Market Watch: Vietnam

February 2, 2010 by Gary Rusak

With a surging middle class, steady population growth and a GDP in the neighborhood of US$90 billion, the Socialist Republic of Vietnam has started to garner attention as a viable and dynamic market for licensed goods. Hugging the Gulf Of Tonkin and the South China Sea to the West, and bordering China, Laos and Cambodia to the North and East, the small South Asian country has been swept up by the consumerist wave emanating from China. And despite being under the rule of a communist regime, experts say Vietnam is really starting to come into its own as a market for licensed goods featuring Western properties.

Lay of the land

With a population of 85 million (an estimated 40% of which is under the age of 25), and a consumer spending rate that rose by 75% over the last decade, the desire for Western goods and properties seems sure to keep expanding. ‘In 2008, Vietnam had solid GDP growth and a real increase in consumer spending,’ says Laura Gurski, a partner at Chicago-based retail consulting firm A.T. Kearney, which put the country at the top of its annual Global Retail Development Index in 2008.

The global downturn in 2009, however, caused consumer spending to take a slight step back and slowed Vietnam’s economic growth. ‘They were moving towards a more open market, but then the economy got bad and the only lever they have to go back to is more government regulation,’ says Gurski. ‘The Vietnamese government’s been going back and forth on accepting direct foreign investment – what it’s going to allow and what it won’t.’

That said, hopeful signs still abound. It looks like the government is currently pursuing a course to pull back and ease some restrictions. Notably for consumer products players, regulations permitting foreign-owned retailers to enter the country were instituted on January 1. Obviously, it is too early to see exactly what effect the new legislation will have on foreign investment, but retail analysts see the initial announcement as a positive sign.

Not that it’s going to be smooth sailing. Gurski says the government is considering requiring foreign-owned retail outfits to submit their pricing structures, which is causing some of the bigger names to hold off on setting up shop in Vietnam. ‘Pricing is the core of the retail business and highly confidential,’ she says. ‘A market that transparent will discourage Western investment.’

But as has been the case with other emerging markets of similar size, once the proverbial toothpaste is out of the tube, it’s out for good. So while other sectors like the advertising and banking industries begin to ramp up their Vietnamese operations, licensees and licensors are following suit, looking beyond one-off and promotional deals to establish reliable, day-in/day-out businesses.

‘It’s just happening right now,’ says Dave Sharat, VP of marketing and licensing for Asia Pacific at 4Kids Entertainment’s Hong Kong office. ‘People are now trying to engage in deal-making and want to take a more Western approach by setting up offices on the ground there.’

Similarly, VP of rights management and licensing Wallace Tay, who works for Warner Bros. Consumer Products’ Vietnamese agent Global Brands, says business is just beginning to take off. ‘We just started [representing WBCP] about six months ago in Vietnam,’ says Tay. ‘It’s still too early to gauge the business, but we have done about US$400,000 in deals over the first few months.’

Retail and other stumbling blocks

Similar to other emerging markets, retail remains one of the major hurdles in setting up a viable and effective licensing program in Vietnam. While many global retailers are established in the country, including South Korean superstore Lotte, Japan’s Seiyu and Malaysia’s Parkson, the landscape is still predominately populated by mom-and-pop, single-store outlets.

‘The retail trade is dominated by boutiques,’ says Abe A. Franco, regional licensing director for licensing agency Carlson Great Gifts Asia Pacific. ‘Mom-and-pops and traditional wet markets make up easily 95% of the retail landscape,’ he says.

The lack of retail real estate (the average store has only about 15 feet of floor space) and absence of more centralized retail players hinders mass-market deals. It also makes distribution of licensed good across all categories troublesome. ‘Modern retail is still new to Vietnam,’ says Peter Ngo, GM for Global Brands. ‘The largest department store operator has only five locations throughout Vietnam.’

Marilu Corpus, CEO of Click Licensing Asia, which represents Sesame Workshop and Marvel in the region, agrees. ‘There is a lot of retail development that needs to happen there,’ says Corpus. ‘It’s a priority to get retail more solidified – we have a few agents on the ground, and maybe in a little while more people will understand just how licensing works.’

Another issue facing licensors and their partners in the manufacturing and retail sectors is the trafficking of grey-market goods and prevalence of outright piracy. Many agents, including Corpus, have had to deal head-on with both problems. ‘In general we have to approach the market with caution,’ says Corpus. ‘It’s becoming a jumping board for parallel shipments to Japan.’

Products licensed and manufactured for the Vietnamese market are regularly being reshipped to Japan. And a grey market has grown up around them, as the Vietnamese goods are sold for a higher price and compete with products legally licensed for Japan, messing with the bottom lines of licensees in both countries. ‘It causes real stress for the Japanese owner,’ says Corpus. ‘So you have to really screen the wholesaler and make sure you have control of it.’

The nature of the market also makes it easier for bootleggers to make a living pirating every imaginable kind of product, as copyright protection laws are vague at best and non-existent at worse. ‘The legal infrastructure needs to be improved with regards to protection of IPs,’ asserts Ngo.

What is working…

Despite the hindrances, there is a reason why many of the top IP owners in the world, including Nickelodeon, Disney and Cartoon Network, are setting their sights on Vietnam. According to Franco, licensing in its mature form was introduced to Vietnam in 2005 with Mattel’s Barbie leading the way via an influx of the dolls and related merch for the first time.

In 2007, more strides were made as the government-owned-and-operated television regulator allowed Disney Channel to go live, establishing a platform strong enough to drive IP awareness and nationwide licensing programs. Following Disney Channel’s launch, Mickey Mouse, Winnie the Pooh and Disney Princess merchandise, including hardlines, softlines, apparel and toys, started showing up at the country’s few retail chains.

Interestingly, one of the most popular kids IPs right now is Warner Bros.’ Tom and Jerry. The adversarial cat and mouse have strong recognition, and there’s product inspired by the pair available in most categories. However, says WBCP rep Tay, the property’s awareness has so far been driven primarily by pirated DVDs of the series that can be purchased in small shops and traditional markets. It’s a valuable example of how difficult it is to establish IP ownership in the country.

‘Character merchandise is still a relatively new concept in Vietnam,’ says Franco. ‘But penetrating the market and developing regular customers is no longer impossible.’ For his part, Sharat agrees and is currently designing a publishing program for various 4Kids IPs, rather than relying on TV exposure as a way to introduce them to the local market.

‘Publishing will be the way for us to get in,’ says Sharat. ‘I can also see back-to-school products working.’ He adds, ‘It’s a progressive market, and whatever we can do to get in we will do.’

Owing to the country’s demographic breakdown, Corpus says educational categories, particularly publishing, are the best way to connect with Vietnamese consumers. ‘They are very much into educational brands,’ she says. ‘Especially for products that can teach English; I see that category as having real potential.’

While many Japanese properties are already in the market, many of the agents we spoke to contend that the Vietnamese population is intrigued by Western properties. And as venues for exposure grow through the increased relaxation of TV and internet restrictions, IPs from the West are destined to become more and more popular.

‘American properties will eventually have greater success than the Asian-based ones,’ predicts Tay. ‘I think there are opportunities for both Asian and American brands,’ adds Corpus. ‘The familiarity of certain brands isn’t there yet, but it’s coming.’

Gurski, who as an analyst necessarily takes a wide view of the situation and the markets in neighboring countries, shares Corpus’s bullish outlook on Vietnam’s potential. ‘As a market, it’s here to stay,’ she surmises. ‘If you want to get into it, the time to do so is probably right now.’