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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.

With 600 million people, a growing middle class and rising internet penetration, Southeast Asia is often considered as the next gold rush for ecommerce. Alibaba’s $1 billion landmark acquisition of Lazada — Jack Ma’s largest overseas acquisition to date — happened here earlier this year. But headlines and hyperboles aside, how big is the opportunity for ecommerce in Southeast Asia exactly?

The $88 Billion Opportunity?

Little data exists on the current and projected size of the ecommerce market in Southeast Asia. Part of this is because it’s still a nascent industry and, as a result, legacy institutions like government and research firms are still playing catch up. Part of it is also due to the fact that C2C ecommerce, estimated to be anywhere from one-third to half of total ecommerce GMV, is mainly unregulated and untaxed. It doesn’t help that the majority of C2C in Southeast Asia actually happens on social platforms like Facebook and Instagram, facilitated by conversations on messaging apps like LINE and Facebook Messenger.

Having said that, several reputable organizations have taken a stab at assessing the size of ecommerce in this region. One of the earliest attempts at market sizing comes from AT Kearney in collaboration with CIMB. Published in early 2015 and titled ‘Lifting the Barriers to E-Commerce in ASEAN’, the report estimates the current market size at $7 billion (as of 2013), and projecting a future potential of $89 billion.

More recently, Google partnering with Temasek, released a report titled ‘e-conomy SEA: Unlocking the $200 billion digital opportunity in Southeast Asia’ that sizes the current ecommerce market at $5.5 billion (as of 2015) and foresees it to grow into an $88 billion market as early as 2025. However, it’s important to note that Google and Temasek paint only a partial picture as they are leaving out C2C and P2P marketplaces such as OLX, Carousell and Instagram because of difficulties in obtaining data.

Western vs. Chinese Ecommerce Growth Models: Why Existing Estimates on Southeast Asia’s Ecommerce Potential Are Wrong

$88 billion seems like a big deal but as soon as you put it in context, one may start to wonder if this is the right number. The US ecommerce market today is a $394 billion market. But then again, and quite obviously, the US is a much more mature ecommerce market and both Amazon and eBay are older than some of the junior staff on my team. What about China? China surpassed the US in 2013 to become the world’s largest ecommerce market in terms of GMV.

And today, Chinese ecommerce is a $700 billion market, making up about 13% of total retail in the country. With a population half the size of China, shouldn’t the future potential of ecommerce in SEA be a little bit brighter than a mere $88 billion?

southeast asia ecommerce

Things become even more interesting when we look at the projected 2025 numbers and normalize them based on population size. This metric gives us an idea how much an average person spends on ecommerce in a given year. We’ve done this calculation below for key SEA markets as well as benchmark countries like the US and China:

ecommerceIQ

A couple of things stand out here. Obviously, China is still the world’s largest ecommerce market reaching $3 trillion GMV and 25% penetration. By 2025, the average Chinese shopper is expected to spend north of $2,000 per year online, almost triple the amount Singaporeans will spend online and catching up quickly to Americans who, 10 years from now, will be spending almost $3,000 on ecommerce annually.

The other interesting bit is emerging SEA countries represented here by Thailand and Indonesia. Google and Temasek’s report projects ecommerce in these two markets to reach $11.1 and $46 billion, respectively. This number in and by itself is impressive but when normalized with respect to population size, the ecommerce GMV per capita numbers are disappointingly low $155 and $157 for Thailand and Indonesia, respectively. Perhaps there’s an explanation for this.

US and Singapore’s GDP per capita are obviously much higher than that of emerging markets like Thailand and Indonesia, people have more money to spend in general, and China’s not exactly a developing country anymore with its GDP per capita projected to reach $14,000 by 2025.

Yet if we compare China and Thailand in the table below, we can see that Thailand’s GDP per capita is estimated to reach $11,000 by 2025, which is higher than China’s GDP per capita today and not far from China’s projected 2025 number. However, based on current ecommerce projections, Thailand’s per capita online spend will only be $155 or 1% of household purchasing power.

This doesn’t make sense given that Thai consumers do have spending power and retail makes up a large part of Thailand’s economy as evidenced by below retail penetration and GDP per capita numbers. Even if accounting for the missing C2C and P2P part—let’s say the other 50%, bringing the $155 to roughly $300—this number is still low compared to China today.

southeast-asia-ecommerce-potential

From 2006 to 2016, China’s ecommerce GMV per capita grew 127x. It’s hard then to believe that Thailand’s GMV per capita will only grow 9x over the next decade, especially given that Thai people are already spending more online on a per person basis today than Chinese did at the beginning of the Chinese ecommerce boom around 2006. This only makes sense if we assume SEA’s growth markets like Thailand and Indonesia will grow at a modest, Western-style pace of 18% (US 2000-2015) and won’t be growing at China ecommerce’s last 10-year CAGR of 68%.

As we’ll soon find out, the reason for this discrepancy is the faulty application of a Western-centric ecommerce growth model whereas the right model to size up ecommerce in emerging SEA is actually the Chinese model of hyper-growth.

Brothers From Different Mothers? Emerging Southeast Asia Ecommerce Has More Similarities With China Than Anything Else

The fallacy of existing projections is that they’re often based on a Western-centric model, in which the West is seen as the tried-and-true path towards ecommerce. However, for various reasons explained below, SEA ecommerce resembles China more than markets that developed earlier such as the US, Europe and Japan. As a result, we should be expecting high double-digit hyper-growth similar to the one China experienced over the last decade instead of the more gradual year-on-year progress of more legacy ecommerce markets.

1. Lack of offline retail infrastructure

“Why did internet ecommerce grow so much faster in China than in the USA? Because the infrastructure of commerce in China was bad. Unlike here, where you have all the (physical) shops: Wal-Mart, K-Mart, everything, everywhere. But in China, we have nothing, nowhere. So ecommerce in the US is just a dessert; it’s complementary to the main business. But in China, it’s the main course.” Jack Ma, Alibaba Founder and Chairman

Bangkok and Jakarta are home to some of the most high-end malls and department stores across the region such as Central World, Paragon and Grand Indonesia. However, once outside of the capital cities, there’s much left to be desired. China is very similar, with most offline retail concentrated in tier 1 cities such as Beijing, Shanghai, and Guangzhou.

Retail GFA (Gross Floor Area) per capita is 2,200 sqm in the US versus 500, 500 and 100 sqm in China, Thailand and Indonesia, respectively, according to data from CLSA. As a result, the majority of consumers in Thailand and Indonesia have no choice but to shop online, especially those outside the bigger cities. Based on aCommerce aggregate numbers, 70% of orders are from outside Bangkok.

Like in China, all this is expected to accelerate ecommerce growth at a much higher pace than in legacy markets.

2. Cash-on-delivery as the dominant payment method

The lack of credit cards didn’t deter ecommerce in China from growing at 68% annually over the last decade. With a less than ideal financial system, logistics and delivery companies ended up filling the gap by offering cash-on-delivery (COD) solutions. In its heydays in 2008, COD was 70% of total B2C transactions in China. However, by 2014, Alibaba’s Alipay had surpassed COD as the dominant payment method, with over 85% of 11/11 shoppers expressing a preference towards using Alipay vs. only 21% for COD.

Today’s SEA is eerily similar to China 10 years ago. With credit card penetration in the low single digits, COD has become the dominant payment method, with 74% of transactions in emerging SEA paid through cash based on data from aCommerce. Like China, SEA ecommerce won’t rely on COD forever. With Lazada’s acquisition, Alibaba now is executing its master plan to bring Alipay and Ant Financial services into the region.

3. Lack of cross-border ecommerce due to high import duties and taxes

Cross-border ecommerce in China was never a big thing until recently, with the establishment of government-approved bonded warehouse zones which allow for faster international shipping times and lower fees. Global brands and retailers can now tap into the lucrative Chinese market by setting up stores on platforms like Tmall Global and JD Worldwide without having a costly physical presence in the Middle Kingdom.

Prior to this, ordering abroad was limited for many Chinese consumers due to high import duties (30%). (These import duties still apply to merchants who are not licensed to sell in China’s cross-border ecommerce network, e.g. ordering directly from Amazon.com).

Similar to China, SEA’s growth markets like Thailand and Indonesia today have prohibitive import duties and taxes. This lack of a level global playing field puts the pressure on developing a strong local ecommerce ecosystem which is what we’re seeing right now with the ecommerce bloodbath in Indonesia.

southeast-asia-ecommerce-potential-3

4. “No-Tail” ecosystem

Internet adoption in China and emerging SEA countries didn’t reach critical mass until the mid-2000’s. These markets skipped most of the Web 1.0 and “Web 1.5” booms and jumped straight into Web 2.0, leading to the formation of what we call a “No-Tail” ecosystem. As a result, digital advertising in these countries has lagged behind that of more mature markets like the US and Japan where companies like Facebook and Pinterest often see selling ads as the most obvious—and sometimes only—way to make money.

Lacking a mature advertising environment, Chinese internet companies have had no choice but to look at commerce to monetize which has lifted the Chinese ecommerce industry to its present day juggernaut status.

“While US firms focus on ad revenue, Chinese companies have become pacesetters in ecommerce,” reports The Washington Post.

“You go on Facebook and you can’t even buy anything, but on WeChat and Weibo you can buy anything you see,” said William Bao Bean, a Shanghai-based partner at SOS Ventures and the managing director of Chinaccelerator, in the very same Washington Post article.

Uber didn’t lose in China because of lack of deep pockets; the ride-sharing giant lost because it was battling a competitor that was focused on long-term ecommerce monetization, not on short-term transportation revenues.

Similar to China a decade ago, emerging SEA has an equally nascent advertising market. “There are not enough local publishers therefore not enough spend from advertisers,” said Lichi Wu, an SEA ad tech expert previously with Google and AdMob.

With “walled gardens” like Facebook and Instagram dominating all content creation, there’s not a strong enough force to break the vicious chicken-and-egg cycle. Faced with the grim reality of low RPMs (revenue per 1,000 impressions or pageviews) many online businesses have embraced ecommerce as a business model.

It’s not surprising then that one of the most popular sources of “passive” income in Thailand and Indonesia is buying merchandise from Taobao and AliExpress and reselling it for a margin on Facebook and Instagram, whereas in the US stay-at-home entrepreneurs often resort to blogging, SEO and affiliate marketing to generate advertising income.

Sizing Up Southeast Asia Ecommerce Based On The China Ecommerce Growth Model

Looking at all the previous metrics, we can observe similarities between emerging SEA ecommerce today and China in 2006. For example, Thailand’s 2016 ecommerce GMV per capita and ecommerce penetration numbers are comparable to China in 2006. (Granted, and to be precise, based on these numbers Thailand ecommerce in 2016 is already ahead of China in 2006.)

To benchmark where emerging SEA ecommerce could be roughly 10 years from now, let’s look at ecommerce GMV per capita as percentage of national GDP per capita. This metric should give us an idea of an individual’s ecommerce spending power relative to living standards. We can’t really use China’s 2016 ecommerce GMV per capita because Thailand’s GDP per capita by 2025 will be higher than China in 2016, resulting in us underestimating the potential.

China’s ecommerce GMV per capita as percentage of national GDP per capita is 6% in 2016. Multiplying this with Thailand and Indonesia’s projected GDP per capita for 2016 we’ll get $711 and $533 ecommerce GMV per capita. Then applying this to the projected population count, we’ll get a $51 and $157 billion ecommerce market size for Thailand and Indonesia, respectively. Contrast this to Google and Temasek’s projections of $11 and $46 billion and we can see how much money is left on the table.

Taking Google and Temasek’s 2015 Thailand and Indonesia numbers and including an estimate for C2C, let’s say 30%, gives us the starting point for our annual projection. Then averaging out annual growth to reach the $51 and $157 billion numbers, we’ll get the below annual projections. In this scenario, new CAGRs are 43% and 50% for Thailand and Indonesia, versus the previous ones of 29% and 39%.

southeast asia ecommerce

Without adjusting for Singapore, Malaysia, Philippines and Vietnam (former two don’t follow the China model), we’ll get a total projected size of at least $238 billion. Indonesia’s re-adjusted ecommerce projection of $157 billion alone is bigger than the original $88 billion estimated for all six SEA markets combined.

This revised projection does justice to the true potential of ecommerce in Southeast Asia and explains why everyone here is doubling down, with Alibaba acquiring Lazada for $1 billion, Tokopedia having raised $248 million to date, and MatahariMall just fresh off a $100 million round. Like in China ten years ago, those that invest in ecommerce early and take a long-term, strategic outlook will end up owning the biggest chunks of this $238 billion — not $88 billion — ecommerce goldmine in SEA.

BY SHEJI HO, CMO AT aCommerce

 

Indonesia presents a large opportunity for ecommerce among other emerging countries in Southeast Asia, reports Tech Crunch.

Current projections are putting the fragmented country’s e-market value at $130 billion by 2020, coming third behind China and India.

With an estimated annual growth rate of 50% and strong mobile-first initiatives, retailers have a unique opportunity in Indonesia to focus on developing truly mobile platforms to help facilitate e-market growth.

Indonesia’s ecommerce landscape

Indonesia’s current ecommerce market is similar to China’s online marketplace beginnings, with a large pool of entrepreneurial sellers providing goods purchased based largely on social media recommendations. The market also shares resemblance with how the US ecommerce market was in the beginning, with untrusting consumers who doubted online payment systems.

 Indonesia is truly unique in that it has the potential to create a hybrid of the widest opportunities from America and China’s ecommerce economies.

Mobile first Indonesia

Indonesia has established itself as a mobile first country. In 2015, over 70% of Indonesia’s internet traffic came from mobile devices. Social media has played a key role in this, as Indonesians have the highest mobile Facebook usage rate worldwide, with 63 million in 2015. This number is expected to increase, with projections that it will grow to 99% by 2018.

Indonesia ecommerce highlights

VARIED PLAYERS

Indonesia’s retail market currently consists of CPGs being sold in retail spaces known as “fragmented trade,” which is primarily made up of independent small business owners. Ecommerce is currently growing at a rate twice as fast as fragmented trade, forcing many of these independents to turn to the ecommerce model.

This means that the nation is prospering with multiple entrants and varied players.

Unlike other Asian nations, Indonesians do not solely rely on mass retailers to guide their purchasing decisions, allowing for these individual sellers to maintain market share. With lots of potential growth in rural and semi-rural areas, ecommerce specifically allows Indonesian consumers to source hard-to-find goods, as opposed to rural areas in other countries.

MOBILE

Indonesia’s truly mobile-first scenario also allows sellers to use smartphones to their advantage, gathering hyper-personalized data to target individual Indonesian consumers as opposed to just specific demographics or groups among Indonesia’s more than 250 million population.

Mobile-first also allows for the easier entry of participants into the Indonesian e-commerce scene, with startups having the flexibility to choose who they want to target and sell to.

LOGISTICS

In the age of companies developing in-house solutions instead of relying on outsourcing, the untapped logistics market also gives rise to the growth in Indonesian ecommerce. Companies have the ability to develop proprietary, or even simply more efficient, delivery systems as another form of competition in the online marketplace.

ONLINE PAYMENT

Many ecommerce transactions are currently paid through either direct bank transfer or cash-on-delivery, which is greatly limiting ecommerce growth through lost transactions. With Indonesian spend growing nearly 10% annually, cash-on-delivery will soon be unsustainable. Creating a trusted solution to utilize online payments could lead to huge growth.

Indonesia presents a variety of unique opportunities in becoming one of the largest ecommerce spaces. It’s shortcomings, such as payment complications and poor logistics infrastructure leaves room for untapped potential, which if filled, could lead to continuous growth. A growing middle class with increasing spending power, coupled with emerging players from varied sectors such as retail and independent merchants should boost the ecommerce market.

A version of this appeared in Tech Crunch on July 29. Read the full version here.

Payment cards on the rise rn Cambodia

VISA overtakes MasterCard in Cambodia, Source: Phnomphen Post

There has been a surge in both credit/debit card penetration and widespread acceptance in Cambodia according to Phnom Penh Post. MasterCard, the plastic payment-card brand of global financial services firm MasterCard Worldwide, has been present in the Kingdom since 2001, but until recently it was relatively unknown to most Cambodians.

To date, MasterCard has partnered with 13 banks – including six with foreign-owned banks – in Cambodia to deliver its products.

Currently, the total number of MasterCard credit and debit cards issued in Cambodia grew by 22% during the one year period through March 2016. The company recently announced a partnership with Cambodian bank Acleda, potentially accelerating growth within the next year.

MasterCard’s partnership with Acleda is a step towards a cashless society. The goal is to adopt and grow electronic payment methods and drive greater financial inclusion in the country.

1.4 million debit cards and almost 40,000 credit cards were issued in Cambodia last year. Acleda Bank was the largest single issuer of these cards, with almost 60% of debit cards and over a quarter of credit cards issued by them.

According to So Phonnary, Executive VP and Group COO of Acleda Bank, Cambodians are increasingly using MasterCard for electronic payments, which is why the bank decided it was time to issue its own MasterCard payment cards. Electronic banking is helping to develop payment systems in Cambodia, which can reduce dependency on cash based transactions.

There are also broader economic benefits in using credit and debit cards, cash printing and circulation can cost up from 0.5-1% of a nation’s GDP.

For an emerging market such as Cambodia, the small percentage fraction takes a considerable amount away from the country’s total GDP.

According to Limhong Fashion Shop, it is estimated that 30% of transactions made at the local store are either through MasterCard or Visa. This growth can potentially create more opportunities for ecommerce.

A version of this article appeared in Phnom Penh Post on June 6. Read the full version here.