Earlier this year, Amazon partnered with the Vietnam Ecommerce Association (VECOM) to provide ecommerce services for local online businesses under VECOM. They also held numerous workshops for sellers, the latest one being in Hanoi and Ho Chi Minh City, called Selling Globally on Amazon.

Similarly, Alibaba-backed AliExpress has been looking to sign up more Vietnamese sellers on its platform since July as it teams up with OSB Investment and Technology JSC to support international exports by Vietnamese small and medium-sized enterprises (SMEs).

Why Vietnam?

Vietnam is one of the biggest exporters in the world, ranked at number 28 out of 225 countries at $214 billion of export value in 2017. Based on 2016’s exports data, Vietnam’s main exports are machinery products, textile goods, and footwear and headwear products.

Figure 1: Vietnam’s amount of exports and its categories in 2016; OEC

Vietnam has become a manufacturing hub with one of the lowest minimum wages in the ASEAN region at $147 to $167 per month (Figure 2). Expanding infrastructure for new projects and a rapidly increasing working age group have promoted low-cost mass-production with many global companies establishing manufacturing bases in the country.

Global companies are benefitting from low production costs but local businesses also have access to ready-to-sell goods at competitive prices. In Vietnam, some 600,000 SMEs are searching for appropriate channels to expand their market share. Ecommerce offers this opportunity from the comfort of their homes.

Figure 2: Minimum wage in ASEAN for 2017; World Economic Forum, Philippines’ National Wage and Productivity Commission, The ASEAN Post

As in all other developing countries, ecommerce in Vietnam is mushrooming. Statista forecast annual growth at 16.8%, higher than Thailand (12.8%) and Indonesia (13%). However, the Vietnamese market is small and still in its infancy. Therefore, the international market offers economic opportunities for local retailers.

Vietnamese merchants are attracted to global e-marketplaces which access customers searching for a broader variety of products and enable international sales at low cost. Online merchandising boosts sales while mitigating the risks of the local economic downturn.

AliExpress executive Yang Ninh commented, “Vietnam, as one of the most diverse manufacturers in the world, is an important destination for Alibaba.”

Comparing between Amazon and AliExpress

To know which platform suits Vietnamese sellers, we compared the specifications of the two platforms in the table below.

Amazon

AliExpress

  • 2.435 billion monthly visits at an average of 6 minutes per visit
  • Most Amazon customers have a high annual income (above $30,000)
  • Visitors are mainly from the Americas, Australia, Western Europe, and South and East Asia (Figure 3)
  • Available in different languages with localized websites in the US, UK, and Japan
  • Monthly subscription fee of $39.99 for those selling over 40 items per month – professional plan or per-item fee of $0.99 for each item sold – individual plan
  • Referral fee of 3-45% of total sales price or a $1 applicable minimum referral fee, whichever is greater, depending on the product category
  • Shipments completed either by sellers using courier services from providers like UPS, DHL and local post or fulfillment by Amazon
  • 549 million monthly visits at an average of 8 minutes per visit
  • Most AliExpress customers have lower annual income (below $30,000)
  • Visitors are mainly from the Americas, Australia, Europe, Asia, and a few African countries (Figure 3)
  • Available in different languages such as French, Spanish, and Korean serving over 200 countries
  • Annual service fee of at least $1,436 (RMB 10,000) and 5-8% seller commission; amount depends on the product category
  • Annual service fees are eligible for 50% and 100% discount if sales reach a certain amount depending on the product category
  • Shipments completed either by sellers, AliExpress or other delivery companies

Figure 3: Where visitors of Amazon (top) and AliExpress (bottom) are located and their average income; Alexa

Whether Vietnamese sellers choose Amazon or AliExpress depends on the target market

Those selling high-end, expensive products may prefer to sell on Amazon because site visitors have higher purchasing power and the majority hail from developed countries. Those wishing to target consumers in the Americas may also prefer Amazon which has a stronger top-of-mind awareness in the region.

Conversely, AliExpress offers Vietnamese sellers a wider global customer base. AliExpress has a more extensive global presence (Figure 3), with site visitors to the platform spending on average 2 minutes longer than at Amazon.

However, the annual service fee at AliExpress is higher than Amazon. Sellers with limited funds or those just starting out might be better to opt for Amazon which also offers different pricing plans for individuals and professionals. Meanwhile, AliExpress discounts annual service fees for retailers if they manage to attain the required annual sales specified for particular categories. This offers value for those selling hundreds or thousands of items.

Vietnam has many local ecommerce players, providing sellers with alternative options for domestically growth. However, reliance on these e-marketplaces alone is not sufficient for Vietnamese sellers to tap international customers.  Listing on either or both of the AliExpress or Amazon platforms offers the most realistic opportunity to maximize sales.

Vietnam expects to have nearly 100% of its households connected to the internet in the next five years. Currently, 94% of urban households and 69% of rural households in the country have access to the web.

A recent whitepaper from Kantar Worldpanel recorded a surge of 177% of people in Vietnam browsing the internet in their spare time – making the country an attractive for retail companies, especially the top 10% money makers.

Last year, 6% of urban households in Vietnam had shopped online for FMCG products and spent 3-4X more than when buying offline.

This year, 23% of high income families in Vietnam are planning to shop online more often — makes sense as they are able to afford the convenience of ecommerce.

Vietnam high-income householdThe Vietnam Ecommerce and Information Technology Agency (VECOM) expects 30% of the population will shop online in 2020 and that revenue from online will account for 5% of total retail sales, up from 2.8% in 2015.

Win over Vietnamese shoppers with social proof

Through an internet connection, customers will have easy access to a wealth of information that allows them to research before buying and making them more sceptical towards conventional advertising, especially in rural areas.

Vietnam high-income household

More Vietnamese customers do product research before buying. Source: Kantar Worldpanel

With 8 out of 10 people online everyday in Vietnam (Google, 2015), it’s natural for them to be exposed to targeted campaigns, a larger selection of products – especially on social media – and influenced by reviews from reliable community members and trusted Key Opinion Leaders (KOLs).

Social media has replaced search engines to become the more favoured ad channel for businesses in Vietnam.

Data from eMarketer shows ads in social networks to be more effective among digital channels such as news sites and mobile apps.

Vietnam high-income householdBabi.vn is a good example of how a brand can utilise Facebook to promote welfare, gain the trust of customers and increase conversions. The company created a Facebook page to build a community of mothers with young children to share their favourite products and reviews and driving traffic to the ecommerce site.  

Vietnam high-income householdThe Vietnamese also have a tendency to choose international and imported brands over local counterparts, stemming from the belief that they offer higher quality services and products. This makes the country an open battlefield for global companies.

This way of thinking has carried over to online shopping as well. E-retailing giants like Amazon and eBay carry better reputations over local ecommerce sites for their wide product assortment and easy return policy.

Vietnam high-income householdVietnam is a market largely overlooked by companies for its slow digital payments adoption and bureaucratic barriers to opening foreign-owned entities, but for the ones that have already set up shop within the country, the ecommerce horizon looks friendly.  

Vietnam, like most countries in Southeast Asia, is experiencing a rapid surge in middle class growth but at a rate faster than its neighbours. According to BCG, the ‘middle and affluent class’ is set to double to 33 million people by 2020 and earn approximately $714 or more a month.

Despite the slowdown of on-demand startups across the rest of the world, Vietnam’s developing landscape has been wide open for value-added services as more professionals in their late twenties and thirties move into their own apartments and pursue white-collar careers.

On-demand groceries and food delivery service MarketOi is one of few startups based in Ho Chi Minh focused on serving the increasing amount of individuals that can afford ‘status’ – expats included.

“It’s not only about being middle class, but also about showing that they’re middle class,” – Oscar Mussons from Dezan Shira & Associates.

eIQ talks to MarketOi’s partner, Nicolas Embleton, about how the company is tackling the ever changing market.

Southeast Asia’s “hip food scene”

The current “food commerce” startups in Southeast Asia – foodpanda, UberEats, honestbee, HappyFresh, etc. – are either delivering hot meals or groceries. MarketOi, founded by French entrepreneur Germain Blanchet last year, actually does it all.

Placed orders are fulfilled within an hour or less as separate in-house riders are based in each of Ho Chi Minh’s districts.

MarketOi “Hunger Games”-esque homepage

“Customers can order a pizza from a restaurant, a croissant from a bakery and a coffee at Starbucks within one order. We try to optimize the route by estimating cooking and preparation time, and sorting out the pickup order so that it makes sense in the delivery chain. The food has to be hot at arrival, and if it’s impossible, the customer is always notified in advance,” says Nicolas.

“MarketOi is a service, we have to do the best to make sure our customers get what they need.”

The company currently has 40 official restaurant and grocery store partners, with over 50 unofficial partners undergoing a trial period that typically lasts three months. MarketOi aims to reach 100 official partners by the end of this year.

“We onboard brands first to test their demand during trials,” says Nicolas. “If the feedback is positive, then we sign them as an official partner.”

Foreigners’ satisfaction about economic aspects in Vietnam and Japan. Longer lines indicate higher satisfaction. Graphics by HSBC

Today, 80% of MarketOi’s user demographic are expats and 20% locals.

On-demand food is notably popular among the stream of expats living and working in Ho Chi Minh thanks to the great “work-life balance” as reported by HSBC data.

“MarketOi is still growing, and since the founding team are foreigners ourselves, it’s easier to know what other foreigners want and become early adopters,” says Nicolas.

The platform services 500 active customers to date and carries out approximately 1,300 deliveries a month with $15,000 in monthly revenue. Since its launch last year, MarketOi has experienced 5% growth week on week.

The platform is also investigating delivery for things such as pet food and medicine, two areas where Nicolas sees potential.

“We essentially want to become top of mind for consumers when they need something in a short span of time,” he says.

As most service providers, convenience is key, but operating in a developing market like Vietnam is not without its challenges.

Scaling the on-demand business  

“The Vietnamese market is tough,” says Nicolas. “There’s a lack of brand loyalty and costs are high while margins are low.”

“Restaurants also feel the same pressure to fill seats in order to balance their high costs, but it can be tough in a city with low dining out preference for Western establishments,” says Nicolas.

“We offer restaurants a way to increase revenue without increased marketing costs,” says Nicolas. “MarketOi does the marketing and receives a commission for each partner order.”

It seems like eating out is picking up in Vietnam though, thanks to an influx of international brands but only for special occasions. The most common meal that the Vietnamese go out to eat is breakfast, with local noodle shops being the most popular option.

Only 7% of dine out destinations are at Western restaurants, including fast food chains McDonald’s and KFC.

Another interesting note is that more than a third of the company’s orders come through ‘chat app’, 30-40% from the website, and the rest from the MarketOi app. Not surprising as 9 out of 10 people access the internet through mobile phones in Vietnam.

Since majority of orders come in via chat, a MarketOi team is dedicated to answering customers and relaying orders to partners.

“Keeping the direct lines between us and the customer is important for an enjoyable experience but this system is impossible to scale because if our orders increase significantly, it will be difficult to manage the personal relationship with our customers,” says Nicolas.

He mentions that the company is currently working on in-house technology such as testing AI, processes, internal tooling and bots to help it scale.

What does MarketOi think businesses should know about Vietnam?

“Vietnam is a very ‘do it all at once, or not at all’ kind of country,” Nicolas observes. “Mass behavior is a thing here in Vietnam.”

For example, lemon tea shops were immensely popular a few years ago, and businesses filled each street with the same kind of shop, selling the same beverage and saturating the market.

This led to a fear of starting something new in Vietnam.

Government constraints are also a big hurdle for businesses that want to operate in Vietnam as noted by Raphael Wilhelm, SoNice.vn founder, one of Nicolas’s good friends.

“Paperwork takes time and the only way to speed up process is through local connections, which can be difficult to obtain for foreigners.”

“Sometimes, to get things done, you have to contact a friend of a friend in Ho Chi Minh,” says Nicolas. “It’s the way business happens around here.”

“Within the next year, we want to expand into another city in Vietnam and increase the speed of deployment. MarketOi’s advantage lies in the fact that the service is still very much needed here, but we are seeing a clear interest in other cities where it makes sense,” says Nicolas.

The MarketOi Team in Ho Chi Minh

Vietnam’s economic development has been the cause of a widening income gap between those working in developed, urban centers and others in rural locations. The country’s income distribution is predicted to be among the most unequal in Asia Pacific by 2030.

The highly polarized nature of Vietnam’s current market means a few things:

  1. Companies can either target one particular social class and specialize or
  2. Mid-range brands have the opportunity to consolidate both a premium and more affordable product line under one umbrella

An example of a company that does this successfully is Viet Tien Garment, an apparel and footwear maker that has different brands to serve different age and income levels. For example, it launched Vee Sendy for younger shoppers and TT-up for its mature customers.

The company is valued at $50.2 million and claimed 2.3% market share in 2016, which is considered positive in Vietnam’s fragmented market.

Serving individual social classes

Source: Euromonitor

Social class E, the lowest income class is expected to remain the most prevalent in the country until 2030, which is good news for FMCG companies as they represent a large market for basic necessities.

According to Nielsen, FMCG items are experiencing a growth surge in Vietnam, especially beyond Ho Chi Minh City and Hanoi.

In 2016, nearly 6% of Vietnamese urban households shopped for FMCG items online at least once and found themselves spending 3-4X more than they would on an average shopping trip offline.

Social class A, the highest income class is expected to be the second fastest growing segment until 2030.

Luxury automaker Mercedes Benz already counts Vietnam as one of its fastest growing markets in Asia and Chanel recently opened its first flagship store in Ho Chi Minh earlier this year – demonstrating a positive step in the direction of Vietnam’s growth.

As Vietnam and US trade grows 20% annually, analysts believe that increase in income will stimulate consumption of luxury labels, especially if they are portrayed as a status symbol.

“Why would I spend $300 on something that doesn’t relate to me, and has no voice?” says Ha Nguyen Thu An, Head of Social at Ogilvy. “Everyone gets Louis Vuitton because of their brand story.”

Apart from multi-brand marketplaces such as Lotte.vn and Robins.vn (previously Zalora), consumers do not have direct access to luxury items and instead, are only exposed to fast fashion pieces or mid-tier brands such as Nike and MANGO.

The future of Vietnam’s consumer landscape

Whether these companies choose an offline, online approach, or both, the country’s classes are both showing signs of economic growth and an appetite for goods they can show off.

Constraints within Vietnam’s underdeveloped infrastructure are not well documented, but that hasn’t stopped the country from continued economic developments and growth in ecommerce.

Raphael Wilhelm and his co-founder Vanessa Santamaria launched SoNice, a new entry to Vietnam’s newest e-marketplace, took time to share with eIQ the challenges with starting a business in the up and coming ecommerce market.

What is SoNice?

The company launched in October 2016 in Ho Chi Minh City enabling Vietnamese designers and makers to scale their businesses as SoNice is capitalizing on the emerging and fast growing sector of local independent brands.

As many merchants on SoNice have little ecommerce experience, the company began to offer services such as content production, brand management and logistics in addition to hosting them on the platform.

Businesses were selling items such as concrete lamps, sketch notebooks and handmade leather wallets on the platform but they didn’t just want another online channel, they wanted someone who could help them scale.

SoNice features over 800 curated products and with a 80% month over month GMV growth since its launch four months ago, activating Vietnam’s smaller brands is working.

Home decor is one of SoNice’s core categories, which taps into Vietnam’s growing property market, where more young people are buying their first apartments and choosing western inspired, modern interiors.

Vietnam emerging from the shadows

Before 2015, Vietnam’s market was often overlooked by foreign investors and only two main companies were offering opportunities for brave investors, Dragon Capital and Vietnam Asset Management Limited.

During that time, countries such as Indonesia and India were showing investors that Asia was more than China, these two countries in 2014 accounted for 21% of the world’s population and 3.8% of global GDP together, and shadowing Vietnam’s potential.

But the tide slowly turned and Vietnam’s investment potential continues to grow. In 2016, the country overtook Indonesia and Thailand as ASEAN’s most attractive market for US firms – 40% of them cited Vietnam as their priority market in the region.

In that same year, ecommerce revenue also increased to $5 billion, accounting for about 3% of total retail trade and services revenue. The number could surge within the next few years as the government plans to invest $111.6 million from the State budget into the ICT sector by 2020.

With a young population, increasing urbanization and 44% Internet users in 2015, the country is steadily becoming an attractive market for businesses.

However, the ASEAN market comes with its own obstacles SoNice co-founder Raphael experienced firsthand. He details what new companies should look out for:

Overcrowded B2C space

Marketplaces such as Tiki, Sendo and Lotte are some of the most well-known marketplaces among the Vietnamese in addition to the region’s most popular marketplace, Lazada. This means that new businesses trying to capture market share would be entering an already crowded battleground.

Raphael advises,

“Understand the playing field first. It would make more sense as a smaller, new player to offer a more select and strategic product offering on your platform to increase the chance of survival.”

He notes that Vietnam’s vertical ecommerce market is still relatively young. Notable startups such as WeFit and Foody are good examples of successful companies that saw opportunities in their untapped fields by offering something unique to consumers.

“For entrepreneurs poised to enter Vietnam, think about what is lacking, and go from there.”

Challenges specific to foreigners

As a European business owner in Vietnam, the process of opening a bank account took 2X longer than it would for a local.

“The quality of financial services is also quite low in Vietnam. Not only did it take me a few hours to open a bank account, I was also required by the bank to pay a deposit to apply for a credit card,” comments Wilhelm.

For 100% foreign owned businesses, it will be a challenge to overcome the country’s bureaucracy. Wilhelm recommends hiring at least two different lawyers in Vietnam to help navigate the 5-6 month long process of launching your own company, whereas for locals, the process simply takes five days.

Vietnam’s unbanked population

Although it’s becoming less common, some people still pay for their houses using gold and the reason why Raphael says 90% of ecommerce transactions in Vietnam are paid with cash-on-delivery (COD).

According to the World Bank, 70% of Vietnamese are still unbanked. However, with 38% of the population owning a smartphone, payment companies and banks have the potential to access more clients and increase financial sophistication amongst the Vietnamese.

Low trust in logistics 

“The postal services in Vietnam are not yet up to an international standard, which can sometimes cause delays in delivery, making it hard to persuade people to shop online,” comments Raphael. “We use motorbike riders in Ho Chi Minh City and 3PLs to deliver to other cities like Hanoi and Danang.”

SoNice’s best-selling products range from Home décor items such as canvas art prints and Edison Desk Lamps to hand-crafted notebooks – the right size for motorbikes making delivery cost is also favorable.

“While logistics are a challenge, the price ranges between $1-2 to take your customer’s parcel from one district to another.”

Winning over VCs

According to Raphael, there’s a lack of funds and VCs that solely focus on Vietnam. Instead, startups often have to pitch elsewhere to raise funding, commonly to outsiders who aren’t quite convinced of the market potential.

However, it seems that overseas VCs are taking notice. In 2016, Vietnam saw two dozen startups receive funding from seed to Series C stages with the help of Hanoi based ed-tech startup Topica’s Founder Institute incubator.

For Raphael, interested investors are advised to spend time with local entrepreneurs and get to know their way around the city before committing to an investment opportunity.

“The culture here is so distinctive that it requires an understanding of the locals, of how things are done and these two require time and effort,” says Raphael. “The market can’t be pitched in 5 or 6 slides, it’s important to come with an open mind.”

Although the fundraising process takes time, the average deal size in Vietnam is relatively small, meaning that investors don’t need to commit to a major investment to make an impact. They could easily inject $500,000 and it would be considered a significant contribution, unlike funding rounds in Singapore or Indonesia where numbers are in the millions.

The Vietnamese mindset

In general, Vietnamese people have more to spend compared to even two-three years ago. When Raphael arrived in Ho Chi Minh City in 2012, the landscape was completely different.

“After Starbucks opened shop in Vietnam, a wave of boutique coffee houses popped up and young people also started to invest more in their first apartments. Vietnam is slowly opening up room for more experiences, shopping and consumer-centric verticals,” remarks Raphael.

The Vietnamese government has recently announced Resolution 35, an initiative to help launch one million enterprises by 2020, double the current number. The State is ensuring equal access to funding sources, land and natural resources among enterprises, regardless of their types and economic sectors and adopt policies to back SMEs, startups and creative businesses.

Vietnam: Is it worth it?

“Despite the hurdles in Vietnam’s growing ecommerce landscape, the challenges in payment, logistics and the law exist because the ecommerce landscape is so new, not because Vietnam is not suitable for ecommerce,” says Raphael.

SoNice’s growth in less than six months speaks for itself and Raphael is a passionate advocate for Vietnam’s potential.

“By coming in now, startups have a higher chance of succeeding but they must differentiate themselves from what’s out there. Deep rooted challenges in Vietnam present companies with lots of opportunities,” said Raphael.

Raphael (center) with the SoNice team in Ho Chi Minh city

Vietnam’s investment potential is attracting attention, especially in industries such as real estate and technology. In January this year alone, 9,000 new companies were registered.

Despite its authoritarian government, investors in Vietnam have the option of side-stepping the country’s state owned companies to focus on smaller, private businesses that are poised for growth. Low valuations and a rising foreign cash flow mean there is a lot of potential to drive economic progress forwards but many companies still have doubt.

A lot of marketers, retailers and manufacturers are not sure about what to think of ecommerce: is it another buzz word or the future of modern trade in Vietnam? – Kantar World Panel

The current online landscape and its future

Vietnam is home to a handful of ecommerce marketplaces, notably Tiki, Sendo and The Gioi di dong, where site visits are comparable to the likes of Lazada, the biggest e-player that currently claims 30% of Vietnam’s online retail market.

Source: ecommerceIQ Vietnam data

Vietnam has also seen its fair share of newcomers and exits in ecommerce but C2C and B2C models are the most popular in the country. Garena’s Shopee has been steadily gaining traction after almost two years in the country and the Shopee app has been downloaded two million times and processes 10,000 orders per day.

2017 will be a year of intense competition for Vietnam’s ecommerce players especially as traditional retailers pursue an online presence. An example would be Korean cosmetics giant, Lotte.vn, that has an online and offline presence in the country. In January alone, Lotte gained 1.7 million visits on its website. Another threat to online players would be retail chain Aeon Shop that opened its online store AeonEshop.

vietnam, aeonVietnamese consumers shop FMCG 

According to Kantar World Panel research, the internet and online commerce is becoming more accessible to shoppers in Vietnam thanks to mobile phone usage at 80% penetration in the country’s four key urban cities. These are the other findings:

  • 69% of Vietnam’s households have working women who welcome convenience
  • Nearly 6% of urban households have shopped online for (fast moving consumer goods) FMCG at least once in 2016 and when they do, spend 3-4 X more than they would on an average shopping trip to avoid carrying bulky products on their motorbikes
  • The value share of FMCG ecommerce is 0.2% in Vietnam meaning there are plenty of opportunities for consumer good players to serve the demand and rack up sizable market share

 

Help from the government 

The Vietnamese government is set on implementing measures to improve the business and investment landscape to boost economic growth in the country. These include supporting SMEs and in particular, Resolution 35, which aims to create one million private enterprises in 2020 from 515,000 at present, and increasing the private sector share of national GDP from 43% to 49%.

The country was classified a “lower-middle income” country in 2009 – causes of the middle-income trap can include a lack of basic and advanced infrastructure, adequate financing, skilled human capital and innovative enterprise.

“Vietnam’s vision is to reach the upper-middle income category and be well on its way to a high-income economy by 2035” – Daryn Govender, opinion article on Interest.co.nz

 

Roadblocks to Vietnam’s growth

Analysts have said that many companies in Vietnam are looking to increase exports this year, hoping to leverage upcoming free trade agreements going into effect this year.

According to the Ministry of Trade and Industry, Vietnam will have to implement all commitments under the ASEAN Free Trade Agreement with China and other ASEAN member countries, the ASEAN Economic Community (AEC), World Trade Organisation (WTO) to create highly favorable conditions for the country’s economic development.

There are other challenges from overseas and domestic markets that may hinder the growth potential of many Vietnamese enterprises, especially for exports.

Domestic challenges

  • Macroeconomic instability
  • Lack of adequate development infrastructure
  • Growth quality of the Vietnamese economy

Overseas challenges

  • President Donald Trump’s “protectionism” rhetoric could potentially stunt export growth for Vietnam
  • When official, the consequences of Brexit could also impact as Vietnam was emerging as one of the EU’s most active trading partners

The major economies’ shift from trade liberalisation to protectionism could very well change the structure of global commodity supply and demand and directly impact the global trade market. To analysts, this means that Vietnamese companies should focus on building in its domestic market to contribute to economic growth and development.

For those poised to enter Vietnam, does your business differentiate from what’s already available, more FMCG offerings perhaps? Are you able to benefit from government initiatives such as Resolution 35? For investors, are you willing to take a gamble on a still very much developing country such as Vietnam?

With all this in mind, we look forward to witnessing Vietnam’s growth.