Many Vietnamese enterprises now supply products to the retailers. However, most of them do under ODM (original design manufacturer) mode, which means that they design and make products to retailers’ orders and label products with retailers’ brands, or FOB (free on board).
This explains why it is difficult to find Vietnam’s products at overseas supermarkets.
|Many Vietnamese enterprises now supply products to the retailers. However, most of them do under ODM (original design manufacturer) mode, which means that they design and make products to retailers’ orders and label products with retailers’ brands, or FOB (free on board).|
Nguyen Tien Dung, strategy director of Red Group, former director of the Saigon-Coop project, commented that ODM is an easy job for Vietnamese enterprises, because they don’t have to spend time on learning about markets, but they can sell products in large quantities.
However, with ODM, Vietnamese enterprises heavily rely on retailers, which brings risks.
“They (Vietnamese enterprises) do not know what retailers will do with their products and will never know what end-customers need,” he said.
Kenny Lee, CEO of Co May Singapore, a subsidiary of Vietnam’s Dong Thap-based Co May Group, said it took Co May more than one year to learn about the market and Singaporean tastes before it could bring Co May’s products to Singapore, a small market with 6 million consumers, but relatively choosy.
Lee said enterprises need to prepare financial capability well to bring goods to supermarkets and convenience stores in Singapore, because the cost is very high, amounting to 35-40 percent of product value.
Meanwhile, they will have to meet strict requirements.
Co May is a young 5-year-old brand in Singapore which has to compete with big rivals with 35 years of experience.
Dung said that if Vietnamese enterprises are satisfied with their ODM jobs, they will never become known in the world market.
They will also fail in the competition in the home market where foreign brands will flock under FTAs (free trade agreements). They have no other choice than exporting products to the world market under their brands, like Co May does.
If enterprises lack experience, they can work with distributors under 3-5-year cooperation contracts. When they become more experienced, they can work directly with retailers.
To be able to negotiate with retailers, Dung said, enterprises need to be strong in the home market also.
Enterprises also need support from the government. For instance, the government can help set up bonded warehouses to shorten the time for customs clearance.