Local ad agencies should stop undercutting each other and focus on improving the quality of their services so they can compete with foreign firms in the near future, industry insiders say.
An executive of an advertising company who wished to remain unnamed said there is a disturbing trend of ad firm executives leaving their jobs after gaining some experience, usually to set up their own companies.
"They directly compete with their former workplaces, luring customers that they'd dealt with when working for their old firms. They usually get new customers by offering cheaper prices, not more creativity," he said.
Nguyen Minh Huong, general director of the Golden Communication Group, said earnings for advertising agencies typically account for more than 17 percent of the ad package value in international markets. However, in Vietnam, many firms accept very low rates, of 3 percent and even less, she said.
"Low prices, thin profit. As a result, the quality of services is in a downward spiral," she said.
Huong also said some firms are creating an environment of unhealthy competition by stealing ad ideas from others.
"In the ad industry, creativity is an extremely important factor. Many agencies spend a lot of time and money to generate good ideas. However, not long after they use these ideas for TV commercials, they find that their ideas are copied by another company.
"In some cases, the advertisement's setting is copied while its content is changed a little bit. In other cases, some firms steal the first part of a company's advertisement and another part from another agency's creation. Such incidents are becoming increasingly common, but the public is apathetic and uncritical."
Huong said, local ad companies are "killing" each other with theft of creativity. Meanwhile, foreign ad agencies are able to maintain their larger share in the market even without lowering their prices by offering good quality services, she said.
Foreign ad firms have close to 80 percent of the market share, according to the Vietnam Advertising Association.
Trinh Bich Dung, director of TV commercial firm Bac Dau Production, said foreign companies win most high-value advertising packages, leaving local firms to compete for small ads or work as outsourcing agencies for foreign groups to do minor parts.
Dung said domestic companies should target making whole ad packages to win a greater slice of the market pie.
Vietnam is home to around 5,000 advertisement companies. Half of them are located in Ho Chi Minh City, the country's economic hub.
Dinh Quang Ngu, chairman of the Vietnam Advertising Association, said most of its members are engaged in outdoor advertising although this segment made up just 20 percent of total ad sales last year.
The ad industry earned about US$1 billion in 2010, Ngu said.