The best yet to come for Vietnam e-commerce scene

E-commerce revenue is forecast to nearly double from US$8 billion in 2018 to US$15 billion by 2020.

Vietnam's population has reached 96 million, with 66 per cent enjoying regular access to the Internet and 57 per cent owning a social network account. These factors would enable e-commerce revenue to nearly double from US$8 billion during 2018 to US$15 billion by 2020.

Though the Vietnamese internet economy remains primitive, it promises to thrive over the next few years. Four segments, including mobility (technology-based taxi and motorbike taxi services, shipping services, and food delivery), e-commerce, online advertising, and online travel, recorded a total value of US$8 billion in 2018, as researched by Google and investment firm Temasek Holdings.

Mobility posted US$500 million in revenue last year while it is widely expected to soar to US$2 billion within the next few years. Meanwhile, despite being a new entry into the market, food delivery reached US$33 million in 2018. This figure is forecast to soar to US$38 million by 2020.

The Vietnamese e-commerce market is currently ranked third in the Southeast Asian region, following Indonesia and Thailand. Despite its current position, there remains great potential for Vietnam to grow into the region’s second largest e-commerce market behind Indonesia, when the population surpasses 100 million in the near future. Therefore, the bright outlook for the Vietnamese digital economy offers lucrative prospects for investors.

Grab, a technology-based taxi and motorbike taxi service developer, has emerged as a vivid example for the wave of digital transformation that has been rapidly developing in Vietnam.

Following the presence of many technology-based ride hailing apps, traditional taxi companies such as Mai Linh and Vinasun reportedly saw their profits cut in half, posting the lowest levels seen over the past 10 years.

Similar to the emerging ride haling apps, the food delivery segment have received a lot of interest from investors. It can be considered a game of big firms, such as Now, Grab Food, and Go Viet.

The appeal of these companies is a fast delivery service for reasonable fees, which is connected together through restaurants chains offering a wide selection of food and beverages. Customers are also able to enjoy consistent promotions provided by many businesses seeking to gain attention in an increasingly crowded market.

According to Tran Tuan Anh, Minister of Industry and Trade, the digital economy has a very profound impact on the efficiency of wider economic development and structure as well as the country’s labour structure. It underpins the possibility of making tremendous changes with regards to socio-economic development.

At the same time, the digital economy allows businesses to get involved in global integration on a par with the long-term trend of market liberalization and the reduction of trade barriers.

Stiff competition and big losses

Ousmane Dione, the World Bank’s Country Director for Vietnam, said that the digital economy brings a range of promising opportunities for many small, medium, and micro - sized enterprises in Vietnam. E-commerce platforms enable these firms to access larger markets, thus shortening their geographical distance, especially for those located in remote areas.

The digital economy therefore plays an important role for economic growth and could potentially create breakthroughs in development for nations worldwide. However, experts believe that the Vietnamese digital economy is facing a number of barriers that prevent it from speeding up growth and keeping pace with the world’s fast-changing trends.

Evidently, the e-commerce scene saw fierce competition among big firms with many willing to suffer losses in order to attract users and gain a greater market share over the long term.

Having entered the Vietnamese market, Grab reportedly sustained a loss of several billions VND. E-commerce platform Lazada is another example. This platform was also said to suffer losses of up to thousands of billions of VND when making a market entry into Vietnam.

Meanwhile, other e-commerce platforms such as Shopee and Tiki remain poised to lose thousands of billions VND. These figures show that, although the long-term prospects are strong, the internet economy has yet to become a “sweet cake” for investors.

Natasha Beschorner, a senior expert on information technology policy of the World Bank in Vietnam, claimed that the country’s digital economy is facing a number of limitations, including preferring cash payments, a low rate of electronic payments, a lack of efficient enough policies on data privacy and network security aimed at enhancing trust among customers.

According to the Vietnam e-Commerce and Digital Economy Agency, despite e-commerce enjoying rapid growth in major cities, it is confronting various limitations in rural areas.

The digital economy provides Vietnam with many great opportunities, making an important contribution to the growth of industrial production, agriculture, and other sectors. But, the question on how best to grasp them and make the most of the opportunities remains a difficult one to answer.