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(News Focus) S. Korean firms moving to Vietnam from China amid strained bilateral ties

All Headlines 11:55 March 26, 2018

By Hwang Doo-hyong

SEOUL, March 26 (Yonhap) -- South Korea's distribution and food processing companies are shifting to Vietnam from China amid tougher business conditions and strained bilateral relations in the world's most populous market.

The Chinese government has retaliated against South Korean products, cultural exports and in the tourism sector after Seoul, against the stringent objections from Beijing, deployed an advanced U.S. missile defense system here to better protect the country against North Korean threats.

South Korean retail giant Lotte has been negotiating the sale of its hypermarket chain in China after it suffered major losses and did not see any sign of recovery.

Lotte Group was the biggest victim of Beijing's retaliation, as it signed a land-swap deal with the South Korean government to provide a golf course as the host site of the U.S. missile defense system.

Most of its 99 Lotte Mart discount stores in China have suspended operations for more than one year and Lotte Group suffered about 1.2 trillion won (US$1.1 billion) in lost sales.

Lotte said it aims to raise the number of Lotte Mart outlets in Vietnam to 87 by the end of 2020 from the current 13.

Lotte Mart's sales in Vietnam rose to 266 billion won last year from 62 billion won in 2011. Lotte Mart first moved into Vietnam in 2008.

President Moon Jae-in and his Vietnamese counterpart, Tran Dai Quang, agreed last week to make efforts to boost bilateral trade to US$100 billion by 2020

Vietnam emerged as South Korea's third-biggest export market in 2017, trailing only China and the U.S.

Helped by a bilateral free trade agreement (FTA), which came into effect in 2015, South Korean exports to the Southeast Asian economy have been growing rapidly for the past several years.

South Korean products accounted for 8.5 percent of Vietnam's import market in 2007, and the portion hit an all-time high of 22.1 percent in 2017.

Lotte Group has been operating department stores, hotels and cinemas in Vietnam since 1998.

It is also building "Eco Smart City," to be completed by 2021, on about 100,000 square meters of land in Ho Chi Minh City with an investment of over 2 trillion won. The city will be equipped with a department store, a shopping mall, a hotel and office and residential buildings.

Lotte also plans to invest 330 billion won in the development of "Lotte Hanoi" on 73,000 square meters of land in Hanoi by 2020, featuring a department store, a shopping mall, a mart and cinemas.

This photo courtesy of Lotte Mart shows a Lotte Mart outlet in Ho Chi Minh City. (Yonhap)

EMart, South Korea's biggest discount store chain and an affiliate of Shinsegae Group, said it will consider building several more outlets in Ho Chi Minh City.

EMart, which completed the sale of scores of outlets in China last year, has been successfully running an outlet in Ho Chi Minh since 2015 with an eye on expanding to nearby Myanmar and Cambodia in the near future.

Sales at EMart's mall in Ho Chi Minh City, which opened in December 2015, rose to 52 billion won in 2017 from 41.9 billion won in 2016.

South Korean products are the biggest sellers in the outlet due to "hallyu" or the growing popularity of Korean dramas, films and K-pop songs abroad, an EMart official said.

A file photo of an EMart outlet in Ho Chi Minh City (Photo courtesy of EMart) (Yonhap)

CJ Group, South Korea's food and entertainment conglomerate, has been actively expanding its business in Vietnam in recent years, hoping Vietnam could serve as a springboard for an expanded presence in Southeast Asia.

CJ Cheiljedang Corp., South Korea's leading food manufacturer, has bought several food processing firms in Vietnam, hoping to achieve more than 700 billion won of sales by 2020.

CJ Cheiljedang has invested 70 billion won in the construction of a food processing factory in Ho Chi Minh.

The building of the factory will be completed in July. It will produce Korean dumplings, and other frozen foods, and kimchi, the traditional Korean side dish made from fermented cabbage, radishes and hot peppers.

CJ Foodville, the restaurant arm of food and entertainment conglomerate CJ, currently operates 36 Tous Les Jours bakery outlets in Vietnam.

The company operates 380 outlets abroad, mostly in Vietnam, Indonesia and other Southeast Asian countries.

CJ Freshway, a food distribution and catering affiliate of CJ Group, meanwhile, posted sales of 49 billion won in Vietnam in 2017, up from 1.8 billion won in 2012 when the company began business there.

"We expect a growing number of South Korean businesses will expand investment in Vietnam, the land of opportunity," an industry source said. "Vietnam's economy has been expanding by more than six percent every year, it is a young consumer market whose average age is 30 and hallyu is gaining popularity."


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