Can Amazon compete in Vietnam?

22-Mar-2018 Intellasia | Nhip Cau Dau Tu | 6:00 AM Print This Post

With its entry to Vietnam, Amazon is seeking to benefit from the rapidly growing middle class but it will have to face logistical challenges as well as competition from many rivals.

Analysts say Amazon is the late comer in the highly potential 100 million people market.

The U.S e-commerce giant will cooperate with Vietnam E-commerce Association (VECOM) with more than 140 members, the largest online business group in the country.

Gijae Seong, the leader of Amazon Global Selling Singapore, said at a forum held in Vietnam that “Amazon has about 300 million customers from 180 countries. We provide tools to support sellers and exporters to sell goods in a broader market in the easiest way”.

The cooperation with Amazon will provide VECOM members with a platform to increase the export of goods manufactured in Vietnam but for Amazon, this is only the first stage to penetrate into a developing economy with the population of 93 million people.

After developing relationships with VECOM members, Amazon’s next step is to penetrate into Vietnam’s e-commerce market with its marketplace service without a distribution hub or warehouse.

If the business is favourable, the company will start building this infrastructure to expand its presence, similar to its approach to Japanese and other major Asian markets.

Online shopping has just taken off in Vietnam and has much room to develop. According to the Ministry of Industry and Trade, the local e-commerce market is expected to double in scale to $10 billion in 2020 from $5 billion in 2016. The driving force for this growth is the rise of the country’s middle consumers.

The GDP per capita in Hanoi and HCM City has increased to $4,000-$5,000. Smart phones and Wi-Fi internet access is becoming increasingly popular and 4G mobile networks are expanding.

E-commerce here is being supported by many factors. As a member of the Trans-Pacific Partnership Agreement, Vietnam will access a broader market with such members as Japan, Singapore, Australia and vice versa. Asean Economic Community has currently removed nearly all tariffs in the Association of Southeast Asian nations (Asean) and is accelerating customs procedures. This has helped improve Vietnam’s position as a distribution centre for Cambodia, Thailand and other neighbouring countries.

Chinese technology brands have gone one step ahead by increasing investment in this area. Lazada (owned by Alibaba) has expanded its operations in many Southeast Asian markets, while Tencent Holdings supports Shopee which is having more customers thanks to free delivery, and Tiki which recently received a big investment from JD.com.

Indirectly, Facebook is also another Amazon’s competitor in Vietnam. Many Vietnamese people sell products via social network, and some of them earn from $10,000 per month.

Nguyen Tuan Ha, CEO of Vinalink wrote on his Facebook page that it is not easy for Amazon to penetrate into Vietnam market because it has to compete with about one million Vietnamese sellers.

This phenomenon reflects the distrust in online suppliers in Vietnam especially when buying expensive items. In a country with less than 10 percent of the population having credit cards, the payment methods when shopping online are usually COD or bank transfer in advance. Payment sometimes causes many obstacles when shopping via the internet. “I worry whether I can receive products that I order”, said a women in Hanoi.

Any vendor who deliberately cheats buyers on Facebook will receive negative feedback on the social network with 40 users in Vietnam. This is an informal assessment system that consumers may check before buying”.

Vietnam’s underdeveloped distribution infrastructure is another challenge for Amazon as well as other e-commerce companies. The narrow streets and constant traffic jams make trucking difficult.

Although the number of postal parcel distributors has increased, it is still not enough to meet the demand. The major mode of delivery is still motorbike.

But as the middle-class Vietnamese consumers are spending more money on purchasing houses, cars, household appliances and other big ticket sales, the stake in online shopping habit that is increasingly high in Vietnam is a precise decision. Therefore, a battle between Alibaba and Amazon to gain dominance in Vietnam market is more likely to happen.

 

Category: Business, Vietnam

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