Leveraging Emergent Trends in Vietnamese E-Commerce

By: Mareike Entzian 

Vietnam’s e-commerce and start-up landscape is young, supported by strong fundamentals, and primed for investment. As of 2015, 39% of the Vietnamese population – 36.5 million people – were online, primarily through smartphones and tablets. Furthermore, e-commerce multinationals, such as Amazon, having yet to establish a foothold within the Vietnamese market, allow for highly developed start-ups targeting young consumers, like TicketBox, to gain traction. The combination of these factors, in conjunction with low penetration of online payment adoption, leaves substantial room for foreign investment and makes 2016 a year to watch.

While opportunities abound, navigation of the B2C e-commerce landscape may prove difficult for foreign investors unfamiliar with Vietnam’s regulatory landscape. Those considering investment are encouraged to contact government officials or professionals to ensure smooth entry and effective compliance with up to date regulations.

The following article presents our take on E-commerce in Vietnam as outlined in the recent Vietnam Briefing Magazine. We present an overview of the state of e-commerce in 2016 and tie our conclusions to several local case studies.

RELATED: Pre-Investment Services from Dezan Shira & Associates

Vietnamese E-Commerce: An Overview

Strengths

The strength of Vietnam’s e-commerce industry lies in a solid user base, 36% of whom spend a little less than 9 hours a day online. Compounding this trend, continued government support is rapidly facilitating a regulatory environment that ensures consumer protection and provides easier navigation for foreign businesses. By 2020, a budget of $111.6 million is to be invested in developing the IT Sector, on which E-commerce ultimately relies.

Weaknesses

A major challenge of the market concerns payment of sellers. In 2014, 64% of people preferred cash on delivery payment, compared to 7% who paid via credit cards. It is easy to see why – cash on delivery ensures the product’s quality you receive is according to what is stated on the website. Additionally, many people don’t own cards, but companies still want to reach that market. Allowing cash on delivery payment ensures everyone has access to making online orders.

Opportunities

With local firms flourishing in the absence of e-commerce multinationals, significant opportunities exist for entrance through joint ventures. In the recent years, investors such as Japan’s Sumitomo Corporation – which investment in online retailer Tiki.vn. – have been particularly successful.

Due to the recent rise of M-Commerce, companies would also be wise to optimize their interfaces for mobile use, with particular emphasis on mobile ordering and payment. Over 32 million people use smartphones and for many they are the only point of access to the internet. Market research firm Nielsen found that in late 2014, 58% of mobile users shopped with their phones online, compared to a global average of 44%. Mobile apps such as Instagram saw a window for opportunity and integrated context based marketing, targeting consumers and their preferences directly in Vietnamese with Vietnamese products and websites.

Threats

However, as with any market, threats persist and especially the ever changing e-commerce landscape has seen some big players drop-out in recent months. The introduction of the internet in B2C sales means that trends and come and go within months and retailers need to forecast and respond quickly. Continued lack of trust by consumers in websites and online retailers is a further problem. Many fear lack of product quality or problems with shipping and delivery, issues which will likely benefit from increased monitoring and regulation over the next years.

 Related: E-commerce in Vietnam – Trends, tax policies and regulatory framework 

Learning from Local Players: Case Studies from Vietnamese E-Commerce

Tiki.vn

Tiki is Vietnam’s answer to Amazon, starting out similarly through the sale of books. When looking at sites like Tiki, one has to remember that most of them only came into existence within the past 5 years at which point E-commerce in other Asian countries, like China, was already in full swing. From initially filling 1000 orders a month, Tiki has evolved to more than 20.000 monthly deliveries. It has also long diversified from online book retail and, much like Amazon, offers a wide range of consumer goods targeting more than just one market.

Tiki’s appeal within Vietnam lies in its price point, selling books for a lower price than bookstores, and offering free shipping. Payment upon delivery is also available, both ensuring consumer safety and accommodating the countries cash based economy. In addition to allowing cash payments, Tiki is also well positioned for success in mobile payments – offering consumers and online payment system that is secure and proven to work.

Furthermore, It’s website is mobile optimized, which helps its rankings on search machines, such as Google. Tiki further takes advantage of both online and offline sales channels, frequently organizing big physical sales, such as Black Friday pop-up sales, drawing in a younger customer crowd.

Vietnammm.com

Vietnammm.com was the first player in Vietnam’s online food delivery industry and, since 2011, has constantly left a strong footprint in the market. The website is a subsidiary of Takeaway.com, which was founded in Holland and became one of the world’s largest food delivery websites, leaving Vietnamm with much financial backing. In December 2015, a takeover deal between websites Vietnammm and Foodpanda shook the domestic food delivery landscape, as the takeover meant there are now two major players penetrating the market, namely homegrown brands Vietnammm and Eat.vn.

Vietnammm’s unique selling point lies in the fact that it supports both Vietnamese and English speaking customers well. It is compatible with mobile apps, reaching many of consumers, who primarily use cell-phones and offers online and offline methods of payment. Although it has become a major player, the market for Vietnammm is rather small and mainly focused on expats. This is reflected in type and price point of restaurants in their database, which are mostly foreign and on average 2-3 times more expensive than the average Vietnamese meal. In comparison to Eat.vn, Vietnammm doesn’t give customers as many options, such as a price point, to narrow their restaurant selection down. To take advantage of the opportunities of scale that still exist in the market, it will become important to shift attention towards targeting local consumers, rather than the small expat community in Vietnam.

Beyeu.com

In contrast to previous success stories, Beyeu.com highlights the challenges of operating within the Vietnamese market. In November of 2015, the company famously closed down its operations and publishing the following on its website: “E-commerce requires lots of money. Many companies will decide to stop burning. Good luck to the rest who are still trying.”

With a target demographic of moms and their babies, Beyeu.com was exposed to a marketplace with lingering doubts over the quality of e-commerce merchandize. Making things worse, attempts by Beyeu.com to force consumers to pay for goods prior to their arrival compounded existing fears, pushing the level uncertainty to unacceptable levels for new mothers. This policy ultimately proved to be fatal – preventing the company from garnering  significant traction within the Vietnamese market.  

Despite its failures to gain traction within its target market, Beyeu.com was thought to have great potential – launching as part of Project Lana, which in turn was backed by IDG Ventures Vietnam. Project Lana describes itself as a, “leading Internet company in Vietnam with a focus on product and services for women.” Despite having successful backers, Lamdieu and Foreva, also businesses by Project Lana focused on products for women, did not make it in Vietnam.

While, in theory, all three platforms had a good niche market, in reality most E-commerce is only attractive to people living in big cities like Ho Chi Minh and Hanoi. Although birth rates in Vietnam are high, mothers in rural areas will not order baby products online, which left the companies with a small target market, much like the food delivery companies, whose market is still largely confined to the expat community.

Further Support from Dezan Shira & Associates

As the SWOT Analysis shows, Vietnam’s E-commerce and start-up landscape is still in its beginnings and new opportunities will arise. The mobile connectedness of youth and millennials will make this market an exciting one to watch in the upcoming years, as both domestic and international retailers make moves into the market. 

With over eight years of experience in the Vietnamese marketplace, the specialists at Dezan Shira & Associates are well placed to assist foreign investors take advantage of opportunities in Vietnam’s E-commerce market. For more information, please get in touch as vietnam@dezshira.com.

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