With a young, tech-savvy population with high consumption demand, B2C and C2C e-commerce in Vietnam has plenty of potential to grow. However, customer perception of domestic retailers and goods, players’ own incapability, restrictive infrastructure and the lack of a clear legal framework contribute to hindering the growth of the industry.

Fertile ground

Vietnam has a population of 92.7 million. In 2016, according to World Bank’s statistics, the country’s working age population (those aged between 15 and 64) accounted for 70 per cent of total population.

According to a Wearesocial report from January 2017, 53% of the population have access to the internet, and 48% are active social network users. All of them are monthly active Facebook users. On any given day, 59% of these users use Facebook.

Average daily use of the internet via a PC or tablet is 6H53m. For mobile the figure is 2H 33M. Average daily use of social media via any device is 2H 39M.

 

Chart 1: E-commerce activities in past 30 days (Source: Wearesocial)

Only 39% of internet users purchased a product or service online in the past 30 days. These numbers are a lot lower than in other countries in the region, such as 51% in Thailand and 60% for Singapore.

 

Chart 2: E-commerce revenues (Source: Wearesocial)

The average annual revenue per user is very small, compared to Thailand’s US$212, and Singapore’s US$1,022. It shows that there is still plenty of room for growth for e-commerce in Vietnam. [1]

An estimate by the Vietnam E-commerce and Digital Economy Agency (VECITA) put the total B2C e-commerce revenue number at US$5 billion in 2016.[2] But even then the revenue only accounts for 3% of total retail sales of goods and services. To put in perspective, in 2016 e-retail sales accounted for 8.7 percent of all retail sales worldwide according to Statista.[3] It shows that offline is still making up a large part of commerce.

Consumer perception

One major factor hindering the growth of e-commerce in Vietnam, highlighted in almost all yearly reports by the VECITA, is consumers lack of trust in this retail channel.

 

Chart 3: Challenges when shopping online (Result from from survey of 1,159 people with internet access in 2016. Source: VECITA)

 

Chart 4: Reasons people do not shop online yet (Source: VECITA)

It looks like in 2016 customer trust is even lower, with 50% of people saying it’s difficult to check the quality of the product, compared to 20% in 2015, while all other hurdles to e-commerce seem to become less prohibitive (ease of payment, ease of transaction, diversity of products, and more). Online shopping is deemed less convenient than offline shopping by 48% of shoppers in 2016, compared to 37% in 2015.

Meanwhile, on the other side, sellers have a reputation of being untrustworthy.

 

Chart 5: Some violations of the law committed by e-commerce websites and mobile applications (Source: VECITA)

According to the chart, the most popular violations is “unclear/incomplete policy on resolving complaints from consumers” with 24% of e-commerce sites and apps committing this violation, followed by “unclear description of products” at 19% and “contract not following the law.”

Not only do consumers find online retail not trustworthy, they also don’t believe their goods will ship. According to a report by Malaysia-based online shopping aggregator iprice released in December 2017, in Thailand it’s given that the goods are available. Only 34% of shoppers frequently ask sellers the question, “Is the product available?” the figure is 40% in Malaysia but in Vietnam more than half of shoppers (52%) ask this question.[4]

Results from a survey by the Vietnam E-commerce Association (VECOM), a “non-governmental organisation of corporations, organizations and individuals directly deal with e-commerce or apply e-commerce for operating business, or research or provide e-commerce services” showed that individual customers in Vietnam buy goods and services from other countries more than individual customers from other countries buy from Vietnam.

VECOM named three possible reasons. First, goods from other countries are more varied and meet the taste of consumers better. Second, some global e-commerce players have high reputation such as Amazon and Rakuten, but those with presence in Vietnam have not earned as much trust from consumers. Third, the cost of shipping when buying from overseas to Vietnam is lower than the opposite direction.[5]

These factors combine to create an industry landscape different to anywhere else.

State of the industry

Forums and social networks are more popular than e-commerce sites as a channel for online shopping.

 

Chart 6: Different channels survey responders used to buy goods/services online (Source: VECITA)

 

In 2015, e-commerce websites were chosen by 76% of survey responders as the channel they use to shop online, higher than 68% for online forums and social networks. In 2016 the situation reversed, the figure is 57% for e-commerce sites, lower than 60% for online forums and social networks. Meanwhile, the popularity of mobile applications increased significantly.

Sellers respond accordingly.

 

Chart 7: Percentage of surveyed companies that list their products on online marketplaces vs social network (out of 3,134 companies all over the country in diverse fields of business that answered the VECITA’s survey in 2016. Source: VECITA)

It looks like posting on social networks is increasingly important, whereas online marketplaces do not show much growth. Consistently over the three years from 2014 to 2016, social network is more popular than online marketplace as a place to list products, and the gap is getting bigger.

Types of websites with e-commerce function includes companies’ websites, marketplaces, coupon selling sites, and auction sites.

 

Chart 8: Percentage of online shoppers that bought each type of these goods categories (Source: VECITA)

The most popular goods type is clothes, shoes and cosmetics, followed by consumer electronics and household appliances.

 

Chart 9: Top 10 e-commerce websites in Vietnam.

Name

Type

Year of launch

Products

Key investors

Monthly visits – December 2017 (Source: similarweb)

Lazada

B2B2C

2012

Everything excluding cars and fresh groceries

Alibaba

54.82M

The gioi di dong**

B2C

2004

Consumer electronics

Mobile World Investment Corporation

39.17M

Sendo

B2B2C

2012

Everything excluding cars and fresh groceries

FPT

26.64M

Shopee

C2C

2016

Everything

Sea

22.28M

Tiki

B2B2C

2010

Everything excluding cars and fresh groceries

JD, VNG

19.74M

FPT shop**

B2C

2012

Consumer electronics

FPT

13.02M (Nov 2017)

Dien may xanh**

B2C

2014

Household appliances

Mobile World Investment Corporation

10.49M

Adayroi

B2C

2015

Everything excluding cars and motorcycles

Vingroup

6.98M

Vat gia

C2C

2013

Everything

VNP Group

6.87M

Nguyenkim**

B2C

2011

Consumer electronics, household appliances

Central Group

6.06M

**belong to retail chains with physical stores

Unlike in other countries where Lazada is a major player, in Vietnam Lazada has not achieved hegemony. The report by isight cited Google’s statistics as showing that Lazada ranked first in website visits in Malaysia, Thailand and Vietnam alike. However, Lazada accounted for 52.6% of visits among e-commerce sites in Malaysia and 48.5% in Thailand, but only 19% in Vietnam.[4]

In November 2017, Tiki.vn was reported to have received an investment capital worth VND1 trillion ($44 million) from JD.com to expand its operations. The capital may be used to invest in training human resources and optimising delivery as well as to invest in a study on promoting the Tikinow service, which is Tiki’s fastest click-to-delivery service.[6]

 

Chart 10: Top 10 e-commerce apps in Vietnam (ranking retrieved from App Annie on January 4, 2018, category: shopping)

With no clear market leader, competition is fierce. Interestingly, in their answer to the survey by VECITA in 2016, e-commerce players said their biggest challenge in business is “unfair competition,” followed by high cost of logistics and lack of skilled staff.

 

Chart 11: Biggest challenges for e-commerce players. (Source: VECITA. Companies are asked to rate the following challenges 0, 1 or 2 according to the level “no challenge,” “low challenge” or “high challenge”)

Unofficial e-commerce

One cannot ignore forums and social networks when talking about e-commerce in Vietnam. Sellers on these platforms accept either bank transfer or cash on delivery.

 

Image 1: zaodich, a part of the webtretho forum (screenshot captured on January 5, 2018)[7]

webtretho has been present since 2002 as a place for parents to discuss pregnancy and child raising. As of now the forum has had 2.23 million users, and the “zaodich” part of the forum has 2.04 million users. There are new posts every day. Goods listed for sale include baby food, toys, as well as clothes and household appliances. People also post when they need to buy something and want to ask other users if they have the goods to resell. There are also classified ads of jobs and real estate.

Image 2: vozforums’s buy and sell section[8]

vozForums started in 2000 as a forum to review tech products. As of now the forum has 963,000 members. The buy and sell section of vozForums have four categories: desktop, laptop, phones, and other tech products.

Facebook is a key player in Vietnam e-commerce

 

Image 3: A Facebook user uses their personal Facebook profile to sell goods.

On Facebook, people sell all sorts of goods that they produce, or import, or act as agents, receiving goods from companies and sell on their personal Facebook.[9]

A typical importer gathers orders from acquaintances into batches, orders in bulk online, then has all the goods shipped to a contact based in a cheap/convenient country where the stores ship to (popular countries include the US and Japan) or has the contact go out and gather the goods from stores. The goods are then shipped to Vietnam in one batch to save on shipping, or the contact brings the good with them when they come back to Vietnam. Some pilots and cabin crew do this kind of buying, shipping and selling as a side business.[10]

The government tries to tax these sellers but have been having difficulty doing so. In an article on Zing news dated December 6, 2017, a tax officer from Ho Chi Minh City said, as of the end of September 2017, there were 13,000 sellers on Facebook in Ho Chi Minh City. They have revenue of under VND100 million (US$4,470) a year each. He said the Ho Chi Minh City Department of Taxation had collected VND8 billion (US$352,800) in tax arrears and VND21 billion (US$926,100) in fine from these people. However, he said “the tax agency only supervises tax payment. These individuals should have registered their business.” [11]

Supporting infrastructure

In terms of logistics, for sellers, using a third-party fulfilment service is just as popular as doing fulfilment themselves. Names in e-commerce logistics include Viettel Post, VNPost, Saigon Post, Giaohangnhanh, Shipchung, Giaohangtietkiem… and many smaller players. In July 2017, international player DHL launched DHL eCommerce nationwide.[12] In September 2017, DHL eCommerce announced cooperation with Bizweb, an e-commerce solution used by 30,000 websites, to provide fulfilment service for Bizweb clients.[13]

All fulfilment service providers accept cash on delivery.

 

Chart 12: Modes of shipping used by sellers (Source: VECITA)

In terms of payment, cash on delivery continues to be the most popular option. There was only a small decrease (from 91% to 89% of survey responders) who use cash-on-delivery. Meanwhile, e-wallets became less popular. It does not come as a surprise as there are multiple reasons for the persistence of cash – see our report on payment in Vietnam.

 

Chart 13.1: Most popular means of payment online shoppers choose (Source: VECITA)

 

Chart 13.2: Means of payment accepted by e-commerce sites (Source: VECITA)

Among the third-party payment service providers used on e-commerce websites, Ngan Luong developed by Nexttech group is the most popular, followed by OnePAY developed by OnePAY, and Bao Kim developed by VNP Group.

 

Chart 13.3: Third-party payment service providers used on e-commerce websites (Source: VECITA)

Regulations

Page 93, 94, 95 of the VECITA report provides a complete list of regulations concerning all aspects of e-commerce including online transaction, advertising, spamming, and payment.[2]

In October 2017 the VECOM wrote an article that is subsequently posted on the website of the Ministry of Justice pointing out the regulatory hurdles to members’ operation. Some of the points they highlighted included how the Ministry of Industry and Trade publicized a list of e-commerce sites that may be violating the law based on feedback of users, but there is no regulation regarding who has the right to give the feedback and how the government agency verifies these feedback.

In addition, companies with e-commerce sites or that have stores on marketplaces will have to register their e-commerce activities with the VECITA and declare tax accordingly. However, not many companies are registering with the VECITA because the law does not indicate clearly which government agency has to ensure they all register and pay tax. Some companies don’t register and they don’t seem to get punished, again this makes it unclear as to whether or not it needs to be done. Most individuals who sell through forums and social networks also don’t register nor declare tax.

They also assessed that many e-commerce sites sell or leak data of customers. In addition, when there are complaints from customers, the customers often don’t have a legal basis to protect themselves as the seller is not a legal seller.[14]

Our opinion

With the young population and mobile penetration being so high, consumption demand is high and the potential is vast. E-commerce revenue currently accounts for only 3% of total retail sale of goods and services, so there is still plenty of room to grow.

However, we think that the Vietnamese e-commerce scene is suffering from a form of arrested development. Because of the underdevelopment of payment and logistics infrastructure as well as government regulations, companies are not confident enough to sell and consumers are not confident enough to buy.

Due to a lack of trust in local e-commerce platforms, Vietnamese people prefer buying from trusted e-commerce sites such as Amazon and Rakuten. For this reason, cross-border e-commerce will maintain its size or even grow. There are currently players that meet this exact demand, such as weshop.com.vn (launched in 2015) and fado.vn (launched in 2014). Weshop lets you order from the US Amazon store, US Ebay site, and other websites in the US. Fado.vn lets you order from the US, Japan and Germany Amazon store. Both companies reported three-digit growth in revenue in 2016. Fado named unclear government policy and regulation for cross-border e-commerce as one major difficulty for its operation.[5]

We believe there could be a compelling story for investment in Vietnam by an e-commerce provider of very high repute.

However, all e-commerce companies will have to compete with the army of unofficial sellers that evade tax so easily. Until the government figures out a way to tax these unofficial sellers, competition will remain unfair.

Reference:

[1]https://www.slideshare.net/wearesocialsg/digital-in-2017-southeast-asia

[2]http://www.vecita.gov.vn/anpham/280/Bao-cao-Thuong-mai-dien-tu-Viet-Nam-2017

[3]https://www.statista.com/statistics/534123/e-commerce-share-of-retail-sales-worldwide/

[4]https://iprice.vn/xu-huong/insights/thay-gi-tu-toc-do-tang-truong-thuong-mai-dien-tu-viet-nam-cua-viet-nam-so-voi-thai-lan-va-malaysia/

[5]http://vecom.vn/wp-content/uploads/2017/02/Bao-cao-EBI-2017-Final.pdf

[6]http://english.vietnamnet.vn/fms/business/190427/chinese-e-commerce-firm-jd-com-pours–44-million-in-tiki-vn.html

[7]http://zaodich.webtretho.com/forum/

[8]https://vozforums.com/forumdisplay.php?f=84

[9]https://news.zing.vn/cong-tac-vien-ban-hang-online-kieu-kinh-doanh-khong-von-hut-nguoi-tre-post750775.html

[10]http://www.webtretho.com/forum/f4646/he-lo-moi-ngam-hang-xach-tay-au-my-cua-dan-buon-lau-nam-2535601/

[11]https://news.zing.vn/giao-dich-thuong-mai-dien-tu-tren-5-trieu-dong-phai-thu-thue-post801944.html

[12]www.vir.com.vn/dhl-ecommerce-enters-vietnams-bustling-e-commerce-market.html

[13]http://english.thesaigontimes.vn/56309/Bizweb-DHL-eCommerce-jointly-provide-e-commerce-services.html

[14]http://moj.gov.vn/qt/tintuc/Pages/nghien-cuu-trao-doi.aspx?ItemID=2222

 

Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed in our blog, please drop us an email at hello@mworks.asia and let us know how we can help.

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