Companies can see the long-term potential of the country’s rapidly expanding online shopping sector.
Vietnam’s blossoming e-commerce market has attracted global retailers such as Amazon, Alibaba and Shopee, but earning a profit in the country is another story.
American e-commerce giant Amazon is set to join Vietnam’s fast-growing market this month by opening up its platforms to local small and medium enterprises.
The company is expected to sign a deal with the Vietnam E-Commerce Association at a forum in Hanoi on March 14.
The deal was discussed at a meeting late last year between the association and Amazon, the world’s most valuable brand now worth $150 billion, according to Brand Finance Global Ranking.
Its development strategy will be revealed at the Vietnam Online Business Forum, which will be held first in Hanoi and then move to Ho Chi Minh City on March 16, and include discussions regarding online shopping trends, tax management and new technologies.
Other foreign online retailers have already infiltrated the Vietnamese market.
Earlier this year, China’s second biggest online e-commerce firm JD.com Inc announced plans to invest in Tiki, a Vietnam-based online retailer that it intends to help with fulfillment, logistics and more. JD.com co-led the financing with Vietnamese entertainment and social media firm VNG Corp.
The firm did not disclose the size of the deal, but said that JD.com will become one of Tiki’s largest shareholders alongside VNG.
In 2017, Alibaba officially entered Vietnam, and attracted tens of thousands of businesses after just six months. In June last year, the Chinese giant spent $1 billion raising its stake in Southeast Asian online retailer Lazada from 51 percent to 83 percent. Lazada is the biggest online retailer in Vietnam in terms of revenue, accounting for a whopping 30 percent of overall sales.
More than 90 percent of investments into Vietnam’s e-commerce platforms had come from foreign sources including China, South Korea and Thailand as of 2017, according to Nikkei Asian Review.
Trade expert Vu Vinh Phu attributed the inflow of large international e-commerce firms to the country’s growing online shopping trend, improved internet services and an increase in mobile-based payments.
Up to 59 percent of Vietnam’s nearly 95 million people have bank accounts, data from the central bank shows.
The potential for the sector is huge amid an expanding middle class and smartphone usage.
Across the country, the ratio of people using smartphones among mobile phone subscribers reached 84 percent in 2017, increasing from 78 percent the previous year, according to the Nielsen Vietnam Smartphone Insights Report 2017.
“The growth rate of Vietnam’s e-commerce market is estimated at about 35 percent, which is 2.5 times higher than Japan,” said industry expert Duc Tam at the recently-held Vietnam Online Business Forum 2017.
Online sales in Vietnam have expanded rapidly in recent years, currently accounting for 3.39 percent of the country’s retail market. The total retail market grew 10.9 percent last year to $173.27 billion.
The World Bank forecasts that Vietnam’s $200 billion economy is likely to grow to a trillion dollars by 2035. More than half of its population, compared with only 11 percent today, is expected to join the ranks of the global middle class with consumption of $15 a day or more.
According to one estimate, about 30 percent of the population will be buying goods and services over the internet in 2020, with each shopper spending an average of $350 per year.
“Foreign investors have seen the potential and they are pouring in money to take over the market,” said Phu.
Huge costs hinder profits
Despite the huge potential in Vietnam, e-commerce firms have faced development challenges, and many say they have suffered huge losses for years.
VNG Corp reported a loss of $122 billion (over $5.3 million) from its investment in e-commerce firm Tiki.vn in 2017.
Some local e-commerce companies like Lingo.vn, Deca.vn and Beyeu.com have been forced to shut down due to prolonged losses.
Huge logistics costs, which account for 60-70 percent of online retailers’ revenues, were the main cause of their losses, trade expert Phu explained. Large e-commerce firms also need massive warehouses covering thousands of square meters, and hundreds of staff to work in them.
Explaining why foreign investors are continuing to increase their presence in Vietnam’s e-commerce market, Phu said their current goal is to attract customers, stretching their influence on the market.
Firms often suffer losses in the first 5-7 years, said a trade expert. “It’s not time to make a profit yet. It’s time to increase market share.”
Agreeing with them, Nguyen Manh Dung, head of the Vietnam and Thailand Office under CyberAgent Ventures, said e-commerce requires long-term investment, and investors could start to earn profits after 5-10 years of operation.
Even Amazon, in some markets, has only started making a profit after 10 years of investment, local media quoted Dung as saying.
With fierce competition in Vietnam, it is likely to take e-commerce firms some time before they start reaping the rewards, he added.
Source: VnExpress