The Hanoitimes - Global e-commerce giants are willing to take a hit to expand their market shares in Vietnam as they can see the long-term potential of the country`s rapidly expanding online shopping sector.
Having the ingredients for a thriving e-commerce economy thanks to a young population, rising disposable incomes, and growing internet and mobile adoption, the Vietnamese e-commerce market is expected to maintain an annual growth rate of 25% to reach US$10 billion in the next four years, according to the Ministry of Industry and Trade’s E-commerce Department.
Online sales in Vietnam have expanded rapidly in recent years and is estimated that about 30% of the population will be buying goods and services over the internet in 2020, with each shopper spending an average of US$350 per year.
E-commerce companies have spent aggressively to gain local market share
However, the Vietnamese e-commerce market is still in an early stage of development, so it poses major challenges to players.
According to industry insiders, companies need to allocate enormous expenses for their e-commerce business from sales and marketing to warehousing and logistics, so it can easily eat up profits. Also, many platforms suffered losses from special discount offers and promotion campaigns to snag new customers.
However, e-commerce companies have spent aggressively to gain market share, intensifying the competition.
Despite a loss of VND164 billion (US$7.1 million) in 2016 and more than VND600 billion last year, Shopee continuously invested more than VND1.2 trillion from its parent company, Singapore’s Sea Limited (Sea), in the first half of this year.
Shopee is pumping money into promoting its platform with plenty of discounts, free nationwide shipping service, training for sellers, and other promotions.
After suffering a loss of some VND600 billion in 2017, Tiki got an additional investment of some US$50 million from China’s second largest e-commerce group JD.com and some other investors early this year.
Tiki has also planned to call for more investment worth some US$50-100 million next year, in which JD.com will continue to take part in. The JD.com investment can consider a move to race with Alibaba in Vietnam’s ecommerce market after Alibaba acquired Lazada several years ago.
To gain a larger market share in Vietnam, Alibaba’s Lazada made an accumulated loss of more than VND2.7 trillion in the two years of 2015 and 2016. With the fiercer competition in the market last year, Lazada’s accumulated loss could reach nearly VND4 trillion by the end of last year, local media reported.
More investment on the cards
According to trade expert Vu Vinh Phu, foreign investors are continuing to increase their presence in Vietnam’s e-commerce market despite losses as their current goal is to attract customers and stretch their influence on the market.
Firms often suffer losses in the first 5-7 years, said a trade expert. “It's not time to make a profit yet. It’s time to increase market share.”
Sharing the same view, Nguyen Manh Dung, head of the Vietnam and Thailand Office under CyberAgent Ventures, told local media that e-commerce requires long-term investment, and investors could start to earn profits after 5-10 years of operation.
Even Amazon, in some markets, has only started making a profit after 10 years of investment, according to Dung.
With fierce competition in Vietnam, it is likely to take e-commerce firms some time before they start reaping the rewards, he added.
Online retail makes up only 1% of the total retail market in Vietnam, compared with the 14% in the US and China. There is still a long way to go for the Vietnamese e-commerce market to reach its peak, so foreign companies like Alibaba, JD.com, and Sea have invested in the country early to get ahead of the curve, experts concluded.