Market concentration lower in manufacturing than service

HCMC – Competition is freer in five key manufacturing industries than in five key service areas as market concentration in the former is lower than in the latter, according to a survey released in HCMC on Wednesday. The survey, conducted by the Vietnam Competition Authority under the Ministry of Industry and Trade in nearly one year among 500 businesses in ten industries, shows that freer competition makes it possible for more new players to enter the manufacturing industry. The survey shows the level of market concentration in five manufacturing industries – steel, cement, chemical fertilizer, animal feed and milk – is low or average. The low level of concentration means that no enterprises or groups of companies are dominant in the relevant markets, except the milk powder market with foreign brands. Since 2005, the number of businesses entering the market has been increasing with diverse forms of ownership, especially in the industries of animal feed, cement and steel, showing that the barriers to these fields are low. These manufacturing industries attract many foreign investors, and also face high risks of oversupply due to the large number of producers, especially in the cement and steel industries, according to the report. The five manufacturing industries chosen are those with total annual revenue of over VND10 trillion each. Animal feed is the biggest industry among the five, reaching approximately VND60 trillion, while the cement and milk powder industries gain VND43 trillion and VND10 trillion respectively. As the competition environment in these industries is healthy with no signs of monopoly, the products of the manufacturers are faced with fierce competition from imported products with lower costs. However, natural barriers in the industries were assessed by business respondents as medium and high as the majority of them faced with difficulties in applying technologies as well as accessing input and output for production. Production in the five sectors heavily depends on imported raw materials, including animal feed and milk, thus raising prices despite a high competitive level among producers. For the dairy market, domestic companies producing powdered milk hold a market share of 30%, while the rest is of imported products. Besides, the respondents said that in some manufacturing sectors, such as animal feed, foreign companies enjoy more preferential policies, including those for tax and land, than domestic ones due to provincial regulations to attract FDI. The report also identifies regular unfair competition acts as well potential tricks, such as price fixing among foreign milk suppliers, misleading indications, deceptive advertising and discrediting among businesses. The picture is quite different in the five key service industries, namely aviation, petroleum distribution, telecoms, banking, and insurance, where monopolies are prevalent. The market concentration indicating the existence of groups of companies with their dominance in the sectors is relatively high, with the highest seen in aviation market, petroleum distribution and telecoms. The dominant positions are taken by state-owned enterprises. In the telecom sector, Viettel and Vinaphone grasped a market share of more than 30% in the domestic mobile market, while VNPT occupied 68.9% in the internet market. Meanwhile, Bao Viet took a market share of more than 32% in non-life insurance. However, the degrees of concentration in insurance and banking are decreasing with the growing participation of 100% foreign-invested banks and insurance companies. Besides, despite high concentration and a small number of enterprises in the five service sectors, the price competition in the market is fierce, notably in telecoms.  Recent years also witnessed anti-competitive behaviors in the sectors, such as the Vinapco’s abuse of monopolistic power in supplying jet fuel, or agreement in increasing automobile insurance premiums by 19 insurers. In this first-ever in-depth survey on the competition environment, the Vietnam Competition Authority suggested small businesses cooperate via mergers and acquisitions to tap each other’s strengths and increase their market size, especially for enterprises with a market share of less than 5%. The survey is expected to be conducted annually and published fully on the website of the authority in Vietnamese and English to help local and foreign companies have a clear view on the competition situation in each specific industry as well as to propose measures to improve the Government’s policies.