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 began offering 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, it seems like 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 young people are buying their first apartments and choosing western inspired, modern interiors.
Vietnam emerges 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 and shadowing Vietnam’s potential. The two countries in 2014 accounted for 21% of the world’s population and 3.8% of global GDP together.
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 Southeast Asia.
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.
However, the up and coming ASEAN market does come with its own obstacles as 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.
“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 different 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 in a foreign bank 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 also 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 5 days.
Vietnam’s unbanked population
Although it is becoming less common, some people still pay for their houses using gold and keep savings underneath their mattresses. It’s no wonder why Raphael says 90% of ecommerce transactions in Vietnam are paid with cash-on-delivery (COD).
According to 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. 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 spending time getting to know their way around the city before committing to an investment potential.
“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 five years ago, the landscape was completely different.
“After Starbucks opened shop in Vietnam, a wave of boutique coffee houses opened and young people 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 1 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 a 6 month period 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.