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E-Commerce in Vietnam: A Status Report [Part 1]

Anh-Minh Do
Anh-Minh Do
8:30 pm on Dec 13, 2012

E-commerce is one of the hot new spaces in which Vietnamese startups want to compete. But is it really a lucrative market? I sat down with a source in the growing e-commerce market in Vietnam from a banker’s perspective.

The e-commerce market for 2011 was worth roughly $300 million. By September 2012, the market hit about $456 million, and conservative estimates put it at well over $500 million by the end of this year. That’s a 60 percent increase. This year, in comparison to the GDP of Vietnam at $320 billion e-commerce is barely noticeable. But by 2015 this number is estimated to hit $2.5 billion. That’s a sizable market.

Despite these favorable numbers, e-commerce in Vietnam faces some serious barriers. One is that the country is still a cash economy. Customers have not developed the habit of using credit cards and merchants don’t encourage it. Merchants, who employ accountants, cashiers, and safe deposit boxes are estimated to spend 5.6 percent on financial operations, but are hesitant to spend the two percent fee for getting money from a credit card. If merchants don’t encourage credit card behavior, why would customers follow? The thinking is, “if I accept payment in cash, than I get 100 percent.” They forget their operational costs.

Another barrier is related to age. Although the internet population in Vietnam is at 31 million, most of those are young people. They are in school, starting their careers, or in mid-career. Their salary is either low or non-existent. On the other hand, the older population does have money to spend, but isn’t online.

Is Amazon in 1994 where Vietnam’s e-commerce is in 2012? (via i.dailymail.co.uk)

The final major barrier is a fundamental skepticism about digital content. Vietnamese consumers want to touch the clothing they will wear. They want to feel the texture of the cloth. They want to hold electronics in their hands and see how well it works. Vietnamese wives are at the heart of the shopping decisions in a family, and they are going to be very careful about major purchases like electronics as well as things like clothing. Making those choices online doesn’t give customers enough data to make what they feel is an informed decision.

If these three obstacles did not exist (i.e. if credit cards were ubiquitous, if the youth had money, and if customers trusted internet content) we’d be looking at Vietnam 2022, not 2012. To me, the barriers above paint a difficult picture for startups getting into e-commerce. The value they create will have to outweigh the cultural and infrastructural barriers that create friction for the customer experience. A good example of e-commerce done in a way which adds value is Qwertee from the United Kingdom, which has leveraged social media, artists, and consumers into a unified e-commerce experience. Currently, in the e-commerce market, models like this have not taken off.

Making credit cards into a widespread habit and making it easier to pay online would significantly shift the market and open up many dormant opportunities like web services, apps, freemium models, and many other services that people haven’t imagined yet.

In 2015, we’ll look back on this period as just the beginning of a long path to e-commerce in Vietnam.

[UPDATE on Dec. 14th: Our source requested that his name be removed from the article]

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Have Your Say
  • Mindpl

    Good overview. What are some of the e-commerce sites in Vietnam worth looking at?

  • Johnny Tri Dung

    If you said e-commerce in VN cannot grow, can you explain why Lazada and Zalora enter the Vietnamese market bro? And where is vatgia, 5giay, enbac … Although they C-C, i don’t think it’s weak :)

  • http://www.techinasia.com Anh-Minh Do

    My point is not that it cannot grow. In fact, I cite the numbers that clearly state that Vietnamese e-commerce market will grow to 2.6 billion USD by 2015. What I am pointing out is the barriers that they have to face in order to grow. If those problems can be outmaneuvered, we may actually see even stronger growth than the projections.

  • Johnny Tri Dung

    Got it, so on 2015, you will publish your VN E-commerce part2 ? :D

  • http://www.techinasia.com Anh-Minh Do

    Haha. Yeah. Well, actually Part 2 will be focus more on specific e-commerce companies at the end of this week. :-) Lots of people to talk to.

  • Raphael

    Dear Anh,

    Thanks for sharing your insights with us. I always find it very interesting to read your posts. I just want to correct you on your Vietnam GDP number. 2012 GDP will be roughly 130 billion instead of 320 billion.

    Best,
    Raphael

  • Andy Nguyen

    Hi Anh,

    Thank you very much for sharing your thoughts.

    I have the same number with you for the market size of Vietnam EC in 2011 which is about $300mil, which is about 0.33% of GDP. If we put this ratio into parallel with those of other countries, we have US 1.29% ($194b), China 1.6% ($118b), Japan 1.6% ($92bil). The EC of Vietnam is 4-5 times smaller.
    You mentioned 3 big obstacles which prevented Vietnam EC not to grow more rapidly: low penetration of credit card, low consumable income of Internet users and distrust toward online purchase.

    I totally agree with you on the third point but hold doubt for the second and quite disagree with you on the FIRST point. It will be more convenient with credit card but it is hard to say that a high ratio of credit card user is vital for the expansion of EC in Vietnam.

    In Japan, most users have credit cards but they still prefer to pay as COD, bank transfer or pay at convenient stores. Only 12% of buying amount in Japan is conducted via credit card. In Taiwan, on a survey, it is shown that people also prefer the above three payment method over credit card.
    In Vietnam, the fact is most of users prefer COD. They feel better to pay after touching the product and that is always the way they buy things. All EC big sites in Vietnam provide COD. They normally take an extra amount for COD and it does not bother users much. The second preferred method is bank transfer. Must be over 80% of Internet users in the cities have a bank account.

    However, it is quite interesting to look at the case of China, they have a rapidly growing EC market of $118bil in 2011 (1.6% of GDP) but as I know so far, credit card coverage ratio is less than ̀̀̀5%. Instead, 80% of EC payment is conducted via online payment gateways such as Alipay and UnionPay where people can charge money as bank transfer, prepaid card and also… credit card. My interpretation is Alibaba grew so big, that’s why Alipay has grown and contributes back to the further growth of Alibaba.

    In Vietnam, ChoDienTu put quite an effort on their online payment gateway NganLuong, VatGia has their own payment gateway BaoKim. If VatGia grows to a dominating position as of Alibaba in China, we can expect BaoKim to become a dominating payment gateway in Vietnam.

    It is enjoyable to follow you with this post. I will come back for more feedback.
    Best regards,