Case Studies PART D
CASE STUDY 17.2
SIAM SANITARY WARE CO. LTD—PARALLEL IMPORT IN
VIETNAM
Waewrak Tontrakul and Richard Fletcher
Siam Sanitary Ware Co. Ltd background
Siam Sanitary Ware Industry Co. Ltd (SSI) is a Thai-based company. It was established in 1984 as a joint venture between
the Siam Cement Public Company Limited (SCC) and Toto (Japan) Co. Ltd to produce sanitary wares under the ‘Cotto’
and ‘Toto’ brand names. The company operates four factories with a capacity of up to two million pieces per year. Its
products are sanitary ware such as water closets, lavatories and acrylic bathtubs.
SSI enters overseas market in two ways: on a direct export basis and on an indirect basis via Siam Cement Trading
Co. Ltd (SCT). SCT has branches in Myanmar, Malaysia, Cambodia, Vietnam, the USA and Australia. SCT is headquartered in Bangkok and imports and exports goods for both the Siam Cement Group (SCG) and non-SCG-owned
companies. SCT has exported the Cotto brand to several countries including Vietnam, China, Myanmar, Cambodia and
South Asia, and has exclusive rights for the export of this brand.
The Thai domestic market is the major market for SSI. Its marketing objective is to increase market share every year.
Although SSI has its own marketing division, it mostly uses the SCC distribution channels because of the coverage of
SCC agents in both Thailand and overseas. SCC provides a logistics system that distributes goods more effectively. SCC’s
sales division is divided into six areas in Thailand: metropolitan, northern, southern, western, eastern and northeast.
Every area has the same discount structure for SCC wholesaling via SCC dealers. For projects where additional discounts
are required, such as hotels, office buildings and housing projects, SCC sales representatives have to contact SSI’s
marketing division to establish an acceptable discount level.
Vietnam market
In the early 1990s a large number of buildings, such as hotels and office buildings, were constructed in Vietnam along
with refurbishment of houses. This led to high demand for sanitary ware in Vietnam. As a result, several overseas
sanitary ware manufacturers entered the market, including American Standard, Cotto and Inax (Japan). These were in
competition with three local manufacturers that were Vietnamese state-owned enterprises. In 1997 American Standard
established a factory in Binh Duong on a joint venture basis and Caesar, a wholly own Taiwanese company, established
a factory in 1998. This was followed by Inax (a Japanese joint venture operation) establishing a factory in Hanoi. This
led to fierce competition in the sanitary ware market in Vietnam.
SCT had exported Cotto to Vietnam since the early 1990s and the brand was well accepted in the market due to its
quality, design and price. The sales turnover increased gradually and reached 40 million Thai Baht in 1996. In 1996
there was a demand to export the Cotto brand to Laos by agents in northeast area of Thailand. This led to dramatic
increases in turnover by this division in the order of 60 million Thai Baht (A$3 million). Coincidentally, export sales to
Vietnam by SCT fell sharply. In 1997, sales dropped by 50%. The cause of this drop was the development of a grey
market where the distributors in northeast Thailand began supplying Vietnam via Laos in direct competition with SCT’s
authorised distributor of the product in Vietnam.
679
Midland Typesetters
PART D International Marketing Implementation
Grey marketing or parallel importing can be defined as the importing and selling of products through market distribution channels which are not authorised by the manufacturer. It occurs when manufacturers use different market prices
for the same product in different countries. This allows unauthorised dealers to buy branded goods intended for one
market at a low price and then sell them in another higher-price market, at a higher profit than could have been
achieved in the low-price market (Hollensen 2001, pp. 508–9).
Unlike counterfeiting, parallel imports are genuine goods but re-channelled into markets for which they are not
originally intended. Consumers can tell parallel imports apart from authorised products as the former are sold at
discount outlets, bearing labels in foreign languages, and are not covered by a manufacturer’s warranty and after-sales
service (Yang et al. 1998).
How did parallel import in Vietnam occur?
In the case of Cotto products, the domestic dealer from northeast areas exported the cheapest model of Cotto’s products
to Laos. Initially, SSI didn’t realise that the goods would end up in Vietnam because Thailand and Vietnam have no
common border with each other. SSI expected that the product would be consumed in Laos. Soon after the export to
Laos by the Thai distributors commenced, the SCT Vietnam branch informed their Bangkok HQ that there were some
Cotto products from Laos being sold in the north of Vietnam. Goods were delivered by truck from the Thai–Laos border
to Laos–Vietnam border in the middle of Vietnam (see Figure 1). Most of the parallel import goods were sold in the
north of Vietnam. Meanwhile, goods shipped to authorised dealers in Vietnam were sent by sea to two ports: Haiphong
in the north and Ho Chi Min City in the south.
FIGURE 1 Transportation route used by authorised and unauthorised distributors
By road to Hanoi
(Unauthorized channel)
By Sea freight to Haiphong port
(Authorized channel)
680
Midland Typesetters
Case Studies PART D
In an intensely competitive market, parallel importing enables retailers to buy the same goods at a lower price than
would be the case if they bought from authorised distributors in Vietnam. Figure 2 shows that retailers could save US$10
per item if they purchased the sanitary ware via unauthorised channels.
FIGURE 2 Parallel importation in practice
Thailand
Laos
Vietnam
SSI factory
1000 Baht (US$40)
Export via
SCT, Vietnam
SCC
US$70
1300 Baht (US$52)
Authorised
distributors
Authorised
distributors
1625 Baht (US$65)
Unauthorised
distributors
US$80
Retailers
Retailers
Save 80 – 70 = US$10
US$70
Consumers
Consumers
Source: Adapted from Hollensen, S. (2001) Global Marketing: A Market-responsive approach, 2nd ed, Prentice Hall.
Contributing to this price difference are two factors. First, goods shipped via the authorised channel have to pay full
import duties levied at Vietnamese seaports on Thai goods. Second, the transportation used by unauthorised distributors tends to be cheaper—the cost of transportation by sea and customs clearance from Bangkok to Haiphong is higher
than delivery across country by truck.
While export sales to Vietnam by SCT dropped sharply in 1997, sales by northeast dealers to Laos (or Vietnam)
jumped to double that of the previous year, then it fell back to its previous level. SCT claimed this was because the
parallel import cannibalised the sales of the authorised channel in Vietnam and reduced the motivation of authorised
distributors. This may have been due to other factors such as the limited coverage and resources of SCT’s authorised
distributor in Vietnam, increased competition in the market, rising tariff levels in Vietnam and the Asian currency crisis
late in 1997.
When SSI received representations from SCT (Vietnam), they investigated the allegations and found that the price
at which goods were sold to the domestic agent was actually higher than the price at which goods were sold to SCT in
681
Midland Typesetters
PART D International Marketing Implementation
Thai Baht (see Figure 2). Furthermore, sales via the domestic agent increased dramatically while sales to North Vietnam
(Hanoi) by SCT (Vietnam) tended to slow down. Sales in the south of Vietnam via authorised distributors were still good
due to economic growth. SSI decided to allow the parallel import into Vietnam instead of stopping it but gave a
commitment that the price to the domestic agent in north-east Thailand would not be lower than the price charged to
SCT. Furthermore, SCT would focus its attention on more expensive models rather than on the cheap models that were
popular for parallel importing but not profitable. To ensure that the parallel import didn’t create a bad image for the
Cotto brand, the distributors were required to provide warranty service as there is no warranty from SSI for parallel
import products in overseas markets. Since SSI began allowing parallel imports, its overall revenue from Vietnam
reached 100 million Baht per annum (A$20 million). Around half of this volume was from parallel imports. Since 1997,
SCT sales to Vietnam via authorised channels have dropped sharply while the level of parallel imports remained the
same.
Questions
1. What are the factors that create a parallel import situation?
2. Why should firms try to prevent parallel imports?
3. In what circumstances should firms allow parallel imports?
4. What are possible strategies to reduce the potential for grey markets to develop?
5. When SSI allowed parallel imports into Vietnam what benefits did they derive for (a) the short term and (b) the long
term?
REFERENCES
Ahmadi, R. and Yang, B. (2000) ‘Parallel imports: challenges from unauthorized distribution channels’, Marketing
Science, Vol. 19, No. 3, Summer, pp. 279–94.
Ang, S. H. (1999) ‘The influence of physical, beneficial and image properties on responses to parallel imports’, International Marketing Review, Vol. 17, No. 6, pp. 509–24.
Hollensen, S. (2001) Global Marketing: A Market-Responsive Approach, 2nd edn, Financial Times, Prentice Hall.
Yang, B.R., Ahmadi, R. and Monroe, K.B. (1998) ‘Pricing in separable channels: the case of parallel imports’, Journal of
Product and Brand Management, Vol. 7, No. 5, pp. 433–40.
682
Midland Typesetters