in their gardens Their behaviors to the imported products To identify the Vietnamese consumer behaviors to imported goods, I would like to classify two essential points: country of origin, and quality and prices affecting to the preferences of the consumers Country of origin Frequently, when Vietnamese people go shopping, they prefer to know where the goods come from, especially food (vegetables and fruits) and technology devices and equipment 12 Source: Q&Me Vietnam Market Research, 2017 Figure 4: The importance of country-of-origin in Vietnam Generally, 51 percent of Vietnamese consumers, especially high-income class from the age of 30 to 39, would consider the importance of country-of-origin In addition, 660 respondents in Hanoi and Ho Chi Minh City, 90 percent of people responded that "country of origin" is (very) important when making a purchase to the goods, in the latest survey (from Q&Me Vietnam Market Research, October 2017) Especially, they are interested in several key elements such as cosmetics, medicine, food for women and drugs, food and electronics for men However, both men and women not care about the origin of fashion items For example, American and European products always stay in the first choice of the consumers’ decisions On contrast, “Made in China” label has been the worst impact to the Vietnamese in the ranking between Japan, South Korea, US, EU and Thailand Continuously, the Japanese image is associated with a strong “good quality” for Vietnamese consumers, as “safety”, “enduring”, “genuine”; whereas South Korean products have a high proud-to-own factors such as trendy and stylish However, there are some negative key words to Vietnamese products such as “cheap”, “boring”, and “perishable” in few years ago Quality and Prices 13 In fact, Vietnamese consumers are willing to pay more money on foreign products than local products Vietnamese people are also very concerned about the quality of products that may have an impact on their health and their family For instance, Chinese products are extending all around the cities in Vietnam The retailers import the products and then selling to the customers However, the quality is not guaranteed In 2015, there was a scandal about Chinese toys for children When the parents bought a gun toy and Mid-Autumn mask for their kids, the kids were excited to receive the gifts However, in fact, when they used the toys, they had an accident relating to their eyes and skins, because of the bad quality of products After hundred Chinese cases of products, Vietnamese consumers cannot accept the quality of Chinese goods Recently, some consumers are afraid the imported goods and quality with the cheap prices Normally, the imported fruits such as Gala apples, American, France or New Zealand apples and grapes are sold with a high price around $15 – 20 per kilogram However, the costs become reducing to a half price, which sold in several supermarkets and convenience stores To explain this situation, Vietnamese consumers always think high prices are equal to high quality, so when they see a cheap price of the products, they will consider that the goods are not as qualified as labeled Conclusion As the result of the widespread of globalization, Vietnam is seen as one of the brightest potential market in Asia by many international brands and companies, triggered by the free trade agreements which have been signed with the European Union as well as with the other 11 members of the Trans Pacific Partnership (TPP) and other agreements Thus, these free trade play an essential role on the nation's increasing GDP along with the imports in the years ahead On the other hand, Vietnamese consumers have been impacted to foreign products by government policy, market and economy factors Even though, they have a strong mindset, especially in the age of 30-39, the importance of country-of-origin and the qualified quality is equal to high prices 14 References Vietnamese versions Six trends of large consumption in Vietnam http://sdh.neu.edu.vn/6-xu-huong-tieu-dung-lon-o-viet-nam 191857.html Brands Vietnam, The country-of-origin factor to Vietnamese consumers http://www.brandsvietnam.com/congdong/topic/7353-Yeu-to-Nguon-goc-xuat-xu-doi-voinguoi-tieu-dung-Viet Brands Vietnam, What are Vietnamese consumers thinking nowadays http://www.brandsvietnam.com/12851-Nguoi-tieu-dung-Viet-ngay-nay-nghi-gi Online Vietnamese newspaper Cafef.vn, Vietnamese consumers worry about the quality of imported fruits with cheap prices http://m.cafef.vn/trai-cay-nhap-khau-gia-re-nguoi-tieu-dung-ban-khoan-chat-luong20170503102526798.chn English versions Vietnam Market Research, Comparison of country-of-origin images for Vietnamese people https://qandme.net/en/report/country-of-origin-images-for-vietnamese.html Canada-Vietnam Entrepreneur, Vietnamese Consumers Insight 2016 https://www.slideshare.net/CVEN2016/vietnamese-consumers-insight-2016 HKTDC Research, May 2017, Vietnam’s Consumer Preference for “Affordable Luxuries” http://m.hktdc.com/business-news/article/Research-Articles/Vietnam-s-ConsumerPreference-for-Affordable-Luxuries/rp/en/1/1X000000/1X0A9WQM.htm Mai Thi Tuyet Nguyen, January 2012, Purchase Preference for Imported Products: A Comparative Study between Vietnam and China, https://www.researchgate.net/publication/262840199_Purchase_Preference_for_Imported_Pr oducts_A_Comparative_Study_between_Vietnam_and_China European Union: Trade in goods with Vietnam, available at http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113463.pdf Doing business in Vietnam, available at http://www.iberglobal.com/files/vietnam_ukti.pdf Agrofood Research Report, available at https://www.flandersinvestmentandtrade.com/export/sites/trade/files/news/341141118112431/ 341141118112431_1.pdf 15 Masayoshi Maruyama and Le Viet Trung (2009) High shopping frequency of Vietnamese consumers: theory and measurement http://web.a.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=0&sid=aa7ffe9c-f30e-4cfe-b898fd8038d6d284%40sessionmgr4010 Orsay Kucukemiroglu, Talh Harcar and John E Spillan (2007) Market Segmentation by exploring buyer lifestyle dimensions and ethnocentrism among Vietnamese consumers: An empirical study, Journal of Asia-Pacific Business, http://www.tandfonline.com/doi/abs/10.1300/J098v07n04_04 Statistics from GENERAL STATISTICS OFFICE of VIET NAM https://www.gso.gov.vn/Default_en.aspx?tabid=491 16 ... in Vietnam? It will be relevant to Vietnamese consumer behaviors to imported goods in the next part III The consumer behaviors of Vietnamese people to imported goods There are different kind of... insights of Vietnamese consumers and how their behaviors to the imported products in this chapter Vietnamese consumers insights Annually income and spending flexibility Vietnamese consumers have... developing country locating in Asean area .3 II Imported goods in Vietnam .7 III The consumer behaviors of Vietnamese people to imported goods .9 Conclusion 14 References