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Sales Channels to Vietnam
Latest Update: August 16, 2021
This is relevant for: Foreign companies setting up sales in Vietnam
Organizing sales is an important topic not only during market entry but also when intensifying operations in Vietnam. Core questions are "How do I get my product into the market?" 👉🚪 and "How do I get more product into the market?"😉. Within this article, we will introduce sales channels being used to import and distribute products in Vietnam.
Selling directly without any intermediary to Vietnamese customers is technically possible but does not seem to be the "usual" case. It is very hard to actively identify and contact "end customers" in Vietnam because of a lack of networks and trust of foreign partners. Even if a client would be found, maintaining it will be tough for foreign companies. See our corresponding article on the "Circle of Trust" here. Hence, many direct sales projects seem to be initiated by Vietnamese parties actively looking for complex and high-value investment goods, for example power plant turbines. This however cannot be counted as a "structured" market entry strategy. It is mostly "ad hoc" business.
The following Trade Agent, Wholesaler and Multinational Distributor will often simply called "Distributor".
Trade Agent (aka "Free Agent") - German: Handelsvertreter
Within this sales channel, the agent has the network/contacts and arranges the sale. However, the sales contract will be closed directly between foreign supplier and Vietnamese end customer. Furthermore, maintenance and service will also often be done by the exporter (be aware of Foreign Contractors Tax). Of course, the agent will invoice a commission fee for her services. Another downside might be that the control over the client is somewhat limited because the primary contact will likely remain with the agent. Trade agents will often be utilized for complex investment goods, e.g. machinery. Trade agents may operate as companies or as private freelancers.
Wholesaler (aka "Reseller")
The wholesaler will buy the product from abroad and resell it in Vietnam; hence it is often called "reseller". Essentially, all "commodities" will be sold through this channel. But we have also seen many "investment goods" producers working with wholesalers in Vietnam. The wholesaler will provide the complete range of market access from sales arrangements, contracting, importation, invoicing to even maintenance and service. For commodities, the wholesaler can also hold stocks. While this solution is convenient for the supplier abroad it eats up margin and end customer contact will be severely limited.
This describes a distributor with access to multiple markets. There are two types of such "multinational distributors". On the one hand, there are trading houses like Melchers, DKSH or Mitsui. They feature their own subsidiaries in many target markets such as Vietnam. On the other hand, there are distributors established in local hubs like Bangkok or Singapore working with external agents in each market. Both groups of "multinational" distributors often handle diverse industries either through their own subsidiaries or through a system of different distributors. These partners are therefore an extremely convenient solution especially for smaller companies with limited capacities in their export departments. They also might come in handy if an exporter has technology serving multiple sectors which are often difficult for an individual local distributor to cover because they are often focused on products for specific industries. However, there are only a few multinational distributors in the market making access a difficult affair. Furthermore, working with such a partner limits the exposure of the exporting company to its target markets to an absolute minimum. While this seems to be a targeted strategy for some enterprises (essentially completely externalizing export activities), most others will likely wish to gain more control over their customer base.
While this function is similar to a freelance Trade Agent (see above) it is not utilized on its own. A Sales Agent is a person working in cooperation with distribution partners. They are often creating and implementing marketing plans, engage in "cold calling" and overall strengthen the market presence of the exporter in Vietnam. Sales Agents can either be contracted as freelancers or may be employed through a distributor. Sometimes, the exporter finances an existing team member of the distributor which will then exclusively work on her products.
If sales volumes permit or other factors (such as company strategy, servicing needs) mandate, establishing a sales subsidiary is possible in Vietnam. FAQs on establishing and running a company can be found on this Knowledge Hub. While it will be possible for the subsidiary to arrange sales, contract, import, invoice and do maintenance/service it also creates cost for establishment and operation. Yet-to-be investors should also note that many sales subsidiaries are only partly engaging in direct business with local B2B end customers. This is because they often lack the necessary networks and because compliance is a major issue with local customers. As a result, many international sales subsidiaries engage in direct business with international investors and work through distributors for access to local clients.
Most of the companies we are working with operate through wholesalers, so this might be the most prevalent sales channel into Vietnam. It might be followed by trade agents. Within the German investments in Vietnam, sales and service functions are most common making up a third of all companies.
Overview: Sales Channels and their (dis)advantages/functions
We are often seeing a succession of sales channels in Vietnam. Many companies start out with ad hoc business, selling directly to Vietnam. Through this business they recognize their market potential in the country and decide to follow a more structured and sustained approach to acquiring market share. Cooperation with a distributor is normally the outcome. Working with a local partner will - in a best case scenario - increase turnover quite fast because she will access her existing customer network. However, we are sometimes hearing from our customers that after a while turnover reaches a plateau. This might be due to the distributor exclusively serving her network but not engaging into the acquisition of new customers. To support the Vietnamese partner, foreign companies may then hire a Sales Agent. If turnover is promising exporters can take the "final step" of establishing a sales subsidiary, may be including local service and warehouse operations (or even assembly).
Overview: Timely succession of sales channels
And there you have it: Working with an able partner or establishing a subsidiary in Vietnam can open up the market and contribute significant turnover to the export operations of foreign companies. An increased presence of international know-how also gives Vietnamese clients access to latest products and services from abroad making them more competitive.
However, finding and contacting potential distributors is a tricky affair as laid out here. Establishing a subsidiary entails a lot of questions. If you need assistance building up a presence in Vietnam you may refer to our our main homepage (click for link) or contact us as laid out below.
Please consider this information without liability for any data with respect to content, completeness or up-to-datedness.
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