Vietnam has become an increasingly attractive market for foreign brands due to its growing middle-class and a stronger preference for foreign products. Product quality, prestige, and taste are just some of the attributes driving this rise.
However, entering the Vietnamese market often comes with various challenges that we will review in greater detail later in this article. Working with local distributors is a preferred option for brands selling B2B and B2C, allowing you to get instant market access while reducing risks.
In this article, we review the benefits and disadvantages of working with Vietnamese distributors, as well as important items to consider before choosing a distributor.
Benefits of Working with Vietnamese Distributors
If you have no experience or presence in Vietnam, partnering with a distributor will most likely be the most time-efficient option to enter the market. Let’s review some of the most outspoken benefits of working with distributors locally.
Leverage the existing network of your distributor
Many distributors have years of experience in selling other brands locally, which has allowed them to build up a large network. Hence, once the distribution partnership is established, your products will quickly reach many end consumers.
Supermarkets such as Top Market, MM Mega Market, and VinMart have a large footprint in the bigger cities. These companies work with established distributors for imported goods, especially in the FMCG industry. For consumer electronics, The Gioi Di Dong (Mobile World) and its associated company – Dien May Xanh, are among the first options for electronic products.
Another example in the automotive industry is Savico – the largest car dealership in Vietnam that is distributing well-known brands, such as Volvo, Toyota, Ford, Honda, and more.
Access to multiple sales channels
A distributor can help you import the products in-country, allowing you to get access to all sales channels available. Compare this to cross-border eCommerce sales where you only get access to this single sales channel. Not only do eCommerce platforms have product-specific requirements for cross-border sales, but the sales price and size of the products must also be compatible.
On Lazada, for example, it’s long been prohibited to sell both food products and supplements cross-border. Selling perishable food products cross-border is complex to assure refrigeration and cover the higher logistics costs.
By working with an experienced and reputable distributor, you will be able to sell both online and offline, which can be beneficial for B2C sales. While online sales might not be as common for B2B sellers, the distributor can sell the products to everything from supermarkets, hotels, convenience stores, and more.
A single point of contact
Your distributor will be your single point of contact and manage the sales for hundreds or maybe thousands of end customers. This is both time-consuming and requires sufficient experience in managing the process efficiently.
The distributor should not only be well-versed in the sales and marketing process, but also in assuring customer satisfaction. This can be particularly difficult for a company that has little or no experience in the Vietnamese market.
Given the different regulatory requirements when importing products in Asia, you will benefit from the distributor’s knowledge and experience in registering the products locally. This can include both registrations with the customs, product labeling, and facility inspections, for example.
Managing the registrations on your own can be a tedious task and result in a scenario where you’re not able to sell the products locally. The registration processes should be managed by both you as a seller and the distributor, assuring that you have the right paperwork in place.
Disadvantages of working with the local distributors
While there are many advantages of working with Vietnamese distributors, you should also beware of the disadvantages and risks this might bring. Let’s review the most common ones.
Losing control over the sales process
By partnering with a distributor, you lose control over the sales, marketing, customer service, and warranty activities. Thus, you must work closely with the distributor to assure that maximize sales and meet consumer expectations.
A common issue is that distributors, purposedly or non-purposedly, don’t meet the expectations of companies. It’s not uncommon that distributors require exclusivity and intentionally keep sales volumes low, to favor other brands they work with. Including minimum sales quotas on a quarterly basis, for example, is crucial to avoid these kinds of scenarios.
This is more difficult if you only work directly with local distributors and have no direct connection with the retailers, for example. The situation is slightly more manageable if the distributor acts as the retailer. This is more common for B2B and non-FMCG products. In these cases, the manufacturer works directly with the retailers, has better insights into the sales process, as well as better negotiating power.
Unfavorable commission rate
Supermarket commission has long been a challenge for distributors/producers. The more layers a product must go through before reaching consumers, the more commission is paid to the middlemen.
In fact, the commission for supermarkets varies depending on the product categories. This is typically ranging from 15% to 30%. Apart from the commission, foreign brands also suffer from other extra fees and taxes, compared to local suppliers. Hence, it is important for the management of the company to stay competitive in terms of pricing while remaining profitable.
Conflict of interest
It is common that the local distributor works with multiple brands rather than just any single specific one. Hence, leaving the sales control to such a third party can sometimes cause a conflict of interest between competitors.
Suppliers with better bonus schemes and relationships with the distributor tend to be prioritized and enjoy privileges. Moreover, retail chains in Vietnam normally have an in-house production team, either directly under their brands, or indirectly through the related companies. These “in-house” products tend to receive massive privileges over other external ones.
For example, in 2019 Winmart (previously Vinmart) was acquired by Masan Group – one of the largest producers in Vietnam of FMCG products. Hence, we can see today many Masan’s products at every corner of Winmart, ranging from fresh vegetables/meat to snacks, drinks, instant noodles, and more.
Another example of this challenge is Bach Hoa Xanh and Co.op Mart (two leading supermarket chains in the South of Vietnam). Several consumer products such as bin bags, cling film, or cotton buds under their brand are now competing directly with the same products from external suppliers. Such “internally-sourced” products often come with a price competitive advantage, compared with others.
What to consider when working with the local distributors
Before you decide to enter a partnership, you must confirm that the distributor is capable of managing your local sales activities. Below are some examples of items to be reviewed beforehand.
Sales network and logistic capabilities
It’s crucial that your distributor has a sufficiently large network so that the products can be sold in sufficient volumes. At the same time, it’s equally important that you understand what retailers the distributor sells the products to.
Items to be reviewed and included in the distribution agreement include, but are not limited to, the number of stores that have/sell to, current brands they are distributing, the typical clients, and sales volumes per annum.
In case the distributor is present on local eCommerce platforms, other items to check are what platforms they are active on, buyers’ reviews, and how fast the products are delivered. Customer service and warranty should be reviewed as well.
Some specific products require certain conditions of storage. For example, cold storage of frozen food, chillers or fridges for F&B and pharmaceutical products, aseptic room for certain medical equipment. Foreign companies also need to make sure that such facilities from local distributors are qualified to deliver the best quality to end-users.
Distributors sometimes focus on sales in certain regions. This is particularly the case in bigger countries like China, but also in Vietnam. A market analysis should therefore be conducted prior to the selection of a distributor, to understand where the biggest sales potentials are.
To have the right penetrating strategy, companies are suggested to have at least a fair overview of the relevant market, such as the competitive landscape, consumer trends, competition, and applicable regulations. This could be done either through publicly accessed sources or through a professional market research agency that is familiar with the local market.
Working with local distributors is an effective way for foreign brands to establish a footprint in the Vietnamese market. Benefits can include lower initial investments, reducing compliance risks, and the avoidance of setting up your own local organization and sales team.
However, it is also important to highlight the disadvantage of working with distributors, especially from financial aspects. Each additional layer between the manufacturer and the consumer reduces profit margins.
It’s important to understand both the benefits and advantages of working with local distributors. While distributors might have great experience and established networks that can generate sales instantly, they might not work in your best interests. This might be the case if the distributor already sells one of your competitor’s products and prevent market access.
Prior to selecting a distributor, it’s of great importance to verify its sales and marketing capabilities by reviewing its previous sales performance, existing network, and creating a waterproof contract.