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Business

'Go it alone' Japanese retailer Aeon buddies up in Vietnam

Aeon President Motoya Okada, center, poses for a photograph with executives of Fivimart and Citimart at a news conference in Tokyo on Jan. 27.

TOKYO -- In the 30 years that Aeon has been active in Southeast Asia, it has largely followed a solitary strategy. Now, the Japanese retail giant is forming capital and business alliances with two major supermarket operators in Vietnam.

     Aeon aims to expand in the country and better cope with intensifying competition across the region. It has decided that forging partnerships with established local players will prove a more effective way to do that.

     "Vietnam will be one of the next [consumer] giants, and alliances with local partners are important because we see almost no chance of winning if we open outlets independently," Aeon President Motoya Okada said Jan. 27 in Tokyo. He made the remarks at a news conference announcing new partnerships with retailer Fivimart in Hanoi and Citimart in Ho Chi Minh City.

     Okada said Aeon will acquire a 30% stake in Fivimart and a 49% interest in Citimart. He did not say how much Aeon will be spending.

     Fivimart -- whose official name is First Vietnam Joint Stock Co. -- operates 20 stores in the nation's capital, while Citimart, or Dong Hung, runs 27 outlets, mainly in the southern commercial center of Ho Chi Minh City.

     Supported by the alliances, Aeon hopes to boost sales in the country to 100 billion yen ($851 million) and establish a network of 200 stores as quickly as possible.

Key region

The Japanese retailer branched out into other parts of Asia in earnest in the 1980s, securing footholds in such countries as Malaysia and Thailand. Its Southeast Asian operations accounted for more than 30% of its total operating profit in the March to November period of 2014.

     In Malaysia, Aeon's biggest Southeast Asian market, the company runs an independent network of shopping centers, supermarkets and other stores. Through such strategies as offering discounts and other benefits to holders of its membership cards, Aeon has established a successful model for getting shoppers to visit its stores for their everyday needs.

     The company sees Vietnam playing a similar role as Malaysia. It has a large population -- at 90 million -- a gross domestic product that is expanding at a healthy clip of more than 5%, and an expanding retail market.

     But differences in legal systems make it next to impossible to apply the Malaysian business model to Vietnam, where every new outlet a foreign retailer wants to open requires permission from the goverment.

     Vietnam "is not an absolutely free market," Okada said at the press conference.

     Aeon is said to have good relations with the Vietnamese government because of its active social contributions. But since most local retailers are small businesses, the government is nervous about the impact large foreign players could have on the market.

     Aeon will provide Fivimart and Citimart with merchandise from its Topvalu line of private-brand goods, as well as cooperate with them in developing products and improving distribution networks. In addition, Citimart stores will gradually be renamed Aeon Citimart.

     For foreign retailers looking to thrive in Asia, good relations with local governments and alliances with local companies who understand consumer preferences in those markets are more important than ever.

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