Vietnam could prove tough cookie for Alibaba and Amazon

Cross-border e-commerce in Vietnam may be tough for Alibaba and Amazon

As Tiki, Lazada, and Shopee have shaped the Vietnamese market by enlisting local vendors, cross-border platforms are a promising niche market for newcomers. Currently, only about 8 per cent of the total number of local businesses invest in cross-border online sales, according to Nguyen Xuan Hung, northern managing director of Fado JSC – an operator of the cross-border trading platform fado.vn.

Hung told VIR that the majority of local businesses still prefer on-the-spot and indirect exports and are thus more interested in seeking buyers, not in developing brands and sales channels.

As a result, this segment is the cornerstone of Amazon and Alibaba’s plans of entering Vietnam, as both of them have recently launched programmes on supporting local SMEs approaching overseas markets under the business-to-business (B2B) format. Accordingly, with the guidance of the companies, local businesses will be able to more easily approach hundreds of millions of customers in more than 100 global markets.

A single day after Amazon officially launched Amazon Global Selling in Vietnam on October 17, Alibaba also launched its partnership with Fado to improve local export capacity.

The two giants both committed to support SMEs by providing effective sales solutions on e-commerce platforms, like how to develop brands, find potential customers, and manage their online stores.

An appetising cake...

Cross-border trade is very promising due to the huge demand for purchasing overseas goods. Before the appearance of cross-border e-commerce platforms, the demand was shown by the large interest in parallel imports, according to Hung from Fado.

Responding to VIR, a representative of Amazon Global Selling, said that besides traditional exports, cross-border trade now rises strongly and plays an important role in Vietnam’s international trade, citing data from the Ministry of Industry and Trade that the nation’s exports increased by 2.51 times, from $96.91 billion in 2011 to $243.48 billion in 2018.

Moreover, according to the Vietnam E-commerce Association, the average annual growth rate of the e-commerce sector in 2015-2018 is 25 per cent and will reach $33 billion in market value by 2025, making Vietnam the third biggest e-commerce market in Southeast Asia.

On the other hand, Hung also said that cross-border trade has yet to catch up with the speed of the larger e-commerce sector in Vietnam, which grew at an astounding 35 per cent, but he believe "that it will develop strongly in the coming time.”

Underpinning this, the authorities have been completing the legal framework for e-commerce and cross-border trade. Moreover, technology and information infrastructure and cross-border platforms in Vietnam measure up quite favourably against regional countries. “Our technology infrastructure suppliers have kept pace with the regional and global developing speed and have supported the platforms very well,” said Hung.

…that is hard to swallow

Amazon and Alibaba were not the first to recognise the potential, Tiki and Lazada have begun integrating cross-border trading features into their platforms more than a year ago, but the channel has yet to live up to their expectations.

Despite having a strong preference for overseas goods, local purchases may not be very high due to pricing and payment issues.According to VIR’s observations of activities on Tiki and Lazada, local items gather more feedback than overseas ones, which sometimes do not even receive a single comment.

Overseas products require non-cash payments that still occupy a small proportion in Vietnam – about 14 per cent, according to information published at the State Bank of Vietnam’s workshop in June. Therefore, less popular payment options have also narrowed demand for these goods.

Hung from Fado also admitted that cashless payments are an obstacle to cross-border e-commerce. However, he was of the opinion that the lack of investment in developing cross-border sales channels is an even bigger challenge. According to Amazon Global Selling, the challenge comes from logistics, customer service, and cross-border payments.

These unfavourable conditions may curb the enthusiasm of other e-commerce platforms to expand to international markets.

The battlefield of the real giants

Supporting local SMEs selling goods on their platforms is one part of the two global platforms’ plan to conquer Southeast Asia – a home of more than 600 million consumers with an increasing number of smartphone users.

However, the region has a complicated market with a diversity of markets. This requires diversified marketing strategies for each market. Also, domestic regulations on imports differ from country to country and logistics infrastructure still lags behind, making goods transportation and delivery difficult. For instance, delivery among the thousands of small islands in Indonesia and the Philippines is a logistics nightmare.

The difficulties do not keep away Alibaba. The Chinese e-commerce platform has selected the best way to join Southeast Asia: acquisition.

In early 2018, under one of its less-known subsidiary Ant Financial – the manager of the Alipay e-wallet – Alibaba invested in the Singapore-based financial company M-Daq that launched a foreign exchange product for e-commerce. A month later, the Chinese company also invested in a Thai payment startup Ascend Money operating in Thailand, the Philippines, Indonesia, Myanmar, Cambodia, and Vietnam.

Alibaba also acquired SingPost – a Singapore-based logistics company specialised in cross-Asia transportation. Also, several years ago, the companyquietly carried out its plan of developing cross-border e-commerce in Southeast Asia by purchasing a controlling stake in Lazada, and then via the company, Alibaba also acquired Singapore-based online food market RedMart for $30-40 million, according to newswire TechCrunch.

The newswire also pointed out that Amazon also expressed a desire to enter the region by making strong efforts to purchase RedMart in early last year but failed. In this October, the US company officially entered Singapore as a first step of landing Southeast Asia. According to TechCrunch, Amazon has been acquiring many assets including refrigerated trucks, and recruiting personnel in the region. If the information is true, maybe Amazon will start battling Alibaba with Amazon Fresh, a service specialised in providing food and consumers goods.

Cross-border e-commerce is a capital-intensive endeavour, and of course, Tiki and Shopee cannot afford to splash out on this new segment as they have been suffering hundreds of millions of US dollars to keep in the local market. Therefore, the segment may be reserved for real giants like Alibaba and Amazon.