Vietnam and Myanmar: Southeast Asia’s New Growth Frontiers

Vietnam and Myanmar: Southeast Asia’s New Growth Frontiers

          
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Vietnam and Myanmar: Southeast Asia’s New Growth Frontiers

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    Vietnam: A Strong Trajectory

    Vietnam has been on the upswing for 20 years, and that trajectory has steepened since 2007, when the country joined the World Trade Organization. The Vietnamese economy is well balanced, with exports and investments driving recent growth. Thanks to the growth of the technology components and equipment industries, exports and investments have been growing faster in Vietnam than in other Southeast Asian nations.

    Vietnam is a stable communist country, with leaders committed to economic expansion. Inflation and corruption remain persistent challenges to which companies must adapt. While a recent banking crisis has shaken investor and consumer confidence and contracted credit, the nation’s leaders are taking steps to fix the root causes. (See “Vietnam at a Crossroads,” below.)

    Vietnam at a Crossroads

    Vietnam’s recent economic performance is colored by a banking crisis that has lingered for more than a year. The broad outlines are well known. Banks liberally loaned money to state-owned enterprises and other companies, and many of those loans have gone bad. When the government tightened credit, bankruptcies soared and GDP growth slowed. GDP growth of 5 percent in 2012 was the lowest in more than a decade.

    In July, the government created an agency to buy bad debt from banks. The move was both applauded as necessary and criticized as too little, too late.

    Southeast Asian nations have survived banking crises before. After the Asian financial crisis in the late 1990s, several governments consolidated and recapitalized their banking industry, setting the stage for future growth. The economies of Malaysia, Thailand, and Indonesia were back to precrisis levels within five years.

    Vietnam’s banking industry is healthier than that of its neighbors during the crisis of the late ‘90s. If the government learns from history, the current crisis should prove to be a speed bump rather than a major hurdle.

    By 2020, Vietnam’s MAC population will be two-thirds the size of Thailand’s MAC population. Average per capita income will rise from about $1,400 to $3,400 per year. It’s no wonder McDonald’s announced recently that it would join KFC, Starbucks, Pizza Hut, and Burger King in opening stores in Vietnam.

    This new wealth is well distributed. Incomes in rural areas are actually growing faster than in urban areas—expanding by 18.5 percent annually between 2002 and 2010, compared with 16.6 percent in urban areas. The government has encouraged this income growth through land allocation, trade, and investment policies.

    Understanding Vietnamese Consumers. Despite short-term worries about the global economy, 70 percent of Vietnamese consumers say that the economy is on the upswing. These consumers are also financially secure. They are in the mood to buy, with 80 percent of them saying they want to make more purchases than they did the year before. They are more open than their counterparts in Thailand and Myanmar to buying on credit, with 43 percent saying they would consider borrowing to buy essential items and 28 percent willing to borrow even for luxury items.

    Few Vietnamese consumers, however—including the affluent—use banking products other than a savings account. Only 5 percent own a credit card, for example. These consumers do not fully understand the benefit and relevance of many banking products.

    Vietnamese consumers are even more family oriented than those in other Asian markets. Nearly seven out of ten consumers, or 69 percent, say they do not spend money on themselves until their family’s needs are met—a higher percentage than in India, Indonesia, Thailand, or China.

    Rich, poor, or in between, Vietnamese enjoy the hunt for deals, discounts, and promotions, more so than consumers in Thailand or Myanmar. They are also more active users of the Internet than their peers in nearby markets—43 percent, compared with 41 percent in Thailand and 29 percent in Indonesia. However, Vietnamese consumers do not tend to shop online. Only 16 percent of MAC consumers are online shoppers, compared with 39 percent of MAC consumers in Indonesia.

    Reaching Consumers in Vietnam by Going Far and Wide. MAC consumers in Vietnam are not just growing in numbers; they are also spreading out. Today, a company can reach one-half of Vietnamese MAC consumers by serving Ho Chi Minh and Hanoi provinces.

    But between now and 2020, several sizable groupings of MAC consumers will crop up along the 1,200-kilometer-long spine that connects these provinces, the country’s largest. As a result, Ho Chi Minh and Hanoi provinces will account for only about one-third of MAC consumers by 2020, and a company will need to have a presence in nearly twice as many locations as it does today to achieve comparable coverage. (See Exhibit 3.)

    exhibit

    Understanding the Changing Shopper. While consumers still depend on mom-and-pop shops for smaller purchases, modern trade has a growing presence in Vietnam. About 80 percent of MAC consumers shop for groceries in hypermarkets or supermarkets at least occasionally. But traditional and modern-trade formats will continue to compete for customers for many years. These dueling channels will force companies to develop new skills, such as key-account management in modern formats, while paying attention to in-store execution and consumer insight in both formats.

    Many basic consumer goods are already widely available and used in Vietnam. Toothpaste, packaged goods, and biscuits have at least 80 percent penetration among urban consumers. Cosmetic products also are in a majority of households at all income levels. Therefore, companies will likely have to encourage increased consumption, as well as trading up to higher-quality products and adoption of “comfort” and “lifestyle” products, within these categories. For example, motorcycles and refrigerators all have penetration rates greater than 80 percent across all income segments. But comfort products, such as air conditioners, and lifestyle products, such as smartphones, have far lower penetration rates among consumers below the MAC threshold.

    Getting Vietnam Right. The window of opportunity in Vietnam is open now. Consider the following realities and questions if you are already in Vietnam or are thinking of getting in:

    • Increasing penetration will be insufficient in most categories. What is the real opportunity for your business? Do you have a plan to drive category growth through increased consumption, trading up, and adoption of higher-end comfort and lifestyle products?
    • Traditional channels remain relevant in several categories, but MAC consumers are shopping increasingly at modern-trade stores. Do you have the right portfolio, prices, package sizes, and go-to-market and service model to win in each channel?
    • MAC consumers are rapidly spreading beyond the largest cities. Do you have the right go-to-market strategy to rapidly increase your coverage throughout the country?
    • As your business grows, the need for top talent and strong organizational practices will increase. Do you have mechanisms in place to attract and retain top talent and build your local Vietnamese organization?
    • Financial service companies need to drive adoption of products. Do you have a plan and a marketing campaign to compete against local and state-owned banks that, despite recent troubles, are still more trusted by the Vietnamese than foreign banks?
    The CCCI survey asked about the following categories of goods: alcoholic spirits; baked goods; bar and liquid soap; beer; biscuits; bottled water; candy and gum; cosmetics; deodorant; facial moisturizer; frozen meat; ice cream; instant noodles; juice; laundry detergent; milk; shampoo; snacks; soft drinks; tea and coffee; toothpaste; and yogurt.