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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.

A ruling by an international tribunal against China’s claims over most of the South China Sea has created a new wave of uncertainty for shipping and international trade according to industry associations, reports Wall Street Journal.

Any disruption to ship-borne trade in the South China Sea could have a wide-ranging impact on global commerce, including energy supplies. Merchant ships should be allowed to go about their business on the world’s ocean without delays. China has been harsh and rhetorically rejected the ruling, but has committed to negotiations with Philippines. Vietnam, Malaysia, Taiwan and Brunei also have claims in the South China Sea.

Tuesday’s ruling could embolden smaller Asian countries to be more assertive regarding their rights in these waters, increasing run-ins with China and leading to possible disruptions of freedom of navigation.

Thousands of ships transit the waters daily, connecting markets and goods in East Asia with the Middle East and Europe.

Total annual trade through the South China Sea amounts to $5.3 trillion, with US trade accounting for $1.2 trillion.

A third of the world’s liquefied natural gas passes through the South China Sea, much of it bound for Japan and South Korea.

Tensions in the South China Sea have grown in recent years as China has built artificial islands on reefs and atolls it occupies, triggering alarm from smaller neighbors and hereby triggering the US to send warships throughout the area to assert freedom of navigation.

Given the current challenging state of the shipping/maritime industry globally, any increase in insurance will exacerbate an already difficult time for shipping companies. An escalation in tension is bad for Asia, because the region is very integrated, it would be negative for all countries that are linked to this tight web of trade and investment.

Concerns are now regarding whether China will take action to effect trade flows or shipping. Disputes over the South China Sea will impact commerce, including ecommerce supply chain in the region.

A version of this appeared in The Wall Street Journal on July 14. Read the full version here.

Vietnam's Advantage In European Trade Deal

Share of total EU-Asean Trade in 2015. Vietnam following behind Singapore, Source: Bloomberg.com

Vietnam may continue to take market share of the European Union trade from other Southeast Asian countries this year. The country accounted for 19.1 percent of the $227 billion (201.4 billion euros) in total trade between the EU and ASEAN nations last year, an increase from 15.8 percent in 2014 and could increase again 2016.

The country’s market growth combined with the finalization of the free trade pact indicates a more dynamic trade relationship in the future, according to the EU.

Vietnam has been steadily growing since 2014 when it overtook other ASEAN countries as the United States’ biggest exporter leaving traditional manufacturing hubs behind.

Vietnam was also able to capitalize on shifting production patterns in Asia as labor costs in China rose.

The ability to capitalize production led to Samsung Electronics Co.’s investment, it now assembles and exports smartphones from Vietnam. Several Vietnamese supply chain companies have now joined forces with the Vietnamese arm of Samsung. 

Although Singapore is still the EU’s biggest partner in Southeast Asia, it’s market share has dropped along with Thailand, Malaysia and Indonesia who lost market share to Vietnam. Vietnam’s makes a very appealing trade partner with the EU by exporting electronic products, coffee and clothes. It is now the second country in ASEAN after Singapore that the EU has signed a free trade pact with.

Vietnam’s rise as a key player in overseas trade

The EU has begun to target Vietnam and Singapore in a new business initiative aimed at giving European SMEs more exposure and opportunities in Southeast Asia. This means that countries such as Thailand and Indonesia risk being completely overtaken by Vietnam, as the country has managed to capitalize on many advantages. This will provide Vietnam with international growth potential, whether through trade or online.

As Thailand and Malaysia were enjoying its traditional manufacturing perks, Vietnam was struggling to catch up, but now it seems that the country is benefiting from slower initial growth. Samsung’s investment made a significant contribution, and now Vietnam is on track to becoming a key player in trade with the European Union.

A version of this appeared in Bloomberg Technology on June 16. Read the full article here.

Thailand-Cambodia Partnership Aims To Boost Trade

Foreign Ministers Don Pramudwinai and Prak Sokhon; Source: vietnambreakingnews.com

Thailand and Cambodia have agreed to upgrade four border checkpoints and open new ones to boost bilateral trade and tourism along the shared border. The goal is to increase trade volume between the two countries to $15 billion US over the next five years.

Thailand Foreign Minister, Don Pramudwinai, and his Cambodian counterpart, Prak Sokhon, have agreed to upgrade small border checkpoints, i.e An Ses, Phnom Dei, Thmor Da and Chub Kokei, to international standard checkpoints. The two ministers have also agreed to open the Stung Bot-Nong Earn international checkpoint and another border checkpoint at O Neng-Banbaray.

Trade exchanges will be a priority for the border as the two sides aim to increase the number of trucks carrying goods across the border, as well as facilitate trade application procedures.

The aim is to increase bilateral trade to $15 billion US in 2020, three times more than the current $5 billion. Currently, about 70% of Thai products exported to Cambodia were transported by road and passed through the Poipet international border checkpoint.

There is also a railway link between Thailand and Cambodia planned for the end of 2016 to increase trade between the two countries.

Advantages of upgrades checkpoints

The aim to open new checkpoints comes after reports show a 15% decrease in the two-way trade volume. Bilateral trade will urge Thai traders to strengthen the quality of products and promote new ones for Cambodia to import. This strategic partnership should be leveraged in order to boost the economic growth of both countries, while the new checkouts should create more trade opportunities in the region.

A version of this appeared in Khmer Times on June 22. Read the full article here.