Tag Archives: distribution

Amazon wades in to Vietnam’s e-commerce jungle

Vietnamese media was abuzz with news that US giant Amazon is set to join the country’s fast-growing retail market this month, with representatives stating that the company will open its platforms to domestic small- and medium-sized enterprises.  Despite the buzz, softly, softly is order of the day with the e-commerce giant aware that there’s plenty of regulation in the pipeline that will affect development of the e-commerce sector in Vietnam.

 

Amazon signed a deal with the Vietnam E-Commerce Association (VECOM) at the Vietnam Online Business Forum in Hanoi on March 14. The deal was discussed at a meeting late last year between the association and Amazon, according to Brand Finance Global Ranking.

 

With a young, hyper-connected population of nearly 100 million, Vietnam is a prime target for e-commerce development in Southeast Asia. Unfortunately for shopaholics, the representative from Amazon denied the company had intentions to trade in Vietnam at this time.

 

Instead, Amazon has agreed to provide e-commerce services for VECOM, which is a group of 140 local online businesses, marking the first time the association has collaborated with an e-commerce player. The Amazon deal will allow Vietnamese firms to sell and export goods through its ecosystem. In return, The Vietnamese market holds strong growth potential for Amazon in the future.

 

Prime target

 

On the bright side, it may not be long before Amazon and other online retailers change their tune. Partnering with third-party merchants, like in the agreement with Vietnam, is likely a precursor to Amazon entering the market with its full slate of offerings. Similar steps were taken by the firm in Australia and Brazil.

 

Such deals can be considered a way for Amazon to get its foot in the door and build familiarity with consumers before introducing its full line-up of services. This could mean that Vietnam is the next target in the company’s Southeast Asian strategy, after rolling out in Singapore last year. As subscribers dwindle, expanding from saturated markets like the US and EU would be a good bet, and Southeast Asia as a whole provides a promising future for e-commerce.

 

In particular, Vietnam’s e-commerce market grew by 25 percent last year, and the growth trend is expected to continue. Revenue from online retail is forecast to hit US$10 billion by 2020, accounting for 5 percent of the country’s total retail market.

 

As it stands, Lazada dominates a third of the country’s online shopping market. Head of Chinese giant Alibaba, Jack Ma, stumped up US$1 billion to buy stakes in Lazada and enter the Southeast Asian market, including Vietnam. This move allowed deeper penetration into Vietnam’s e-commerce and brought products directly to Vietnamese consumers through the B2C (business to consumer) model.

 

It is this model that Amazon will seek to emulate. The Chinese firm is positioned primarily as an intermediary – connecting sellers to buyers, and operating a delivery network.

 

Amazon clearly sees the potential. The country has the ingredients for a thriving e-commerce economy thanks to a young population, rising incomes and growing internet and mobile adoption. This last point, the ubiquity of mobile phones, will prove crucial if online platforms are to succeed. The importance of mobile commerce in generating traffic is far greater in Southeast Asia than in other Western economies, so a mobile strategy will make or break a venture.

 

From street to screen

 

The changing tastes of the country’s young consumers is pushing traditional brick-and-mortar stores to rethink their strategies. Big retailers like Vincom, Lotte, AEON and Saigon Co.op have launched online shops with alluring promotions to attract buyers.

 

However, the market is still at an early stage of development, meaning challenges such as high cash-on-delivery rates, lack of customer trust and poor logistics infrastructure. Meanwhile, e-commerce companies are spending aggressively to gain market share, resulting in fierce competition.

 

Difficulties in turning a profit have led to a number of failures. VNG Corp reported a loss of over US$5.3 million from its investment in e-commerce firm Tiki.vn in 2017. Other local e-commerce companies like Lingo.vn, Deca.vn and Beyeu.com have been forced to shut down due to prolonged losses.

 

The blame for these failures has been placed on high logistics costs. According to experts, companies need to allocate enormous expenses for their e-commerce business, from sales and marketing to warehousing and logistics, easily eating into profits. Many platforms also overspend on promotions and discounts in early months to lure customers and increase their market share in a crowded environment.

 

However, the challenges don’t seem to have dampened enthusiasm and foreign players continue to pump money into the online retail sector. Undeterred, Lazada is investing in the growth of its first mile, last mile and fulfillment capabilities to keep up with the growth of e-commerce in Vietnam. In addition to developing automated sorting centres to speed up delivery, the company also cut commissions by 50 per cent to lure in more online retailers.

 

Online retail makes up just 1 percent of the total retail market in Vietnam, compared to 14 percent in the US and China. As such, there is plenty of room still to grow. The ongoing expansion of the marketplace, and continued investment pouring in, will help Vietnam to develop an e-commerce ecosystem, allowing for opportunities in logistics, warehousing, and online payments.

 

For more information about e-commerce in Vietnam, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Lawyer in Vietnam Oliver Massmann Liberalization of Distribution in Power Sector – Your Chance to get into business ?

1. What positive impacts will the absence of the current monopoly in distribution and production of power, petrol and coal have on the economy?

Answer: In Vietnam’s energy market, EVN has long been known as the state monopoly in transmission and distribution of electricity. Vietnam still features the Single Buyer Model with EVN’s purchase of all electricity generated from on-grid independent power projects. Investors find it extremely hard to negotiate the Power Purchase Agreement with EVN. Meanwhile, EVN keeps operating at loss with huge debts to PetroVietnam and Vinacomin.
The adoption of the list of goods and services subject to state monopoly will then limit the power of EVN. The State only maintains its monopoly over the operation of multi-purposes hydropower and nuclear power plants, transmission, facilitating as well as operation of the national electricity system of big power plants and those having special importance in terms of socio-economic and national defence and security. Trading in petroleum and oil is also no longer subject to state monopoly.
This is a positive movement of the Government in accordance with its international commitments on market access and its plan on privatization of certain state-owned enterprises. The Government has taken a step closer to Vietnam Wholesale Electricity Market, which is aimed to be launched at the beginning of 2016. More players will participate in the power market. The consumers would have more choices from whom they will buy electricity. A competitive and fair power market will be gradually formed, resulting in greater attraction to investment.

2. How important is it to private investors, especially foreign ones?
Answer: With an open and competitive market, foreign investors will find it more attractive to invest in this sector. They are now no longer required to sell the electricity they generate to EVN but can sell it to other distribution companies or even transmit/ distribute through their own system.
Foreign investors will also no longer face obstacles in negotiating the power price with the EVN. According to a recent report by Ban Viet Securities Joint Stock Company, although power retail price in Vietnam has doubled during the past ten years, from VND 781/kWh (3.5 US cents/ kWh) in 2005 to VND1,622/ kWh (7.3 US cents/ kWh) in 2015, this is still low compared with other countries like Cambodia, Thailand, and Singapore in the APEC. This is among major reasons that discourage investors from pooling their capital into the sector. However, power price is planned to increase from 2016 according to power increase schedule, which aims to ensure capital recovery and reasonable profits for investors. Accordingly, power retail price may increase at 8-9 US cents/ kWh in 2020, equivalent to an increase by 18.4% within the next five years. Power price should also reflect the demand and supply in the market. Foreign investors then find more incentives when making their investment decision.

3. What is your recommendation for Vietnam’s government to reduce its monopoly over the economy?
Vietnam is on its way to obtain its market economy status. In order to realize this objective, the Government should limit its intervention in the market, create fair competition and allow the market to operate on its own. In many countries, fair competition is created by limiting the possibility of monopoly. If the Government only allows the price to fluctuate according to the market situation, there will still be monopolies dominating and influencing the market. Then, together with the price policies and reduction in its monopoly, the Government should expedite the privatization process, make it substantial in nature to effectively create a real competitive market for the players.
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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.