CHAPTER 2: SITUATION ANALYSIS OF VIETNAMESE AGRICULTURAL PRODUCTS’
2.2. Vietnamese agricultural products’ penetration into EU market
2.2.2. Evaluation of current market penetration strategies of Vietnamese agricultural products into
In order to contribute to the development of economic-trade relations between Vietnam and the European Union (EU), as well as further develop Vietnam’s agricultural
exports aptly for the current state of international trade, the thesis will commence evaluating the current market penetration strategies of Vietnamese agricultural products into the EU market. As to assess the current market penetration strategies of Vietnamese agricultural products, the study will summarize the penetration strategies being implemented to initiate trade in agricultural products to the EU market. From there, the study will analyze the characteristics to be taken into account in the current market penetration strategies applied to Vietnamese agricultural products.
Up to the present time, out of the mentioned mode of entries, Vietnam's agricultural enterprises are mostly conducting the trade of their agricultural products, to the world market in general and to the EU market in particular, through the export entry method. The export entry method, as stated, is the most commonly used method as well as the most basic form of penetration. However, with the commodity at hand being agricultural products, Vietnam has been applying indirect exporting in order to get their products across the border of the EU as so far, none of Vietnam’s agricultural firms was able to directly export our products into the EU market. Indirect export sales are no different from normal domestic sales with the sense that the company is not entirely involved in marketing and sales activities in the international market as this work is done by the foreign company. Indirect exporting is often the fastest way for a company to bring its products to international markets hence this has been effective in getting Vietnamese’s agricultural products into the EU’s market without much expenses and resources.
Following the principle of the Uppsala Internationalization Model (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977), Vietnam has made its decision based on their gradual acquisition and use of information gathered from the foreign markets and operations. As Vietnam is a developing country, there is quite a gap in the power position in comparison to the EU market. Along with the EU being one of the most influential economic clusters in the world with the member states having a vibrant and continuous flow of trade, it’s reasonable for Vietnam to use a simple, low risk form
of entry, in order to retain the quality and the integrity of our agricultural products as well as to gradually establish and introduce our brands to the consumers of the EU market. So the decision to continue and invest in the export entry method is very much in accordance with our access to the EU’s information on its international trade and Vietnam’s objective to establish itself in the union’s market. While our relationship with the EU has been growing over the years as the economy from both parties has obtained positive remarks, it’s still appropriate as Vietnam continues to make indirect export and direct export as our main entry modes. According to the Uppsala Internationalization Model, this is caused by the fact that the two elements involved in our level of commitment to the EU are the amount of resources committed and the degree of commitment. This can explain the situation that Vietnam's agricultural products have the potential and the will to increase the degree of commitment, our amount of resources are still quite limited in order to make a breakthrough and still maintain the union’s stringent standards.
Diagram 2.2: Basic mechanism of Internationalization
Source: adapted from Johanson and Wiedersheim-Paul (1975)
While this approach for international expansion makes sense in theory, there are still existing pros and cons for this particular penetration strategy when applying to the prospect of Vietnamese agricultural products getting into the EU’s market. Firstly, it is the beginning to address the pros for this penetration strategy. As mentioned before Vietnam is a developing country with little power in comparison to the EU, it is not possible to afford and invest the majority of our resources upon the penetration of the market. Indirect export with its feature of using limited resources and doesn’t require much investment will be an advantageous strategy for Vietnam to penetrate the market and build up our market share. Alongside the fact that this strategy has little criteria to cater to, Vietnam’s agricultural products will have very little risk in terms of marketing (the act of marketing the products will be the foreign company’s responsibility) as well as politics (the act of export signifies that the commercial trade is not highly integrated with or dependent on the EU’s political situation and stances). Hence, Vietnam's agricultural companies don't necessarily need an abundant amount of export experience.
Lastly, as indirect export is one of the most basic forms of market penetration, this poses the opportunity for further advancement as a high level of market diversification can be obtained when the company utilizes the internationalization capabilities of the market.
Since export is the first and foremost form of entry and following the basis of the Uppsala Model, Vietnam’s agricultural products are using these knowledge to our advantage as the Vietnam’s suppliers are establishing multiple export promotion policies in order to encourage and strengthen export products in accordance with regulations and standards from current international commitments in the EU’s market (VietnamPlus, 2022). In addition, in order to increase product homogeneity and enhance export value, Vietnam is also in the process of expanding and accelerating the process of modernizing the processing of agricultural products which is suitable according to the Uppsala Model’s statement on how a business entity should walk along the path of logical progress and will most likely move onto the next stage once Vietnam's suppliers have gained sufficient knowledge and capital from the act of promoting export.
And of course, as there are pros, the research will also analyze an elaborate compilation of cons. Possessing the signature characteristic that the act of marketing and distributing will be in the hand of the foreign third party services, indirect export can be a hindrance, if the wrong distributor is selected as it can affect the market, efficiency and operation. Retail and wholesale services are highly important to the EU economy. Food chains connect consumers mainly through modern retailers - supermarkets, hypermarket and discounters. In recent years the food sector has delivered more convenience foods and processed products to consumers, which has been stimulated by changes in lifestyle, urbanization, consumer taste and the general economic environment. Food consumption per capita has also increased over time, particularly in developed countries (EU Agricultural Markets Brief, 2015). They act as intermediaries between thousands of product suppliers and millions of consumers and for Vietnam’s products, they are even more of an integral.
With Vietnam’s agricultural enterprises, so far, none of the companies was able to directly export our products into the EU market, instead, the firms have been making use of the EU’s intermediaries for labeling, distributing and marketing. However, being too dependent on the large number of intermediaries, Vietnam’s agricultural companies are at a loss of profits, have access to little knowledge about the market and are losing their brand’s stance day by day. Despite having high quality products and creating a large amount of turnover, the tight knit business with the third parties are depriving us of profits as well as recognition since after being processed by multiple intermediaries, the product will appear on the shelves of your local retailers as a foreign product, not Vietnam’s. It is this that affects the European people's brand recognition, ingrained in their subconscious, making them have little impression of Vietnamese products (Như Nguyễn, 2022). For example, when it comes to rice most people think of Thai rice; when it comes to coffee, people only know Italy, Spain, and England. These are the markets that import most of the coffee and raw materials from Vietnam. It can be said that Vietnam’s agricultural products need a right and long-term direction to conquer the European market.