It's time for local producers to let distribution companies help them supply goods to consumers as they have not managed the task well themselves, industry insiders say.
Nguyen Thi Kim Hong, director of Ho Chi Minh City-based Lien Thanh Seafood Processing Company, said that after more than a century of operations, her company last year decided to entrust another firm with the distribution of its products.
The move allows Lien Thanh to focus solely on production while Sao Viet Distribution Company will be responsible for setting up a nationwide distribution network to achieve an agreed upon sales target, Hong said.
Though a long standing brand of fish sauce products, Lien Thanh was never satisfied with its distribution system, which cost a lot of money to build but proved to be less efficient than expected. As a result, the firm wanted to pass on the task to a firm specializing in distribution of consumer goods and a six-month test run showed good results.
Local sauces and spices producer Nam Duong and toothpaste company P/S followed suit soon after, entering agreements to hire goods distribution services so that they no longer had to spread themselves thin over the production and distribution stages.
"Although it is not clear if a trend is developing, the demand to have product distribution outsourced is really high in Vietnam," said Sao Viet Director Bui Duc Hue.
"Moreover, when the market has grown to some extent, the distribution of goods needs to be professionalized," he said.
Distribution used to be quite easy for local consumer goods producers, analysts said. Several years ago, when most of the goods were sold via traditional retail markets, wholesalers from all cities and provinces were the ones who distributed products nationwide.
But as the market developed, businesses established their own goods distribution systems and stopped depending on wholesalers. The problem now is that since then local producers have been struggling to ensure the goods meet up with end users, analysts said.
Vu Kim Hanh, director of Business Studies and Assistance Center, said distribution is in fact the consumer products industry's weakest link.
"Only when local businesses have a good distribution network can they have a complete production chain," she said.
Hue from Sao Viet said that to solve this problem, production and distribution must be separated so that producers can focus on what they do best.
"The distribution business is not just about selling products for commissions. Distribution companies will also develop strategies to expand the market for a product."
The relationship between producers and distributors is still in its infancy in Vietnam, he said. There are hundreds of distribution firms in HCMC alone but only several dozen offer their services exclusively to Vietnamese manufacturers.
According to a statement published on Sao Viet's website, almost all domestic companies try to handle distribution themselves, but unlike multinational corporations, they do so "without any direction and in an amateur way."
But Hue said it would be up to a company to decide whether or not to distribute their own products. "If producers are strong enough in terms of both personnel and finance, they should take care of everything themselves, because they know their products better than anyone else."
However, for smaller companies, they will be unlikely to succeed in handling distribution on their own because the competition on the local market has become really harsh, Hue said.
The difficulties could be seen during the recent economic downturn, he said. "Sales declined and production was cut back. But many companies still had to pay salaries for distribution staff."