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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

Mitch Bittermann, Regional Chief Logistics Officer at aCommerce recently sat down with The Postal Hub podcast to discuss a successful B2C ecommerce strategy, logistics in Southeast Asia, and what he thinks brands should prioritize when attempting cross-border. 

The Postal Hub: From a retailer perspective, what are the challenges to get into ecommerce

Mitch: I would look into tech, customer service, warehousing and transportation. Retailers today are mainly working from a B2B perspective. This means bulky shipping and heavy-duty racking in the warehouses, which is only suitable when operating B2B. To do B2C, the requirements are completely different, because the consignments are smaller. From a transaction perspective, businesses would also need to think differently.

With transportation, it would either be light or FTL (full truck load), the size of packages are smaller with B2C, which means you have to work with parcel couriers to get the items shipped to your end customer. The biggest difference is also with customer service. If a company is running their own customer service, it usually requires them to talk to businesses, but with B2C, customer service means the end customer is contacting you through various channels, from calling to live chat, things that B2B businesses may not have.

The Postal Hub: If you are a retailer entering ecommerce, what are the key delivery considerations?

Mitch: I would go one step before that. I would think about what the location strategy is. Where is your supplier, brand, manufacturer and customer sitting? If it comes from a transportation perspective, today, you’re shipping a lot on freight. You’re shipping pallets, costs is definitely a consideration but from a cost perspective it is a lot smaller than if you have to send everything in small consignments. Someone has to pick up the bill.

Customers in Southeast Asia are more cost sensitive about shipping price so retailers will eventually need to consider setting up a hub somewhere to cut costs on shipping.

Postal Hub: Cash on delivery is popular in Southeast Asia. What are the other ways people are paying?

Mitch: Cash-on-delivery (COD) is the biggest enabler in ASEAN. This is the choice for most people, especially in tier 2-3 cities that are unbanked. If you look at Indonesia, in a place like Papua New Guinea, 90% is COD. Do we have another method? Yes, but one of the challenges is that we do not have Alipay. Banks offer platform but they are not default.

In Indonesia, a lot of banks are talking about an e-platform but nothing concrete is happening just yet. 

For now, we cannot live without COD in Southeast Asia. Potentially, a retailer could lose out 60-70% of revenue if they don’t offer COD as a payment method.

Postal Hub: What about buy vs. build? What should be outsourced?

Mitch: It really depends on retailer maturity. If a retailer is just starting, I would say do as much as possible by yourself. Pack and send off shipment by yourself, if your business scales, then look to outsource. When it reaches the stage of 100,000 orders a month, do you want to run it by yourself or outsource to a third party service provider?

With transportation, it is best to outsource. This is because Southeast Asia still has fairly weak infrastructure. There are a lot of options to choose from; DHL and Kerry are the big ones. Then we have smaller disruptors such as Ninja Van and Sendit. All the movements in the transportation industry also mean prices will be soon drop and the industry will become more commoditized.

Some of my clients run their own warehouses and some outsource. When I was working in B2B, companies were running their own warehouses and then the outsourcing trend happened. The trend is coming for B2C, but I don’t think it will take 5-10 years to take off, it will go faster.

Soon, the trend will go towards out-sourcing supply chain so that businesses can focus on growing and selling their products. 

Postal Hub: What about cross-border delivery?

Mitch: With delivery, some people request next day or same day. It’s more difficult to ship cross-border with these requirements. Companies need to consider regulations that are related to ecommerce shipment and study revenue transfer, especially if you don’t have your own entity in that country. Figure out how to get money back from country A to country B while also thinking about tax implications.

Businesses will also need to think about FDA licenses and certain regulations. For certain products, you would need a license to legally bring it into a country, including distribution and logistics licenses.

A client came to me, they wanted to ship stuff from Singapore to Indonesia, but it was taking 7-9 days and costing customers $7 per shipping order. Depending on the product, that is quite a high price point. Customers are also not happy to wait that long for a delivery.

The client wanted a local set-up and do COD shipment because they want to build up scale. The company never shipped more than 100 orders a month. When they signed on with aCommerce, we closed 1400 orders after 3 months. The only thing that changed is the country we did the shipping from.  

For businesses that are starting out in Asia, I would say for them to start their operations from either Hong Kong or Singapore. If it scales, then is the time to go local i.e. Jakarta, or hyper-local, such as tier 2 and tier 3 cities like Bandung or Surabaya for better reach. 

Postal Hub: What about parcel lockers? What are end consumers in Southeast Asia interested in?

Mitch: The interest is there, but it’s all about reach and coverage. In Singapore, the country is not that big and essentially a metropolitan location, which makes it easier to offer things like same day delivery. In Bangkok, we power SKYBOX, a pick-up station on sky-train stations that allows consumers to pick-up their parcels on the way to and from work.

In Jakarta, MatahariMall offers lockers but it is limited in terms of coverage. I would recommend looking at pick-up and return from convenient stores such as 7-Eleven, Family Mart and Alpha Mart. There is already a lot of offline coverage in Southeast Asian cities and retailers can collaborate with these stores to begin a wider distribution network. 

Listen to the full interview on eIQ’s podcast channel here.

The global shipping industry is going through a tough time. Overcapacity and the lowest recorded freight and cargo rates are causing logistics companies to salvage the situation by diversifying their clientele, namely to serve more online players.

Alibaba is taking advantage of this opportunity and creating a solution for these companies through its OneTouch import and export service, offered by a company Alibaba acquired seven years ago. Chinese suppliers no longer need to go through freight forwarders and can directly book spots on a container ship directly via the internet through OneTouch.

The platform is a sign of growing harmony between logistics companies and ecommerce.

OneTouch has already helped over 20,000 merchants – SMEs and Alibaba’s B2B marketplace sellers – explore cross-border opportunities with China and handles the customs clearance and logistics.

Shipping companies happy to jump onboard

OneTouch was put into the spotlight after signing three big names in shipping; Maersk, CMA CGM and Zim.

“This gritty industry has taken the background role in the past but now has the potential to affect the way every product is sourced, bought and delivered,” comments Dr. Zvi Schreiber, CEO and founder of Freightos.

“Building on a massive 80% ecommerce market share in China, Alibaba’s new partnership with Maersk – which controls 25% of all container ships globally – means Chinese manufacturers and retailers have a direct line to US buyers, avoiding middleman markups. Maersk is testing the waters of digital sales with one of the world’s largest ecommerce companies while threatening forwarder business.”

Whatever you do, I do?

Alibaba’s OneTouch is similar to Beijing Century Joyo Courier Service, Amazon.com’s ocean freight service for Chinese “Fulfillment by Amazon” vendors, who market directly to foreign consumers by staging their goods at Amazon warehouses abroad.

“If you are a Chinese supplier, Amazon FBA lets you “slap a brand on your product, work with a logistics company, list your goods on Amazon, and now all of the sudden you cut out three layers of supply chain and you’re able to get directly to customers,” said Scott Galit, CEO of payment processing firm Payoneer, speaking to USA Today.

A big difference between the two is that OneTouch allows exporters to send their containers to the destination of the customer’s choice.

Why is Alibaba doing this?

Panjiva, an online search engine with information on global suppliers and manufacturers, detailed in research that the market opportunity for partnerships with OneTouch is significant.

Data shows that from China-to-US, less-than-container load (LCL) shipments in 2016 totaled to 699,000. LCL refers to when a shipper does not have enough goods to fill into a container, they would arrange for a consolidator to book their cargo.

Xiao Feng, Vice General Manager of OneTouch comments,

“Our goal is to help small and midsized companies export as easily as big companies do.”

“Alibaba unites small businesses online to increase their bargaining power with suppliers. For example, there’s a big difference in the price paid by a company that often ships 100 containers of products compared with a company that usually only ships one container.”

But it’s probably Dr. Zvi Schreiber who puts it best.

“For Alibaba, this is a direct challenge to global retailers like Amazon. Beyond drones and futuristic supermarkets, Amazon opted to get licensed as a forwarder (NVOCC). Alibaba one-upped them by going directly to the world’s largest ocean liner. Point, Alibaba.”

Interested in Alibaba’s plan to dominate logistics? Read about Cainiao Network here.

Post sponsored by Last Mile Fulfilment Asia (LMFAsia)

LMFA is Southeast Asia’s premier trade show for the retail, ecommerce, logistics and parcel industries, and returns with the 3rd edition on March 2-3 2017.

Themed “Go Global, Deliver Local”, the event aims to drive and strengthen a borderless fulfilment process.

Amidst a backdrop of economic uncertainties today, Southeast Asia’s ecommerce market is expected to reach $88 billion by 2025.

In recognising that last mile costs almost 28% of total cost of moving goods, achieving cost efficiency through innovative logistics solutions will be key to amplify the ecommerce market that is already expanding at rapid speed in the region.

According to Frost & Sullivan, the global B2B ecommerce market alone will reach US$6.7 trillion by 2020. This year’s conference will feature a new track “The Future of Ecommerce is B2B Ecommerce”, and include industry speakers from renowned retail, ecommerce and logistics leaders such as DHL, aCommerce and JD Worldwide.

The two-day conference and exhibition, organised by SingEx Exhibitions, comprises of a multi-track component that will dive into topics such as turning fulfilment challenges into opportunities, designing cross-border fulfilment solutions across Asia.

For more event information, please visit the website: http://www.lmfasia.com/

For Logistics related reports, visit our reports section

Disclaimer: ecommerceIQ is LMFA’s official Knowledge Partner for this year’s conference. We look forward to meeting everyone.

Here’s what you need to know today.

1. Amazon source reveals Southeast Asia strategy

What markets are Amazon targeting? The source said Singapore will serve as the company’s launching pad to sell food throughout Australia and Southeast Asia, while another hub in Vietnam will eventually allow Amazon to sell into other Southeast Asian countries and parts of China. The Philippines, Thailand, Malaysia and Indonesia are viewed as target markets.

Going local Amazon will try to source locally as much as possible to cut costs, but if it does have to ship it in, they’ll ship it from Singapore. They’ll start putting a lot of inventory in Singapore, which means that an Australian customer will most likely get their product from Singapore, not the US.

Read the rest of the story here.

 

2. Alibaba goes Down Under to help businesses go global

Alibaba Group has launched its latest overseas headquarters in Melbourne this past weekend. The new office will support 1,300 Australian and 400 New Zealand businesses selling on Tmall and Tmall Global.

What else is Alibaba planning to do in Australia? The giant plans on building the entire operating infrastructure for regional businesses to expand globally, which includes cloud computing, online payments and logistics.

Not to mention Ma also signed a memorandum of understanding with Australia Post to bring the state-run logistics firm to Southeast Asia’s ecommerce market via Alibaba-owned Lazada Group.

Read the rest of the story here

 

3. Singaporean startup Yojee uses AI and blockchain to help logistics businesses

Yojee has built software that uses AI and the blockchain to help logistics businesses coordinate their fleets and make the most out of existing last-mile delivery infrastructure.

The system is powered by machine learning and automatically assigns delivery jobs to drivers, reducing the need for a human dispatcher. This lowers costs for logistics providers and makes deliveries faster for customers. It also uses blockchain technology to track transactions and deliveries so that they can always be verified.

Tackling the last mile problem: “A recurring message from founders and CEOs was that selling is getting easier because the market is growing, but delivery is still very difficult,” said co-founder and CEO, Ed Clarke.

Read the rest of the story here.

 

Here are today’s top headlines.

1. TMB partners with Alibaba to boost Thai SME growth in ecommerce

What? Thailand’s TMB Bank has partnered with Alibaba Group and web building platform Ready Planet to boost SME growth in ecommerce.

How? SMEs with a ‘gold supplier’ membership on Alibaba.com through Ready Planet will receive special privileges such as special money conversion rates and free money transfers. They will also have access to TMB’s training program, ‘SME Trade Expert Program’, with the chance of getting free ad space on Alibaba.com’s home page.

The bank estimates that there will be 300-500 clients that sign up for the program.

Read the rest of the story (in Thai) here

 

2. Venture lending firm InnoVen extends loans to two startups in Southeast Asia

What? Venture lending firm InnoVen Capital announced today it has extended loans to stock image database 123RF and digital media services provider Conversant Solutions.

What is venture debt? A type of debt financing provided to venture backed companies by specialized banks or non-bank lenders to finance working capital/expenses.

It is essentially type of loan that can be used by a company to carry it over a particular threshold between venture capital fundraises or to purchase necessary equipment.

What is the benefit? “Venture debt allows us to keep our equity – it is a cheaper form of financing.” Said Andy Sitt, founder of 123RF, InnoVen’s latest client states.

Read the rest of the story here.

 

3. Recommended Reading: China’s ecommerce gold rush is on, and the deliverymen dig in

According to a write-up in Financial Times, what China’s logistics sector lacks in glamour it makes up for in sheer heft. The mainland industry is worth some $2.2tn, out of $9tn globally, according to logistics consultancy Armstrong & Associates.

 Leading that rush is Cainiao, the tech-driven logistics network in which ecommerce giant Alibaba holds a 47% stake. Cainiao has assembled a network of 15-16 of the biggest delivery companies and built a data platform that enables speedier and more efficient service by letting couriers bundle deliveries in the same area.

Source: Financial Times, 31st Jan, 2017

Read the rest of the story here

For more reading on Cainiao, download eIQ’s report on the logistics giant here.