APPROACHING VIETNAM BUSINESS: THE HIERACHY OF NEEDS

1. Vietnam Business under Covid-19 impact

Covid-19 has strong impact on Vietnam Businesses, especially the number of new entrants. The total number of enterprises entering and re-entering the market (returning to operation) in 2021 is 159,955 (decreased by 10.7% compared to 2020), of which there are: 116,839 newly established enterprises (decreased by 13.4% compared to 2020) and 43,116 enterprises returned to operation (decreased 2.2% compared to 2020). On average, 13,330 enterprises are entering and re-entering the market each month.

 

   – Classification by business sectors:
Impacts of the Covid-19 was also reflected in the fact that there are only 03/17 sectors which have increased numbers of enterprises compared to 2020: Real estate (increased by 12.9%); Transportation and Warehousing (increased by 8.8%); Information and Communications (increased by 3.8%). In contrast, there are 14/17 sectors where the number of newly-established enterprises is lower than that in 2020, mostly in sectors, industries affected by the Covid-19. Manufacturing and distributing electricity, water, gas (decreased by 79.2%); Accommodation and Food Services (decreased by 25.6%); Agriculture and Forestry, Fishery (decreased by 24.3%); Arts, Entertainment, and Recreation (decreased by 23.0%); Other services (decreased by 21.8%).

Sectors having the largest percentages of newly registered enterprises include: Wholesale and Retail trade with 40,249 enterprises (accounting for 34.4%); Processing and Manufacturing with 15,049 enterprises (accounting for 12.9%); Construction with 14,348 (with 12.3%).

 

   – Classification by regions:
In 2021, there are 05/06 regions in the country having decreased numbers of newly registered enterprises compared to 2020, including: Tay Nguyen (3,787 enterprises, decreased by 21.9%); Southeast region (43,857 enterprises, decreased by 21.5%); Mekong Delta (8,313 enterprises, decreased by 19.8%); North Central – South Central Coast (16,842 enterprises, decreased by 9.6%); Red River Delta (37,913 enterprises, decreased by 4.6%). The Northern Midlands and Mountainous regions are the only regions where the number of newly registered enterprises has increased (6,127 enterprises, increased by 10.8%).

Ho Chi Minh City, the only region which had always taken the lead in the number of newly registered businesses, witnessed a decrease in both the numbers of newly registered enterprises and registered capital; in particular, the number of newly registered enterprises in this region in 32,344 and the registered capital is 505,790 billion VND, decreased by 21.9% and 55.3%, respectively, compared to 2020.

 

  – Classification by capital size:
The year 2021 recorded an increased number of newly registered enterprises with the capital of over 20 billion VND; in particular: the number of newly registered enterprises with the capital of over 100 billion VND is 1,981 (accounting for 1.7%, increased by 14.1%; with the capital of 50-100 billion VND is 1,909 enterprises (accounting for 1.6%, increased by 8.3%) and with the capital of 20-50 billion VND is 4,105 enterprises (accounting for 3.5%, increased by 3.7%). The number of newly registered enterprises with the capital of 0-10 billion VND is 102,451 (accounting for 87.7%, decreased by 14.6%) and with the capital of 10-20 billion VND is 6,393 (accounting for 5.5%, decreased by 14.8%).

The total registered capital added to the economy in 2021 is 4,135,966 billion VND (decreased by 25.8% compared to 2020), of which the registered capital of newly established enterprises is 1,611,109 billion VND (decreased by 27.9% compared to 2020). The average registered capital per enterprise in 2021 has reached 13.8 billion VND, decreased 16.8% compared to 2020. This partly demonstrates that the difficulties caused by the pandemic in the past year have made enterprises face cash flow shortfalls, along with fear and caution in investing in new business projects or increasing production capacity.

The prolonged pandemic has eroded the strength of many domestic enterprises, most of which are enterprises established under 5 years with small capital size. 119,828 enterprises have temporarily ceased operation or dissolved in 2021, an increase of 17.8% compared to 2020. Among those withdrawing from the market, 54,960 enterprises have temporarily ceased their business (accounting for 45.9%), i.e., they are not leaving the market, but continuing to ‘freeze’ the business, waiting for the right time to look for new business opportunities. The majority of enterprises who temporarily ceased in 2021 have a short operating time: mainly enterprises with operating time of 0-5 years – 27,699 enterprises (accounting for 50.4%); there are 15,172 enterprises (accounting for 27.6%) with 5-10 years of operating time and 12,089 enterprises (accounting for 22%) with more than 10 years of operating time.

 

2. Hierachy of Needs for Business Customers

Covid-19 has caused the needs gap between different groups of businesses become greater. While Agriculture, micro-small companies and private-owned sector are struggling to survive and dealing with fluctuating macro-environment, large corporates from state-owned or FDI sector tend to focus on enhancing their competitive position, expanding their eco-system and strengthening their network. This is reflecting on the main KPIs for business (refer to figure 1).

Based on different financial condition, each business target would have different business level of needs. Thus, one-fit-all offer design may not help to gain competitive advantages, especially towards large scale corporates customer or within the highly competitive industries. As the results, applying the hierachy of business needs in offer design could be helpful in understanding and approaching potential customers in Vietnam (refer to figure 2).

 

 

Thanks to the chance working with various group of business customers in Vietnam, we have realized the 3 main layers of business needs including basic needs, advanced needs and strategic needs, which could be found in different targets. Firstly, the basic business needs consist of securing the stable business operation and seeking for business growth. In this layer, business is often attracted by the urgency, competitive cost and ease of access to the product/ service (installment options, long-payment terms,…). However, in this layer, there is low offer differentiation and mostly the rivals compete on costs and payment terms.

Secondly, the advance needs layer is often found in more mature businesses and FDI companies. In this layer, the companies have more stable financial and strategic foundation so they focus on enhancing the inside (eco-system, value chain expansion) and outside (suppliers/ customers) network to achieve efficiency and sustainability. In order to jump into the consideration set of this group, the high reputation and proven ability are critical. In addition, they are often attracted by the added values besides the core product/ service offers, for example: discount/ promotion program for customers, suppliers or their subsidiaries; introducing or connecting customers/ partners.

Finally, the highest layer is the strategic needs, which is often found in a few market leaders or big state-owned companies. In here, after gaining the efficiency and ensure sustainability, the companies are aiming to achieve the leading position and fullfil the role as the market leader to nurture the market by sharing values to broader customers. Therefore, they often prefer to collaborate with the leading companies and establish long-term, strategic partnership. They are attracted by collaberating and transfering of competitive advantages via close partnership. They also require for exlusive design product/ service which can help enhance their distinct leading position in the market.

 

 

3. Approaching Business Customers through the Hierachy of Needs

In conclusion, in order to build the most optimal product/ service design for business customers in Vietnam, the first step is to have a clear classification on which level they are on the Hierarchy of Needs. Below is the set of questions for reference to apply and examine business customers’ needs (refer to figure 3). The majority of questions are aiming to have in-depth understanding about their current business situation including their value proposition, product launching and customer relationship. It is easier to recognise needs at the bottom of the pyramid than it is at the top. It is therefore easier to develop communication messages that address needs at the bottom of the pyramid. The earliest and simplest promotions were factual. However, today promotions are more likely to play upon the emotions and address needs that are higher up the pyramid. After that, the sales and communication strategy could be built for a specific level of customer needs to gain the most optimal results. Particularly, there are two main questions for each level:

– How does your product meet these needs?
– What message would engage people with these needs?

 

Hebronstar Strategy Consultants
Vu Nhat Linh / Senior Consultant