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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

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.

Here’s what you should know today.

1. Grab is in the process of buying Indonesian payment firm Kudo

Uber’s Southeast Asia rival Grab is in the process of buying up Indonesia-based online payment startup Kudo in its first major acquisition.

Payments are a central focus to Grab’s push, as it is a way to differentiate itself from Uber and local rival Go-Jek, which raised $550 million last year, but also because it can help win business from millions of unbanked citizens and provide a solution in the market.

Not only is Kudo focused on Indonesia, but it directly enables those without a credit card, bank account or event internet access to buy online. Initially it used point-of-sale kiosks located in public areas, but it later broadened its focus to support an agent model.

Read the rest of the story here.

 

2. Vietnam’s Tiki looks to raise $60m in series D funding

Vietnamese ecommerce major Tiki is looking to raise a series D round of $50-60 million which is expected to close this year. Founded in 2010 as a book selling platform, Tiki did not comment when asked on the proposed Series D funding.

Part of the fundraising  is expected to be used to pare its loss. The company has recorded VD255 billion in losses since VNG Corporation’s investment until the end of last fiscal.

Read the rest of the story here.

 

3. Recommended Reading: With cloud, Alibaba follows the ‘build it and they will come’ approach

Alibaba quietly announced that Alibaba Cloud service has already doubled the capacity of its Hong Kong based data center in order to meet fast increasing demand in the Asia-Pacific region. The company said that the expansion in Hong Kong is part of its master plan to eventually expand into providing cloud services the world over.

 The worldwide cloud services market was projected to grow 16.5% in 2016 to total $204 billion, up from $175 billion in 2015. Alibaba Cloud has operations in 14 global economic centers including mainland China, Singapore and the U.S, in addition to Hong Kong.

 

Read the rest of the story here.

 

Vietnam is one of the few landscapes in Southeast Asia that has an influx of local players where website visits are comparable to giants such as Lazada. Retail ecommerce in the country is expected to earn $10 billion revenue by 2020 and its ecommerce landscape has been developing at a growth rate of 30% a year as businesses slowly shift from offline to online, with some doing purely online businesses.

Despite key local players and promising growth rate, Vietnam’s local ecommerce websites are PR shy outside of their own country. To start the conversation, here is a list of the most downloaded shopping apps and key ecommerce players in Vietnam, on both iOS and android.

1. TheGioiDiDong (B2C)

Listed as the second leading retailer in Vietnam in 2015, TheGoiDiDong (Mobile World) specializes in selling multi-brand technology goods to consumers, such as tablets and mobile phones from a range of global brands like Apple and Samsung. Last year, the online marketplace targeted $1 billion in revenue and launched 123 mobile phone outlets offline.

Recently, it was reported that Mobile World’s 2017 revenue is expected to reach $2.83 billion. The group is the third largest retailer in Vietnam, right behind Co op Mart and Big C and the company will rely on revenue from the online marketplace until 2018.

2. Sendo (B2C) 

vietnam-apps

 

 

 

 

 

 

 

Currently, the B2C marketplace sits comfortably in the top 5 most downloaded shopping apps in Vietnam for both Android and iOS. This year, Sendo collaborated with owner, IT company FTP to launch V-FTP wallet, an e-wallet platform to ease monthly bill payments and simplify ecommerce purchases.

Thanks to this added feature, Sendo predicts that online payment on its site will rise 30-40% each year compared to only 5% last year.

Currently, the website draws in 8 million visitors. Sendo’s managing director, Tran Hai Linh was included in ecommerceIQ’s SPARK 40 list as one of Southeast Asia’s notable 2016 ecommerce figures.

3. Tiki (B2C)

vietnam-apps

Tiki is one of Vietnam’s most promising startups. This year, Tiki is valued at $44.83 million, making it one of the big boys in Vietnam ecommerce.

The company’s founder Son Tran also made ecommerceIQ’s SPARK 40.

4. Mang Xanh (C2C) 

 

 

 

 

 

 

 

 

Mang Xanh is a C2C online marketplace that received approximately 22, 800 visits over the past 6 months. The site is a collective marketplace that houses products such as beauty, mother & baby and household appliances – aims to be a one-stop-shop for all things that you need.

5. Thi Thruong Si (C2C)

An online wholesale website with the majority of coverage in Vietnamese, TTS was established in 2014 with the goal to become the number 1 wholesale marketplace in Vietnam. They sell a range of products, from fashion to accessories and electronic goods.

With over 25,000 views daily and 20,000 new registrations per month, TSS is optimistic that the number will rise to 50,000 by the end of this year. The company’s goal is to become the go-to for wholesale shopping online in Vietnam.

Want to know more about the local ecommerce players in Vietnam? Check out eIQ’s data page on Vietnam here.