E-commerce Market Developments in Vietnam and the Opportunities for Logistics Investor (P1)
By: Nguyen Thi Thanh Huyen
Tags: Ecommerce, Startup, Vietnam, Invest In Real Estate

E-commerce is set for rapid growth in Vietnam

Vietnam’s e-commerce development has lagged 10 years behind that in China or South-east Asian countries like Singapore and Malaysia in the past, said Peter Garrison, Development Director, Logos Property. However, the gap has started to show signs of narrowing in the wake of the pro growth economic policies adopted by the government, with swift e-commerce development facilitated by a phenomenal surge of internet usage in the country. Given the many practical challenges for foreign enterprises trying to establish a physical presence in Vietnam, e-commerce can be a good starting option for FDI businesses to tap into this fast growing consumer market.

Rapidly Changing E-commerce Landscape

For many years, the development of e-commerce in Vietnam has been hindered by a backward infrastructure, land transportation and general logistics arrangements, excluding spanning telecommunication and mobile internet.

Vietnam has enjoyed tremendous growth in mobile internet, which is the popular means for people to access the web.

In 2016, more than half of the country accessed the internet at least once a month with many surveys reporting average internet users spent nearly 25 hours per week online. One survey found that 74% of smartphone users used a messaging service more than once per week.

But about all Vietnamese buy online are subscriptions to cable and satellite TV. One survey showed that 78% had paid for cable TV and 40% had paid for satellite TV, while only 13% of users had ever purchased an online video.

Government Policies Pushing the Public towards Electronic Payments

On December 30, 2016, the PM has approved a Scheme for the development of non-cash payments in Viet Nam in the 2016–2020 period, with a target of reducing the ratio of cash transactions to below 10%. 70% of service providers of electricity, water, telecommunication services accepting non cash payments; 50% of individuals and households in metropolitan cities using non-cash payments and increasing the ratio of people from the age of 15 opening accounts with a bank to at least 70% by the end of 2020.

As in many developing countries, a major impediment to e-commerce market development in Vietnam is the low usage of digital payments as a result of both supply and demand constraints. Vietnam has always been a cash dominant economy, with cash payments constituting more than 95% of all transactions prior to 2014.

Smartphone Usage Accelerates E-commerce Growth

Smartphone penetration is 31% and is projected to grow to 42% by 2021.

Vietnamese online shoppers mainly divide their purchasing between smartphones and desktops. 18% made their most recent online purchase via smartphone, while 71% made their most recent purchase via desktop.

Lazada, the largest e-commerce company in Vietnam, expects the mobile space to continue growing, noting that the majority of its business now comes from mobile shoppers.

Lazada Has High Hopes For Its Mobile Shopping Endeavors

According to Lazada, approximately 60% of its sales come from mobile shoppers. The company has taken note of an aggressive rise in the demand for mobile shopping support and Lazada is working eagerly to engage consumers and satisfy this demand. In 2015, about 45% of the transactions that were made through the Lazada website came from mobile devices. Lazada expects that this will grow to 65% by the end of 2017 as more consumers use their smartphones and tablets to shop online

There is still plenty of potential for growth in internet usage in Vietnam, given the country’s 94.93 million population. According to the Hootsuite, there were around 50.05 million internet users in 2016, including both those with landline and mobile access. An increasing number of Vietnamese are accessing the internet through mobile devices, including tablets. According to an estimate by Ecomobi, there were 28.77 million smartphone users in Vietnam at the end of 2017, about 28.5 percent, with this share predicted rise to 42 percent by 2021, turning to 42.66 million by 2021. That number is projected to grow rapidly, with mobile devices becoming more affordable, thanks to increased local production by big brands such as Microsoft, Samsung, LG group due to their plant relocating strategy to Vietnam. Locals partly enjoy the abundant supply of 107.3 million smartphones and cellphones being produced in 2015, and expected annual production of over 200 million units which is 99% catering for exportation.

Vietnam is becoming a production hub for cellphones as manufacturers expanding operations in the country. Companies are taking advantage of Vietnam’s low-cost labor and government incentives which is a half of those in Shanghai and Guangzhou, China.

The Vietnam smartphone market is currently undergoing rapid changes and development, not only in terms of number of users but also in data usage and connection speed.

The global average broadband speed is now 6.1 Mbps, or 11.8 Mbps when out and about on phone, according to data from Tech in Asia. Vietnam performs better than India and Philippines — 5.1 Mbps on broadband, 2.8 Mbps on mobile , presuming there’s no power cut. The 4G deployment is now happenning in Vietnam which has 3.5 million users in 2016.

According to the Vietnam National Telecommunications Authority (VNTA), there are 60 million broadband subscribers in Vietnam, 48 million of which are mobile subscribers, including 3G and 4G. Nationwide, 6.3 million mobile subscribers have switched to 4G-ready SIM cards, and 3.5 million of those are subscribed to 4G data plans.

Viet Nam telecom firms all set for 4G race in Q1 2016. VNPT and Viettel were two out of five telecom firms issued licences by the ministry to test 4G technology in 2015, the others being CMC, FPT, and VTC. To carry out their testing, both Viettel and VNPT built hundreds of 4G base transceiver stations. VNPT has installed around 100 stations in HCM City and 50 in Phu Quoc, while Vietel installed nearly 200 stations in the cities of Vung Tau and Ba Ria and the rural Long Dien District for its trial.

The rapid growth of the mobile internet market in Vietnam will certainly be an important growth driver for e-commerce

Phenomenal Growth in Projected Sales

As among fastest-growing economies in Asia in 2017, with projected medium-term growth of 6.7%, Vietnam’s consumer market is set to boom. As the nation with the third largest population in Southeast Asia, about 70 per cent of whom are at working age, Viet Nam has potential for consumer goods with significantly rising purchasing power.

Vietnam’s e-commerce, estimated to be around 5 % of the country’s retail sales, will heading to 10 billion by 2020, was valued at about US$ 4 billion in 2016, accounting for 3.39% of Vietnam’s retail sales. The growth rate of Vietnam’s e-commerce market is estimated at about 35 percent, which is 2.5 times higher than Japan,” said industry expert Duc Tam at the recently-held Vietnam Online Business Forum 2017. The World Bank forecasts that Vietnam’s $200 billion economy is likely to grow to a trillion dollars by 2035. More than half of its population, compared with only 11 percent today, is expected to join the ranks of the global middle class with consumption of $15 a day or more.

Strong growth is projected over the next for years. From 2017 to 2020, India’s internet retail sales are expected to more than double to US$10 billion.