Foreign Competition Shakes Up Vietnam’s E-Commerce Market

June 17, 2014 Posted by Vietnam Briefing Reading Time: 4 minutes

HANOI – Singapore-headquartered e-commerce company, Lazada, is stepping up its online game in Vietnam and creating waves throughout the e-commerce industry. Local players are scrambling to remain competitive as more and more foreign companies look to Vietnam as a strong growth market.

Lazada has quickly become a major player in e-commerce throughout Asia; it has operations in Vietnam, Indonesia, Thailand, Singapore, the Philippines, Hong Kong and China. The company has seen strong growth ever since its entry into Vietnam in early 2012 and it now has a 22 percent market share.

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An international company at heart, Lazada is a subsidiary of the German venture capital firm, Rocket Internet. Additional Lazada investors include Tesco, J.P. Morgan, Verlinvest and Investment AB Kinnevik.

As part of its growth strategy, in 2013, Lazada opened an e-commerce trading floor called Marketplace. Marketplace was created to give the company greater access to the C2C (Customer-to-Customer) market. Lazada is also planning to expand this online platform in order to allow for B2C (Business-to-Customer) transactions.

Local competition heats up

Local competitors have been warily eyeing Lazada’s aggressive moves into Vietnam. Due to the financial weight that foreign companies are able to bring to the local market, Vietnamese companies have struggled to compete with the likes of Lazada. A prime example can be seen in Lazada’s heavy investment into developing a chain of supplies, warehouses and reliable delivery services.

In fact, the company’s market strategy has been described as a “declaration of war” against the leading Vietnamese site ChoDienTu.vn, since that company is primarily focused on C2C business. Currently, ChoDienTu has a 29 percent market share of Vietnam’s e-commerce market.

Both Lazada and ChoDienTu have led the charge in innovative ways to expand Vietnam’s e-commerce market and reach more customers. For example, both sites have been able to attract suppliers through such methods as not charging monthly fees and only charging fees on products.

Internet penetration in the country is expected to rapidly increase – this will in-turn drive strong growth throughout the e-commerce market. As a result of this growth, it will become more and more crucial to create reliable and easy to use payment systems. Many Vietnamese do not have their own bank accounts. In 2013, 74 percent of shoppers still paid for their purchases in cash. Payments made using bank accounts and those made via intermediate payments on e-commerce sites accounted for 41 percent and eight percent, respectively.

An advantage for ChoDienTu lies in the fact that it has invested heavily in direct payment tools. However, this advantage may not last for long as Lazada has announced that it intends to spend much more on its own payment tools.

In fact, Lazada has apparently set up cooperation agreements with 25 Vietnamese banks and intends to formalize agreements with units that can provide card-based online payment services.

However, ChoDienTu has partnerships with Techcombank, Dong A Bank and OnePay, as well as other international institutions. In addition, it has developed its own online payment tool, NganLuong.vn. With a 27 percent market share, NganLuong has become the leading online payment portal in Vietnam.

While growth has been strong across the board in Vietnam’s e-commerce market, there are still hurdles for businesses to overcome. Key among these are the lack of trust that many consumers feel about the products they order online – they prefer to physically touch and evaluate products before making a purchasing decision. Lazada is countering this sensibility through its launch, last year, of Lazada Trust Service. This service allows customers to receive and evaluate the product before they buy. It also allows them to return the product within 30 days if they do not want to keep it.

Lazada and ChoDientTu are not the only players competing for the Vietnamese e-commerce market; other notable companies include VatGia, Hotdeal, and Tiki.vn.

Vietnam Online

Vietnam is quickly becoming a prime market for foreign investment in e-commerce activities. The country’s rapidly growing economy and middle class are, in turn, spawning a strong consumer culture and increasing levels of disposable income. Electronic retail is fast becoming the preferred method of shopping—particularly among the country’s youth.

By far, the most popular e-commerce sites in Vietnam are the ones that sell products such as clothes, shoes and cosmetics. Technology and home appliances also make up fairly sizable markets.

According to Vietnam’s E-commerce and Information Technology Agency (VECITA), by 2015 B2C e-commerce sales in the country will amount to more than US$4 billion. Current sales are estimated at around US$2.2 billion, with an average spending of US$120 per capita.

According to the market analysis firm EuroMonitor, by 2016, internet penetration in Vietnam will reach 43 million people – 40-45 percent of the total population. This percentage is thought to be the “golden proportion” at which investors will pour into the e-commerce market.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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