Vietnam’s online business: a double-edged sword for investors

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Vietnam’s online business: a double-edged sword for investors

Vietnam is one of the fastest growing digital economies in Asia, with internet usage increasing by an average of 10% annually over the last five years. The increasing use of smartphones (9 out of 10 Vietnamese consumers use smartphones) and plethora of credit card holders have laid the perfect foundation for a burgeoning online retail market.

However, while it may seem that Vietnam presents an attractive hub for online businesses, many have still failed to monetize their assets. To illustrate, Lingo.vn suddenly shut down without any notice last August. After receiving investment from Yellow Star Investment, Lingo’s vision was to become Vietnam’s No.1 e-commerce website. That vision perished when Lingo incurred a loss of USD 6.5 million (VND 150 billion) in a short period of time.

The sad ending did not just stop with Lingo. Other online retailers such as Deca.vn, Beyeu.com, Lamdieu.com and Foreva.vn have experienced the same fate.

Even top contenders such as Zalora and Lazada, which are listed as the most redoubtable rivals in the market, are experiencing tough days. In April 2016, Rocket Internet, the owner of Zalora Vietnam, sold Zalora to Central Group from Thailand. Similarly, China’s biggest online conglomerate Alibaba Group has taken over Lazada in Southeast Asia for USD 1 billion.

One of the factors affecting the failure of e-commerce websites in Vietnam is the boom of facebook and other social networks, as setting a business and selling goods via social does not require paying a fee. Many of these social websites have become involved more deeply in e-commerce after launching their own apps that allowed users to exchange and buy/sell goods with others in the community.

Despite many investors forced to leave the market silently, others have made bank. For instance, iPhone 7 sales on its website have increased by three times, while online revenue in the first 11 months of 2016 reached USD 129.2 million (VND2.944 trillion).

Others such as Vingroup’s adayroi, FPT’s Sendo and Tiki have been racing to capture higher market share in the market. In December 2014, Sendo received strategic investment from Japanese investors, which has enabled the company to build 80,000 shops which retail 3 million products in 14 different branches.

Meanwhile, e-commerce platform Tiki has reached a deal to secure USD 10 million funding from Internet company VNG Corporation, Vietnam’s first unicorn. The once ‘online bookstore’ has been enlarging rapidly, now distributing 100,000 product items in 10 categories of goods.

“The opportunities for online businesses remain to be great”, says Michael Sieburg, Associate Partner at Solidiance, an Asia-focused management consulting firm, based in Ho Chi Minh City.  According to Michael, most of the e-commerce market share are centered around Hanoi and Ho Chi Minh City. If other provinces and rural areas are able to develop a stringent online infrastructure in the next in 3-5  years, the e-commerce market scale in Vietnam would be 3-5 times larger.

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