Focus on local conventional retail

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Focus on local conventional retail

More and more Korean companies are entering the Southeast Asian market, but many of them are struggling as they are not familiar with the local market situations. A consumer goods company that has recently expanded to Vietnam analyzed the local market conditions through the branch but could not find out clear answers. The complicated and highly competitive conventional business structure dominates distribution channels in Southeast Asia.

Even in the large cities like Ho Chi Mihn in Vietnam and Jakarta, Indonesia, revenues in conventional trade areas are more than 70 percent of total consumer market. A proper strategy cannot be devised simply based on the size and location of these conventional business districts. There must be qualitative understanding of major shops, owners and customers. In the diversified Southeast Asian markets, even a major company with globally powerful brands cannot provide goods through all available distribution channels.

First, the conventional business districts should be categorized by locations and sales volume, and the target areas and products should be determined. It is also important to exclude the areas and products of lower priority. In Southeast Asian markets, decision-making on choice and focus is very important.

Also, for sales, companies need to address the shop owners over consumers. The conventional stores in Southeast Asian region are mostly very small, and customers often do not even come into the store. They would tell the owner what they need at the entrance or even while riding a motorcycle. And the owner picks the brand for the customers.

However, most Korean consumer goods companies concentrate on modern distribution channels in big cities such as supermarkets and department stores. While they think “failure in localization” was the cause of poor outcomes, the real reason may be the lack of understanding and strategies on local conventional retail structure. It is not easy to penetrate into the complicated network of conventional stores, but it could bring great opportunities for growth. Korean companies should promote effective strategies through extensive understanding and thorough research on the market. When partnerships with companies can be utilized, they can come up with effective strategies to penetrate the conventional business structure.

by Shin Eun-hee, CEO of Nielsen Korea

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