MARKET PLACES IN VIETNAM: REALITY, PROBLEMS AND SOLUTIONS (PART I)

Part 1: An overview of market places in Viet Nam

The market is one of the oldest forms of commercial infrastructure that emerged alongside the development of the commodity economy. It has been a prevalent type of commercial organization in agrarian societies, aligning with the production and consumption levels of those societies. In contrast, other types of commercial organizations only emerged and flourished during the transition from agricultural to industrial societies.

In our country today, with 80% of the population residing in rural areas and more than 70% earning income from agricultural production, the market network continues to serve as the primary venue for exchanging and trading goods for the majority of residents.

Although modern commercial organizations have emerged alongside socio-economic development, markets retain an independent and irreplaceable position in providing goods distribution services to all segments of the population. This is particularly true in developing economies where agricultural production remains a crucial component of the economic structure. Markets persist due to variations in agricultural products, as farmers cater to consumer demands. Moreover, different entities have varying capacities to participate in agricultural product trading, with markets being more accessible to farmers and small traders compared to supermarkets and shops. Additionally, different types of trade require distinct management levels and organizational requirements.

Markets maintain their independent status among various commercial organizations due to the continued production of agricultural products on a household or horticultural scale, as well as consumer preferences for fresh and raw agricultural goods. Regional and demographic disparities persist in terms of product types, quality, prices, and consumption habits related to agricultural products.

Overall, the process of economic development, especially urbanization, has significantly influenced the evolution of markets. While traditional markets may have become less prevalent with societal progress, their existence remains rooted in socioeconomic foundations. However, there is a need to modernize the traditional market network to align with the development of commodity market systems. The independent existence of markets affirms their irreplaceable role in meeting the population's needs for buying, selling, and exchanging goods.

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1. Maket Definition

According to the common understanding and the Vietnamese dictionary, “a market is defined as a place where people gather to buy and sell goods on specific days”. This definition aligns with the concept of a market in modern economics, which refers to “any setting where the buying and selling of goods and services takes place”. Both concepts emphasize the “location and certain setting” where “buying and selling” occurs. Due to this similarity, the terms "market" and "thị trường" (market in Vietnamese) are often used interchangeably, even in countries with developed market economies.

In the current market system, the traditional market is categorized as a spot market for goods. In these markets, sellers and buyers negotiate and haggle directly, transactions are conducted in cash, and goods are exchanged and paid for on the spot. Traditional markets do not involve advanced technology or equipment, and the transaction volume is relatively small. One significant advantage of this form is the direct and transparent nature of trade, with simultaneous delivery and payment, minimizing the risk of fraud.

However, the traditional market also has limitations. Prices in these markets depend directly on supply and demand at the transaction site, resulting in instability and significant price differences between markets. The risk is high due to unpredictable market fluctuations, with buyers often benefiting more than sellers because sellers lack information and market knowledge. To effectively manage the development of the market network, it is crucial to address the limitations of the traditional market.

The concept of a market encompasses several key components:

"Place" - refers to a specific market space.
"Certain day, session" - specifies a particular time for market activities.
"Many people gather to buy and sell" - indicates the number of participants in the market.
"Buy and sell" - defines the nature of exchange relationships.

The concept of a market can be further developed in two main ways. Firstly, it can be narrowed down by specifying the basic components of a market. For example, fairs and seasonal markets are variations where people gather to buy and sell goods at specific intervals. Farmer's markets, on the other hand, focus primarily on trading agricultural products and food.

Secondly, the market can be viewed as a type of commercial organization that facilitates buying and selling activities. Similar to other commercial organizations like shopping centers, a market can be understood as a localized commercial entity that serves the buying, selling, and exchange needs of a specific residential area.

Both interpretations of the market have important implications for its management and development. Considering the market as a market helps identify its functions, conditions, market segments, and the relationships within the market. Viewing the market as a type of commercial organization enables a clear distinction between markets and other commercial entities, particularly in terms of their development trends within the broader commercial infrastructure of the economy.

2. Classification of markets and characteristics of types of markets

Market classification is typically based on several criteria that help categorize different types of markets. These criteria include:

+Classification based on the "place" of the market: Markets can be classified according to administrative boundaries (such as commune markets or district markets) or based on the geographical location (such as mountain markets or plain markets).
+Classification based on the time of the market meeting: Markets can be classified according to the time of day (such as morning markets, afternoon markets, or night markets) or based on the time interval between market meetings (such as daily markets, fair markets, or seasonal markets).
+Classification based on market participants: Markets can be classified based on the size of the market participants or the number of regular business people present at the market.
+Classification based on goods trading activities: Markets can be classified based on the type of goods primarily traded (such as agricultural products or industrial goods), the size of goods and mode of transactions (wholesale or retail markets), or the scope of goods circulation (regional or inter-regional markets).

When it comes to development planning, markets can be classified into various categories:

People's market
Wholesale market of agricultural products
General wholesale and retail markets in economic and commercial centers of provinces and cities
Border Market

These types of markets can further be classified into subcategories such as urban people's markets, rural people's markets, specialized agricultural wholesale markets (for vegetables, seafood, rice), general wholesale and retail markets of different grades (Grade I, II, III), border commune markets, border gate markets, and markets in border gate economic zones.

Additionally, markets can be classified based on the number of fixed business points (as regulated in Decree No. 02 ND/CP), ranging from grade I markets with over 400 fixed business points, grade II markets with 200 to less than 400 fixed business points, and grade III markets with less than 200 fixed business points.

Another classification criterion is the level of facilities, which includes permanent markets, semi-permanent markets, and temporary tent markets.

Market systems have distinct characteristics and differences compared to other commercial infrastructures. Some of these characteristics are:

The location of the market should be convenient for both buyers and sellers. In rural markets, where small producers are the main participants, the position of buyers and sellers is equal in determining the market's venue. In urban areas or wholesale markets, where professional traders are more prevalent, the convenience of the market place is more important for buyers. However, the market place still needs to accommodate a large number of relatively independent traders and facilitate the flow of goods.
Products exchanged in markets often lack consistency in terms of quality, specifications, processing methods, and prices. The diverse composition of sellers, including producers, collectors, wholesalers, and retailers, makes it challenging to reach a consensus on product specifications and prices. High competition among sellers leads to frequent price changes. These factors require market management organizations to address limitations in quality, classification, packaging, and establish fair pricing practices.
Market meetings usually have short durations, especially for rural and remote markets. Rural markets typically operate from early morning to midnight, gradually seeing a decline in the number of buyers and sellers throughout the day. Markets in low population density areas may only operate for a few hours each day. In urban residential markets, the market time is regular and lasts all day, with peak buyer and seller activity occurring in the early morning or afternoon. Wholesale markets also have concentrated operating hours based on the needs of goods sources and consumer demands.
The scale of investment and utilization of physical and technical facilities in markets directly relates to the number of sales participants, particularly those engaged in regular and permanent trading. Investment requirements for different market types are determined based on the number of fixed business points. According to the Decree No. 02 of the Government on development and management of market places, requirements set for each type of maket places as as follows: Grade I markets, with over 400 business points, require solid and modern infrastructure, including services such as parking, goods loading and unloading, warehousing, measurement, quality inspection, and food hygiene and safety. Grade II markets (200 to less than 400 business points) have similar requirements but with semi-permanent or solid infrastructure, while Grade III markets (less than 200 business points) primarily serve local trading needs.
Investment activities for market development often aim for socio-economic goals rather than purely profit-oriented objectives. Small producers and traders form a significant proportion of market participants, selling their own products or seeking employment and income. Markets, particularly in rural areas, play a vital role in helping farmers sell agricultural products at market prices, improving their incomes, and fostering participation in the market system. Therefore, market construction investments are often supported by the government as part of its function to provide public goods in market economies. In contrast, other commercial organizations primarily rely on private capital for profit-driven activities.

Understanding these basic market characteristics is crucial for making informed investment decisions and ensuring effective market construction. The location of the market, consistency of product properties, market operating hours, investment scale, and exploitation of market facilities should align with these characteristics to enhance market management, serve business activities, and maximize investment efficiency.

Table 01: Market classification

Market grades	Criteria to determine the type of market
Market grades	Corresponding level of management	Size of business points (3m2/ ĐKD)	Construction works Grade	Number of floors
Grade I	Provinces, Cities	> 400	Grade 2-1	1 - 4
Grade II	Districts, towns	200	Grade 3-2	1 - 3
Grade II	Wards, communes	< 200	Grade 4-3	1-2

Table 02: Types of markets

Type	Classification Criteria
Specialized market	It is a specialized trading market for one commodity or a number of commodity lines with its own particularities and characteristics.
General market	It is a market that deals in a wide variety of goods.
Wholesale market	A market that plays a major role in attracting and concentrating the quantity of goods from the production and business sources of the economic sector or the commodity industry for further distribution to markets and other circulation channels.
People's Market	It is a grade III market managed by communes and wards, dealing in common and essential goods to serve people's daily lives.
Border Market	A border market refers to a market situated in the inland border area, which includes communes, wards, and townships that share an administrative boundary with the national land border. It can also refer to a market located in the sea border area, spanning from the national sea border line to the end of the administrative boundaries of coastal communes, wards, and townships, bordering with the sea islands and archipelagos.
Bordergate Market	A market established in a inland and sea border areas linked with border gates for export and import of goods but not in a border gate economic zone.
Market in the border economic zone	Is a market established in a border-gate economic zone under the conditions and procedures specified in the Government's Decree No. 29/2008/ND-CP dated March 14, 2008 on regulations on industrial parks and processing and economic zones.

3. Market Functions

The market serves various functions, including but not limited to:

Facilitating the buying and selling of goods.
Establishing market prices for goods.
Centralizing and distributing goods.
Generating added value for goods and services.
Facilitating the exchange of market information.
Providing business support services.
Fostering cultural and social exchange.

These functions collectively contribute to the efficient operation of the market system and support economic activity and societal interactions.

4. Factors affecting market development

The development of different types of markets is influenced by the process of mobilization and socio-economic development. As socio-economic conditions change, the suitability and responsiveness of each market type for commercial activities also change. Markets hold a crucial role in the development and facilitation of commercial activities, particularly in the context of agricultural production. Generally, several factors impact the development of markets, including:

4.1. Natural and social conditions

The selection of a market's location is influenced by both natural and social conditions, which play a crucial role in determining its spatial positioning. These conditions include factors such as topography and geographical location, ensuring convenient transportation and the availability of products in the market. Consequently, natural and social conditions not only impact the investment costs for constructing the market but also affect the benefits for investors and the overall economy.

In terms of costs, a location with favorable natural and social conditions provides advantages in reducing construction investment costs, such as expenses related to ground leveling, transportation routes, communication infrastructure, electricity, water supply systems, and ongoing maintenance of equipment. These favorable conditions contribute to cost savings during the market's construction and subsequent operation.

Moreover, natural and social conditions directly influence the market's ability to attract buyers and sellers, which significantly affects the interests of investors and the broader economy. For market investors, a high level of attraction to the market results in increased sales and purchases, along with better utilization of invested material and technical facilities, thereby enhancing market income and profitability. From an economic perspective, when a market attracts a larger number of buyers and sellers and expands its scale and scope, it has a greater impact on commercial activities, production, consumption, and overall economic growth. This leads to general benefits for the larger economy as a whole.

In summary, the natural and social conditions of a market's location have a profound impact on construction costs, operational efficiency, the market's ability to attract participants, and the overall economic impact it generates. Understanding and considering these factors is crucial for successful market planning and investment.

4.2. Development level of production and consumption

The development of the manufacturing sector plays a crucial role in supplying goods to market systems. The economic structure and production framework serve as determining factors for the sources and variety of products supplied through these markets. They also establish economic linkages between regions and production areas. The level of production technology determines the appropriate forms of exchange, purchasing, and the organization of distribution channels through the market. The scale and organization of production are closely tied to business methods. In individual or household-scale production with low levels of organization, there is a large number of sellers and buyers, and transactions occur directly in small batches. Conversely, in large-scale production, the number of direct producer sellers decreases significantly, while professional distributors become more prevalent. Consequently, the level of production development can impact market development, influencing the benefits gained from market activities and regular operating costs.

Similarly, the development of the consumer sector significantly affects the market system. The income and expenditure levels of different population groups determine their purchasing power, quality expectations, shopping frequency, and other factors that influence the operation hours, customer volume, and sales transactions in various market types. Consumer demand trends and living conditions shape the structure, quality, and pricing of goods sold through the market system. Moreover, population consumption patterns have implications for the organization and provision of value-added services to customers, as well as the overall benefits derived from the market system.

The development of the manufacturing and consumer sectors both have profound effects on the market system. The manufacturing sector influences the sources and structures of goods supplied, while the consumer sector determines purchasing power, demand patterns, and the overall functioning of the market. Understanding these interdependencies is essential for market development, as they can impact profitability, costs, and the overall efficiency of market operations.

4.3. Development level of goods circulation

The development of the circulation sector is closely tied to the process of centralization in production and consumption. It typically starts small and expands over time, both in scale and scope. Initially, when circulation is small, exchanges occur through direct trading between producers and consumers in a localized area. As circulation grows larger, a middle class of traders emerges, playing an increasingly significant role. These fixed traders in the market adopt new and advanced business methods, actively contributing to market development investments.

In the present market system, there is a diverse range of transaction methods beyond the traditional buying and selling practices. These include electronic payments, auctions, contracts, and payment methods for import-export activities. This reflects the evolving nature of commerce to cater to the changing needs of market participants. Today's market system embraces various transaction methods to facilitate trade, going beyond conventional practices like bargaining and direct cash payments. These advancements cater to the dynamic nature of global commerce.

4.4. International economic integration

International economic integration has both direct and indirect effects on the development of the market system in our country. Indirect effects manifest through international economic integration's impact on the production structure, technological advancements, product quality, competitiveness in the domestic market, consumer demand, and people's shopping habits and consumption patterns. The direct effects of integration on the market system's development can be observed as follows:

Foreign investors' participation in distribution services, particularly in modern commercial formats such as supermarkets, trade centers, convenience store chains, and wholesale markets. This direct involvement influences the investment efficiency of the market system.
With the entry of foreign investors, competition in the investment and construction of commercial infrastructure may escalate, potentially increasing the costs associated with market system development (primarily due to domestic prices approaching international levels). Additionally, regular business activities within the market system may experience increased expenses.

4.5. Capacity of investors

Investors, in general, always desire and strive for high financial performance when making investment decisions. However, they often encounter losses due to subjective factors. These subjective reasons can be classified into two main groups: causes during the construction investment process and reasons related to the exploitation of the market system's service capacity.

During the investment process, the subjective causes of loss and decreased investment efficiency include:

Inadequate investment management leading to waste and increased investment costs.
Insufficient consideration in selecting the construction location and specific markets, resulting in reduced operational capacity of the invested material and technical facilities.
Improper estimation of investment scale, not aligned with market development trends and goods circulation patterns, leading to either excess capacity or overload, hastening the company's decline.
Limitations in the investor's ability to mobilize and implement investment capital for constructing the market, thus failing to achieve the necessary scale and operating conditions to maximize profit.

During the exploitation of the market system's service capacity, subjective causes that reduce investment efficiency include:

Unscientific organization of buying and selling activities, which increases operating costs for businesses operating within the market.
Lack of necessary expenses for investors to attract and build goods sources, promote trade, and enhance sales in competitive market conditions.
Market-related factors such as determining selling prices or leasing business areas, policies to attract participants, and organization and provision of business services directly impact the benefits and efficiency of market construction investment.

4.6. The State's socio-economic development policies

The State affects the efficiency of investment and development of the market system through policies and regulations on management of the market system. The application of a system of measures to fulfill the requirements of management and development of the market system will change the decision-making bases, investment performance conditions and the ability to exploit the service capacity of the system. market has been invested. The impacts of the State on the decision-making bases and investment implementation conditions of entities investing in the market system include: - Policy on market land use; - Regulations on investment procedures, minimum and maximum size of investment items, etc. - Policies on using state budget capital for market investment. - Other relevant policies and regulations of the State, such as credit policy, price control policy, especially for supplies and raw materials... The impacts of the State on the ability to exploit the service capacity of the invested market system include: - Regulations on conditions for joining and leaving business points at markets for households and business units. - Tax policies for households and establishments trading goods and services at markets. - Policies on price management, control of food hygiene and safety, conditions for trading of goods and other policies on management of goods circulation. - Policies to support training and retraining of market managers, developing market information networks, applying modern trading methods and developing market services... - Measures of coercion and clearance for spontaneous markets and rampant trading activities not at prescribed places. In general, the factors affecting the development of the market system are gathered from many different objective and subjective factors. In order to improve the efficiency of market development investment, the full and correct assessment of the objective and subjective influencing factors is not only a problem for investors in the market system, but also for investors. whole State. In particular, the efficiency of market development investment depends a lot on economic development policies in general and market development policies in particular of the State.

The state plays a significant role in influencing the efficiency of investment and development in the market system through policies and regulations. Implementing a comprehensive set of measures to manage and develop the market system can affect decision-making processes, investment conditions, and the utilization of the system's service capacity.

The impacts of the state on decision-making and investment implementation conditions for entities investing in the market system include:

Policies regarding land use for markets.
Regulations governing investment procedures, minimum and maximum investment thresholds, and other relevant requirements.
Policies related to the utilization of state budget funds for market investments.
Additional policies and regulations such as credit policies and price control measures, particularly for supplies and raw materials.

The impacts of the state on the ability to leverage the service capacity of the invested market system include:

Regulations specifying conditions for joining and exiting business points at markets for households and business entities.
Tax policies applicable to households and establishments engaged in trading goods and services within markets.
Policies governing price management, food hygiene and safety regulations, conditions for trading goods, and other measures related to goods circulation management.
Policies supporting training and retraining of market managers, developing market information networks, implementing modern trading methods, and enhancing market services.
Coercive measures and clearance initiatives to address spontaneous markets and unregulated trading activities.

Overall, the development of the market system is influenced by various objective and subjective factors. To improve the efficiency of market development investments, it is crucial to conduct a comprehensive and accurate assessment of these influencing factors. This responsibility lies not only with market system investors but also with the state as a whole. Economic development policies in general, and market development policies in particular, significantly impact the effectiveness of market development investments.

Vu Huy Hung

Department of Information and Trade Promotion - VIOIT