Vu Viet Ngoan, head of Economic Advisory Team of the Prime Minister, said that out of 20 e-commerce businesses operating in Vietnam last year, as many as 17 were foreign invested ones, which mainly received the investment capital from China.Among Top 10 e-commerce businesses with the largest traffic in Vietnam, seven are foreign invested firms, of which Lazada and Shopee are wholly owned by China’s Alibaba and Singapore’s SEA Ltd, respectively.
Vietnam’s e-commerce market will reach US$10 billion in the next four years
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According to Ngoan, Vietnamese start-ups in e-commerce, after a period of establishment, have to sell because of the fear for failure to compete.
Industry insiders said despite the fast growth of e-commerce, Vietnam is not an easy market to crack open, with many players running losses and some being forced to withdraw.
Many local shopping sites like Beyeu, Deca, and Lingo had to close after shouldering big losses after only a few years.
Big investment to gain market share
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.
However, the Vietnamese e-commerce market is still in an early stage of development, so it poses quite a few challenges to players such as high cash-on-delivery rates and lack of customer trust and logistics infrastructure. Meanwhile, e-commerce companies are spending aggressively to gain market share, intensifying the competition.
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.
E-commerce giants like Amazon and Alibaba only started generating profit after 10 years of operations. It is obvious that e-commerce companies in Vietnam will continue to incur losses in the coming time. Though the future is not rosy in all regards, it does not deter e-commerce companies from continuing their spending spree for new investment.
Meanwhile, Shopee is pumping money into promoting its platform with plenty of discounts, free nationwide shipping service, training for sellers, and other promotions. Thanks to its monetization efforts, Shopee has seen solid growth since its local debut in 2016.
On the other hand, Lazada is investing in the growth of its first mile, last mile, and fulfillment capabilities to keep up with the growth of e-commerce in Vietnam. In addition to developing automated sorting centers to speed up delivery, the company also cut commissions by 50% to lure in more online retailers.
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.
Vietnam’s leading groups, including FPT, Vingroup, and Mobile World, have also jumped on the bandwagon with e-commerce marketplaces like Sendo.vn, 123mua.vn, Adayroi, and vuivui.com. Further, the shift from brick-and-mortar to omni channel retailing also prompted retailers such as AEON and Lotte to open online marketplaces.
