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Vietnamese E-Commerce Sector Consolidates as Market Value Soars

With its young and increasingly affluent population, Vietnam is now seen as prime territory for e-commerce operators, with local and global players currently jostling for market share amid general predictions of a period of rapid growth.

Photo: Vietnamese online shoppers: Young, affluent and style-conscious.
Vietnamese online shoppers: Young, affluent and style-conscious.
Photo: Vietnamese online shoppers: Young, affluent and style-conscious.
Vietnamese online shoppers: Young, affluent and style-conscious.

Vietnam's large and youthful population is making the country a prime target for the e-commerce sector. As a result, over recent years, a host of new digital players has entered the local market.

According to figures from the Vietnam E-Commerce and Information Technology Agency (VECITA), as of the end of 2015 there were more than 10,000 e-commerce platforms and websites registered in the country, double the number of the previous year. Given the country's robust and growing economy, venture finance has been relatively easy to find, fuelling the entry of steady stream of new players into the sector.

Aside from the ease of securing investment, the high level of predicted growth for the sector has also boosted the number of new arrivals. At present, VECITA estimates that the sector will grow by 30% per annum until 2020, with the market predicted to be then worth some US$10 billion.

Similarly, the country's number of online shopper is predicted to grow, rising from its current level of 32.9 million to 42.6 million by 2020. Overall, according to VECITA, some 82% of Vietnam's online shoppers are aged between 16 and 44, with their current per annum spend said to be US$69. This, however, will rise to $104 by 2020.

At present, this once highly-fragmented market is undergoing a period of consolidation. While Alibaba's $1 billion purchase of Lazada, the most successful B2C e-commerce site operating in Vietnam, captured most international attention, it is only one of the many changes that are underway. Recently, for instance, Sendo, one of the larger local players, acquired123mua, a relatively small, start-up operation.

Earlier, in December 2013, CungMua and NhomMua – Vietnam's third- and fourth-largest daily deals sites, respectively – announced their intention to merge. Among those looking to exit the market, however, was Zalora, the online fashion shop. In May this year, the Singapore-headquartered company sold its Thai and Vietnamese online businesses to the Central Group, Thailand's retail giant, for $10 million each.

In part, this consolidation has been spurred by the eagerness of a number of venture financiers eager to cash in on what is still seen as a somewhat risky market. Indeed, despite the substantial level of funding available, a number of companies have already gone under, having failed to make headway in the Vietnamese e-commerce sector.

Among the casualties to date are Project Lana, Beyeu, Deca.vn and Foodpanda. Assessing just why so many businesses have failed in the sector, Nguyen Hoa Binh, chairman of the PeaceSoft group, the company behind ChoDienTu.vn, eBay's Vietnam partner, says many such businesses had too high a cash-burn rate. In essence, he says the discounts they offered in a bid to grow their market share were just too big to be sustained.

Offering his own tips for success, he says: "The most important thing is to have a team of people with an in-depth local understanding. Over the last 11 years, the total funding that has gone into ChoDienTu.vn has been 50% less than the now-defunct Deca.vn spent in just two years. It is also 50 times less than what the current number one e-commerce player has spent over the last four years."

Many also believe that the consolidation programme is now being driven by the comparative freedom with which overseas companies can enter the local market. Essentially, the only real barrier to entry is a requirement for e-commerce operators to first establish themselves under a specific business line and then complete the required registration, with 100% overseas ownership now permitted in the sector.

Geoff de Freitas, Special Correspondent, Ho Chi Minh City

Content provided by Picture: HKTDC Research
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