Vietnam’s booming e-commerce sector fosters opportunities for B2B firms

David Emrich/Photo: Unsplash

Vinh Hoang, a 35-year-old-owner of a mom-and-pop shop with over 200 items in Phan Trong Tue Street, Hanoi, is looking to try an application that allows her to order goods in bulk online. Initially, she would call up her offline suppliers to get her goods delivered.

“With only one click, I can buy many different items at the same time so it saves a lot of time. Moreover, it is cheaper,” she said, adding that if the items on this app are reasonably priced and delivery is fast, she will order one-third of her stock through the platform.

However, what worries her is that she has to pay the moment she orders goods on the app. While ordering through the traditional channel, she can pay her offline suppliers at the end of the month that can help her balance income and expenditure plan.

Hoang’s store is one of the 1.4 million brick-and-mortar shops that meet 80 per cent of the demand of Vietnamese consumers and runs without technology. Small mom and pop street shops account for over 60 per cent of fast-moving consumer goods (FMCG) sales in urban areas and over 90 per cent in rural Vietnam, according to data, insights and consulting firm Kantar.

Lack of technology adoption in the B2B (business to business) e-commerce marketplace has thrown open significant opportunities for industry biggies to cash in on the early days of the boom. While B2C e-commerce is gradually becoming saturated, experts tracking the sector expect investments to pick up in the B2B e-commerce space in the years to come.

Rise of organised players 

Recently, Vingroup through its newly-established logistics company One Mount Group launched Vinshop, an application for grocery store owners and partners. Through VinShop, small traditional grocery store owners can import goods at wholesale prices directly from their suppliers.

The company said in a statement that it expects to improve the efficiency of the entire supply chain, thereby helping smaller players overcome the current weakness in the industry that revolves around the distribution of products to grocery stores.

Then, there is Telio that helps retailers manage their entire shop operations through an innovative business-in-a-box solution that covers the management of sales, inventory, customer life-cycle, and payables and receivables through a centralized sourcing platform.

Established in 2018, Telio raised $25 million in a Series A funding round last year led by Tiger Global with the participation of Sequoia India, GGV Capital and RTP Global.

Telio connects small mom-and-pop stores with brands and wholesalers on its platform and claims to offer better pricing and more efficient logistics. The company claims to be Vietnam’s first B2B e-commerce platform and has over 10,000 retailers across two major cities Hanoi and Ho Chi Minh City.

As the first movers in the B2B e-commerce market, both Telio and Vinshop focus on the SME sector, which plays a vital role in the economy, contributing about 40 per cent of the GDP and employing 50 per cent of the workforce in the country.

With the establishment of VinShop, it is possible that Vingroup is pursuing a wholesale electronic model; it sold Vincommerce retail to Masan Group last year and closed its e-commerce site Adayroi. VinShop takes advantage of the One Mount Group’s ecosystem and 10 million customers of VinID.

“We have been working with partners to build a successful logistics system international standards. VinShop has served tens of thousands of guests products in both major cities Hanoi and Ho Chi Minh City, and it is expanding rapidly to roll out nationwide,” said Truong Quynh Phuong, business director at One Mount Group.

Going forward, VinShop plans to tie up with Techcombank to launch financial solutions such as late sales, preferential loans to support grocery store owners to do business more conveniently with abundant capital.

Telio, meanwhile, plans to add more services such as financing, and B2B2C services, among others, as it wants to “become a one-stop-shop” for retailers, said Bui Sy Phong, founder and CEO of Telio. “Our focus is on creating 10x of our current impact on our customers. We want Telio to be a unicorn of impact (billions of impacts) instead of a unicorn in valuation,” Phong said.

Before Telio and Vinshop, the market saw the participation of several other players such as Alibaba.com, the global B2B e-commerce platform of Chinese giant Alibaba Group. Earlier this year, it has unveiled four customised membership packages and a suite of digital solutions including AI-powered tools to help small- and medium-sized companies go global and gain tips for connecting with buyers globally.

“Our strategy is to help more SMEs go global, especially in Vietnam. We are reinventing online trade shows to make sure buyers can find suppliers through videos, live meetings and live streams,” Zhang Kuo, general manager of Alibaba.com told local media at that time.

Alibaba officially entered the market through investment in Lazada in 2016. At the end of 2018, Alibaba signed a cooperation agreement with cross-border e-commerce platform Fado Vietnam to launch a new trading channel supporting Vietnamese firms to export products globally.

Market potential

Vietnam is in the region in which e-commerce is flying, said Vaughan Ryan, managing director Consumer Intelligence Asia at Nielsen. Malaysia has grown from 5 per cent to 8 per cent and in Singapore, e-commerce sales are close to 10 per cent of total FMCG, according to data available with global marketing research firm Nielsen.

“As consumers are opening their wallets more to e-commerce, the move from B2B is just an inevitability. Companies will need to be looking for efficiencies everywhere in their business,” said Ryan.

The 2019 e-Conomy SEA report commissioned by Google and Temasek lists Vietnam as the second fastest-growing economy in Southeast Asia after Indonesia, with the e-commerce market expected to expand 43 per cent between 2015 and 2025, the target year of Vietnam’s e-commerce transformation plan.

However, the market is still small compared to countries such as India and China and the cost of delivery and the cost of last-mile is still very high, Jixun Foo, managing partner at GGV Capital said on The Next Billion Podcast.

However, he also added that when the market is small, it makes sense to go deeper and provide more value to the whole retail ecosystem in Vietnam. One thing India and Vietnam have in common is that the cost of delivery and the cost of last-mile connectivity is very high.

Echoing the same sentiment, Phuong said that manufacturers do not know the real requirement of consumers, while grocery store owners have not optimized profits.

“Not having to pay for the last mile to us makes a lot of sense. It will help generate better value and create better unit economies for the platforms,” he said.

B2B e-commerce in Vietnam is driven by the steady growth of the economy and GDP, along with a fast penetration of the internet and smartphones. Besides, the change in behavior of Gen X also acts as an advantage since they are more open to shifting business from offline to online.

In addition, the Vietnamese government has unveiled a national e-commerce development plan for Vietnam, which will see the sector growing by 25 per cent each year to reach $35 billion in sales within the next five years.

The plan will focus on accelerating the local e-commerce market to create a sustainable and competitive business environment while encouraging sectoral growth in less-developed parts of the country. It also outlines to develop the export market for Vietnamese goods, with goals including to eventually allow cross border e-commerce transactions from outside Vietnam.

Le Han Tue Lam, general manager at South Korea’s venture capital firm Nextrans said that Vietnam’s large retail landscape is still dominated by traditional, fragmented trade channels. But if each SME needs to find a variety of partners in terms of better pricing and more efficient logistics, it will take them more time and effort to do so. It is the block that B2B E-commerce websites can fill which helps retailers connect with diversified wholesalers and attract more business customers for usage.

“With all the national and direct global support, I believe there is no reason why this niche sector can reach the highest growth rate in the upcoming years,” she added.

Investment opportunity

When the market is in its infancy, it is clear that the room for investment in this area is still significant. According to Hans Tung, managing partner of GGV Capital, emerging markets such as India, Indonesia, and Vietnam are still largely level-playing fields where opportunities are galore for different players. This is unlike the other established markets such as the US, where offline retail is still dominated by mature players like Costco or Walmart, or China, where Alibaba and Tencent dominate across sectors.

“Whoever figures out how to build trust with the mom and pop store owners have a shot at becoming the operating systems of the multibillion-dollar retail economy,” Tung said in a post named “A Glimpse of Future Retail in the Corner Stores” on The Next Billion Podcast.

“For retail giants, this is a significant piece of customer data that will increase their bargaining power with brands. For tech companies, on the other hand, this is a group of new users to acquire and can provide high-frequency transaction data points,” he added.

However, experts also agreed that B2B e-commerce is the game for big players.

The segment of the B2B marketplace in Vietnam doesn’t have a real key player to control the game. Therefore, the opportunities for foreign B2B marketplaces from Korea, India, Singapore, and Indonesia are also significant, according to Lam.

She also emphasized that with B2B e-commerce, burning money is not the only keyword, it’s time as well. “How long can we wait to see our investment blossom? It’s hard to answer for small and medium venture capital firms, who do not have much money to bet for the long run,” she said.

“B2B e-commerce is certainly an emerging segment for the upcoming time, but it is not a game that can be solved by one or two single players in a short time,” Lam added.

With the experience and abundant capital, foreign businesses will have advantages when entering the game. However, they should also consider a long-term strategy instead of running wild in the market just to grab a piece of the market cake. It will take a lot of time and money indeed.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.