There are many ways for a company to expand its business operations in a new geographic market, particularly an emerging market like Vietnam. One of these is called FDI, or foreign direct investment, which means a company invests overseas by either setting up a subsidiary, acquiring shares of a foreign company, or through a merger or joint venture.
FDI gives giant players an opportunity to expand their businesses beyond their low-growth or stable home market to new foreign markets. Many foreign markets are emerging markets with high growth potential, or are experiencing structural change in their cultures and economies. In order to become a successful FDI, foreign companies must identify secular trends in their target markets, and whether their product lines can match what the new market is demanding.
Let’s look at one example of how a giant European food retailer successfully entered an emerging Southeast Asian market by capturing an emerging trend in that country.
Nearly 15 years ago, the Vietnam retail market began changing from the traditional street market-based model to the more modern supermarket model.
Metro entered Vietnam in 2002 and this proved to be good timing. At that time, like now, Vietnam was a country with a young population, growing purchasing power in urban areas and a retail market growing at a 16% per year pace.
Metro’s success is due to recognizing a structural change in Vietnam’s economy and local retailers being slow to adjust.
Before Metro’s entry, the domestic wholesale market was made up of smaller, traditional wholesale stores that had little bargaining power with suppliers. Metro filled in this gap by introducing their first outlet in Ho Chi Minh City with a total investment of $78 million. At that time, Metro was known as the wholesaler to wholesalers and the pioneer of Vietnam’s modern wholesale model.
Metro’s core strategy is to buy goods directly from the producers. Because of their big size, they have more bargaining power with their suppliers. This allows them to control their input quality and prices so they can provide high quality products at an attractive and transparent price. One study showed that 73% of Metro’s goods were priced lower than the lowest price in the market.
Another strategy Metro implemented was to facilitate their customer’s purchase activity. Metro offered their customers a one-stop solution for their purchase with a wide array of products, allowing their customers to buy almost everything they want with one visit.
Starting in 2002, Metro expanded to 19 outlets in 14 cities throughout Vietnam, while hiring over 5,000 full-time employees. As a result of their successful business model and smart strategy, Metro became the second-largest grocery retailer in Vietnam in 2013, with a 22% share of the local grocery market.