Foreign investors pour money into Vietnam’s e-commerce despite big losses

Many foreign giants have continuously invested in leading e-commerce sites in Vietnam even as they incur big losses as they continue to see the long-term potential of the country’s rapidly expanding online shopping sector.

Foreign investors pour money into Vietnam’s e-commerce despite big losses

Vietnam e-commerce market is forecast to reach US$10 billion in the next four years.

According to the Vietnam E-commerce and Information Technology Agency (Vecita) under the Ministry of Industry and Trade, with all the ingredients for a thriving e-commerce economy – a young population, 

rising disposable incomes and growing internet and mobile adoption – the Vietnamese e-commerce market is expected to maintain an annual growth rate of 25 percent to reach US$10 billion in the next four years.

The large growth potential has helped the Vietnamese e-commerce market attract big foreign capital inflows in the past two years. However, the market is still in an early stage of development, so it poses
major challenges to players.

According to industry insiders, companies need to pump significant funds into their e-commerce business to carry out tasks from sales and marketing to warehousing and logistics, so profits are easily eaten up. Also, many platforms suffered losses from special discount offers and promotion campaigns to snag new customers.

E-commerce companies have spent aggressively to gain market share, intensifying the competition and the short-term losses.

After acquiring Lazada, Alibaba continued to invest US$4 billion in the e-commerce site. To gain a large market share in Vietnam, Lazada ran up accumulated losses of more than VND5.3 trillion (US$227.47
million) by the end of last year, of which VND2.15 trillion (US$92.27 million) were incurred in 2018.

Despite an accumulated loss of more than VND2.7 trillion (US$115.88 million) by the end of last year, Shopee has continuously received investment from its parent company, Singapore’s Sea Limited (Sea).

It has pumped money into promoting its platform with plenty of discounts, free nationwide shipping service, training for sellers and other promotions.

After suffering a loss of some VND600 billion in 2017, Tiki got additional investment of some US$50 million from China’s second largest e-commerce group JD.com and some other investors.

Tiki has also planned to call for more investment worth some US$50-100 million in 2019, which JD.com will continue to take part in, despite a loss of more than VND1 trillion (US$42.92 million).

Industry insiders estimated the total loss of the top five e-commerce platforms in Vietnam – Lazada, Shopee, Tiki, Sendo and Adayroi – could top VND10 trillion (US$429.18 million).

 

Long-term investment

According to trade expert Vu Vinh Phu, foreign investors are relentlessly increasing their presence in Vietnam’s e-commerce market despite losses, as their current goal is to attract customers, stretching their influence in the market.

Nguyen Manh Dung, head of the Vietnam and Thailand Office under CyberAgent Ventures, said e-commerce requires a long-term investment, and investors could start to earn profits after five to 10 years of operation.

Even Amazon in some markets has only started making a profit after 10 years of investment, according to Dung.

With fierce competition in Vietnam, it is likely to take e-commerce firms some time before they start reaping the rewards, he added.

Online retail makes up only 1 percent of the total retail market in Vietnam, compared with the 14 percent in the US and China.

There is still a long way to go for the Vietnamese e-commerce market to reach its peak, so the foreign investors have invested in the country early to get ahead of the curve, experts concluded.

After the investment, the latest figures from the Map of E-Commerce released recently by iPrice Group - a meta-search website operating in seven countries across Southeast Asia, showed Shopee, Tiki and
Lazada maintained their positions as the top three sites in terms of traffic in Vietnam’s e-commerce sector in the first quarter of this year, with 40.7 million, 35.6 million and 29 million visits per month on average, respectively. Hanoitimes

Minh Tam

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