A comprehensive market entry analysis Amazon when it enters Vietnam
I love Amazon, and I am sure we all have a reason to. After a talking to many Clark alums who are working there, taking a tour in Doppler, reading Brad Stone’s book on Jeff Bezos, getting my internship applications rejected over and over again in 4 years, I became curious on a what-if. What if Amazon comes to my home country Vietnam?
Then I heard rumors that Amazon is actually coming to Thailand, our neighbor, and potentially Vietnam. So the interest became a mission, the biggest one so far. So I spent the next 7 months producing an analysis that will facilitate the market entry, and give those at Amazon who are working on this project insights into my fascinating country. Anyways, I love the company, I really look forwards to the innovations that Amazon will bring to Vietnam, and I hope this helps.
According to Vietnamnet, in 2017:
Japanese retail company Aeon entered Vietnam’s e-commerce market through its website on January 1st. The website named AeonEshop.com is designed as a business-to-consumer (B2C) platform with most of the products imported from Japan. The company started operations in Ho Chi Minh City and will later expand throughout the rest of country. An English version of the site is expected along with a mobile app version by mid-2017. Apart from its home country Japan, Aeon also has a presence in Malaysia.
Additionally, Lotte also recently launched its e-commerce website in Vietnam and plans to invest US$25 million per year; by 2020, it targets a 20 percent market share in the country. Similarly, Thai based Central Group has taken over e-commerce site Zalora, while Chinese based Alibaba has entered the market by taking a controlling stake in online retailer Lazada Group for US$1 billion.
Let’s analyze whether Vietnam is still a potential market for Amazon. We will go from macro to micro.
Outline:
1/ Introduction to Vietnam
2/ PESTEL
3/ Porter’ Five Forces
4/ Competitive Analysis
5/ Conclusion and Recommendation
Part 1: Introduction
About Vietnam.
Vietnam, or the Socialist Republic of Vietnam, is a Southeast Asian country, bordering the Gulf of Thailand, Gulf of Tonkin, and South China Sea, as well as China, Laos, and Cambodia. As the last frontier connecting neighboring countries Laos, Thailand, and Cambodia to the Pacific ocean, Vietnam is located in a strategic location with economical, political, and geographical values.
The Northern city Hanoi is the capital and political hub, while Ho Chi Minh City (where I live) is the dynamic economic center located in the South. The other three municipalities are Da Nang (where I was born), Can Tho, and Hai Phong.
Historical Summary
Two thousands years under the colonization of China, Japan, France, and the United States limited Vietnam economy’s ability to grow early like those of our neighbors. Peace and domestic power only settled in when Vietnam gained its independence from the Americans in 1975. After a series of economic reforms, the government finally succeeded with Doi Moi in 1986. Doi Moi (translated to “Renovation”) was promoted with the goal of creating a “socialist-oriented market economy”. Besides restructuring the economy, the government welcomed international trade, which facilitated the transaction of business and diffusion of knowledge and technology between Vietnamese and foreign firms.
The flow of foreign investments initially allowed Vietnam to utilize its comparative advantages in inexpensive labor and abundant natural resources to position itself as an ideal manufacturing hub and agricultural exporter.
Part 2: What Are the Strategically Relevant Components of the Macro-Environment?
A PESTEL analysis. It includes political, economic, sociocultural, technological, environmental, legal & regulatory aspects.
Political Aspect:
Vietnam is one of the last five communist countries in the world, accompanied by Cuba (check out my Cuba video here), China, North Korea, and Laos. The Vietnam Communist Party (VCP) solely regulates the Social Republic of Vietnam; its collective leadership consists of the VCP general secretary, the prime minister, and the president. Due to the nature of a one-party state, the government is highly centralized and exercises leadership in all matters. Since the Vietnam War ended in 1975, the government has gone through great lengths to ensure geographical balance in term of political power. During the war, Vietnam was split into: South Vietnam, led by the American troops and the Vietnam National Army, and North Vietnam, led by the Communist party and the People’s Army of Vietnam. Although the country is now completely united, we can still see a heavier political influence in Northern cities, with Hanoi’s being the political hub, and stronger sense of freedom and capitalism in the Southern cities, with Ho Chi Minh City, formerly Saigon, as the economic powerhouse.
I will strictly focus on three political factors that can affect an online retailer like Amazon:
1/ Political stability
Vietnam is politically stable compared to neighboring countries like Thailand and Indonesia. In a way, it is very similar to China, where society is ruled by the party’s ubiquitous presence, in which there is a network of party cadres at every level of social activity. Social unrests are uncommon, although activist movements have been gaining traction thanks to the introduction of social media, which are often blocked when there are protests. The freedoms of speech and the press are restricted by government control, and opposition groups mainly operate oversea. The majority of Vietnamese are aware but not actively engaged in political activities.
The Political Risk Index (PRI) is a measurement of political stability initiated by CountryWatch. It represents the level of risk posed to governments, corporations, and investors, based on a myriad of political and economic factors like political stability, political representation, democratic accountability, freedom of expression, security and crime, etc. A score of 0 marks the highest political risk, while a score of 10 marks the lowest political risk.
Vietnam has a PRI of 5, compared to Amazon’s three Asia market entries China’s 7, Singapore’s 9, and India’s 8.
According to CountryWatch, Vietnam’s half-way position isn’t rooted from the threat of coups, terrorism, insurgencies, and insurrection, but rather the high level of corruption, human rights and freedom of speech issues. While these core issues have proven to be complex, domestic and foreign companies overlook them and focus on the opportunities offered by a rapidly developing economy with many potentials.
2/ Tax policy, fiscal policy, tariffs, the relationship between the government and businesses (both domestic and multinationals). For our case, a foreign entity that invests in Vietnam like Amazon.
Before we get into Taxes, let’s talk Foreign Direct Investment (FDI). Why is FDI important? In India, Amazon relies exclusively on third-party merchants to sell goods. In China, Singapore, Amazon doesn’t, why? India’s FDI policy only allows Amazon to sell its goods directly to consumers if Amazon manufactures the products itself. Otherwise, it has to act solely as a platform and earns percentage on sells from local/third-party merchants. Vietnam also has specific laws that apply to investments in conditional sectors such as banking, securities, insurance, mining, telecommunications, real estate, and ports and aviation. However retail services/industry policies are more relaxed and are gradually loosened up to attract more retailers.
According to the The International Trade Administration (ITA) and U.S. Department of Commerce, on Vietnam’s regulations towards foreign e-commerce/retail businesses that want to participate in the economy:
Foreign participation in this distribution services, which includes commissioned agent services, wholesale services, retail services, and franchising and direct sales activities, is allowed without equity limitations. However, foreign-invested distributors are restricted from trading in a limited number of goods that are excluded from Vietnam’s distribution sector commitments, either during a phase out period or for an indefinite time period, as set out in Vietnam’s WTO Schedule of Specific Commitments.
This means that Amazon can set up its operation in Vietnam and won’t need a local partner. An example for a typical restriction? Let’s take the entertainment industry:
Foreigners may invest in cinema construction and operation only through joint ventures with local Vietnamese partners, subject to government approval. Films are subject to censorship before public viewing, a process which is nontransparent and for which the right of appeal of a censor’s decisions is not established.
Therefore, within the retail industry, Amazon doesn’t need a local partner. Second, can it sell goods directly to Vietnamese like my mom and friends who always ask me to buy stuffs from Amazon and bring ’em home?
According to a report by PwC:
Following Vietnam’s accession to the WTO in 2007, the market was liberalised in certain areas, including the trading of goods.
‘Distribution right’ means the right to directly undertake activities of distribution, consisting of: (i) being an agent for the purchase and sale of goods; (ii) wholesale distribution; (iii) retail distribution; or (iv) franchising.
The establishment of pure trading or distribution businesses not associated with manufacturing activities by foreign investors was restricted before Vietnam joined the WTO (India’s case with using local merchants). However, in accordance with Vietnam’s WTO commitments, the law now permits 100% foreign-owned enterprises to undertake distribution activities in most sectors. However, various sectors are still subject to restrictions.
In practice, as the Vietnamese government wishes to protect domestic distribution enterprises, retail distribution by foreign investors in Vietnam is still restricted and subject to an approval process.
Yes, Amazon can set up its own entity in Vietnam, and if it can get an approval, it doesn’t have to rely on a local logistic partner for distribution.
Cool, so let’s see how it will enters.
According to PwC’s guide “Doing Business in Vietnam 2017”, foreign investors may invest in Vietnam in any of the following forms:
- Business co-operation on the basis of a business co-operation contract (BBC)
- Joint venture enterprise (JV)
- Enterprise with one hundred (100) percent foreign owned capital (Green Field Investment/GF)
With the government regulations on Foreign Direct Investments, these are 3 ways Amazon can establish business in Vietnam.
BBC: a cooperation agreement between foreign investors and at least one Vietnamese partner in order to carry out specific business activities (short-term projects).
JV: Joint venture enterprises (JVEs) on the other hand may be established as an LLC, a JSC, or a partnership company. Under all forms of a JV that are permitted in Vietnam, profits and risks are distributed among the parties in proportion to their contribution to the charter capital.
Examples: China’s JD.com and Korea’s STIC invested in Vietnam’s Tiki.vn (Amazon’s potential competitor, which I analyzed below).
Thailand’s Central Group purchased Vietnam’s Nguyen Kim Electronics, fashion e-commerce Zalora, and France’s BigC hypermarket chain operation in Vietnam.
GF: a form of foreign direct investment where a parent company builds its operation in a foreign country from the ground up. This is similar to 100 percent foreign-owned enterprises, which means 100 percent foreign-owned enterprises can be established by one or more foreign investors, under the form of either a limited liability company (LLC) or a joint-stock company (JSC).
Examples: Germany’s Lazada Group (formerly a Rocket Internet company) set up its operation in Vietnam, and was recently acquired by China’s Alibaba.
Korea and Japan’s Lotte Group set up its manufacturing factories in Vietnam, then expanded to e-commerce.
Japan’s AEON entered Vietnam by setting up its department stores, then expanded to online retail.
Uber sets up business in Vietnam, along with Lyft (which got out early), and Grab. All 3 companies suffered heavy losses to gain market share in Vietnam. They constantly battled the high power taxi industry, and among themselves. Recently, Uber pulled out and sold its stake in Southeast Asia for Grab, a brother from another mother (both are backed by Softbank) that Uber has been furiously competing with.
Amazon sets up business in Vietnam and hire me.
Since I like fashion, I will just throw this in. Rolex, Dunkin Donuts, Nike, Chanel, Domino Pizza, and Burberry (what an interesting portfolio) and many international fashion brands all franchised their operations in Vietnam to Imex Pan Pacific, the largest trader of high-end fashion brands in Vietnam. The point is, there are many ways to get in.
The next potential market entry will stem from Japan’s Rakuten, and analysts have speculated that it will take form of a joint-venture rather than a Green Field Investment.
Cool, now we understand that Amazon can enter Vietnam in 3 ways, and they will not face the strict restriction in term of setting up distribution networks like they did in India. Let’s talk taxes.
Note: All these taxes are imposed at the national level. There are no local, state or provincial taxes.
According to PwC, Vietnam has a specific Foreign Contractor Tax (FCT). The rules describe the tax obligations of foreign entities and individuals who do business in or receive income from Vietnam. For an entity, the FCT is comprised of two parts: Corporate Income Tax (CIT) and Value Added Tax (VAT).
Corporate Income Tax (CIT): The standard CIT rate was reduced from 25% to 22% from 2014 and 20% from 2016.
The government does grant tax incentives to new investment projects depending on encouraged sectors, encouraged locations and the size of the project. Relevant encouraged sectors for Amazon, which I assume, will be high technology, infrastructural development and software production. Locations which are encouraged include qualifying economic and high-tech zones (construction of Amazon fulfillment centers in outskirt of economic and high-tech Ho Chi Minh city, a common practice done by all competitors).
Value Added Taxes (VAT)
The standard rate is 10%, but will increase to 12% from January 2019.
VAT gets a bit complicated because Amazon has many product categories that will be taxed differently. For example, books, bandaids, and sport products will carry a 5% tax, while other household products will carry 12% VAT.
Property Tax
Foreign investors generally pay rental fees for land use rights. The range of rates is wide depending upon the location, infrastructure and the industrial sector in which the business is operating. All land in Vietnam is owned and managed by the state and, as such, neither foreigners nor Vietnamese nationals can own land permanently. Since foreigners can only purchase 30 per cent of any single condominium building, Amazon will rent its offices, so we can skip this.
Import duties
According to PwC Vietnam, import duty rates are classified into 3 categories: ordinary rates, preferential rates and special preferential rates. Preferential rates are applicable to imported goods from countries that have Most Favored Nation (MFN, also known as Normal Trade Relations) status with Vietnam. The MFN rates are in accordance with Vietnam’s WTO commitments and are applicable to goods imported from other member countries of the WTO.
This is where it gets interesting, since Vietnam has trade agreements with many countries, it really depends. This infographic from Asia Briefing Ltd. will give you an idea:
The biggest change is the withdrawal of the United States from TPP in 2017, which is expected to have an impact in the future.
Since import duties depend on product sources and categories, I won’t go into details.
Personal income tax of Vietnamese and expatriate employees
Social insurance, unemployment insurance and health insurance contributions
Social insurance (“SI”) and Unemployment insurance (“UI”) contributions are applicable to Vietnamese individuals only. Health insurance (“HI”) contributions are required for Vietnamese and foreign individuals that are employed under Vietnam labour contracts.
There are various other taxes that may affect certain specific activities, including Natural Resources, Special Sales, and Environmental Protection taxes.
3/ Government’s attitude/support of foreign investments and e-commerce
On the importance of foreign investment, Prime Minister of Vietnam Nguyen Xuan Phuc noted:
“The FDI sector accounts for approximately 70% of the country’s export turnover, equivalent to 22% of GDP. The FDI sector has generated millions of jobs and contributed greatly to innovation and modernization, boosting the economy’s growth.”
Vietnam’s economic success since Doi Moi has been largely due to its openness to international trade and investments. The country is now among the world’s most open economies, according to the IMF — in the last 15 years alone, its share of world trade has quintupled, with combined imports and exports now equal to around 160–170% of GDP. The country is gradually becoming a “relocation” spot for outsourcing activities, which proved to be increasingly expensive in China, Taiwan, and South Korea.
According to the Ministry of Planning and Investment, the value of foreign direct investment (FDI) capital in Vietnam reached US$33.09 billion in the first 11 months in 2017, a year-on-year increase of 82.8 per cent. Of the 59 provinces and cities where foreign investors have put in capital, Ho Chi Minh City has attracted the most, with total registered capital of US$5.68 billion, accounting for 17.2 per cent of the total investment capital. Ho Chi Minh is where I live, great city :)
With the young population, inexpensive labor resources (labor force takes up 60% of the population), and geographical advantage of being near global supply chains, the Vietnamese government strongly encourages foreign investments as a part of its growth strategy. I will go deeper into this by demonstrating how the government is trying to shift from agriculture-based export to manufacturing (where most of FDI fundings are allocated to) in the Economic Aspect.
Compared to India and Indonesia, two markets with that have heavy government restrictions and huge potential due to the large population and growing demand, Vietnam’s government is considered more welcoming in term of FDI and especially retail. Just to emphasize what I have said above, to keep its commitments with WTO, Vietnam now permits 100% foreign-owned enterprises to undertake distribution activities in most sectors, and retail businesses (both online and offline) from foreign investors. This evidence and the numerous entries of global retail corporations like Alibaba, Rocket Internet, Central Group, AEON, and Lotte Group in the past few years have proven the ease of regulations and increase low entry barrier for both brick-and-mortar and online retailers.
Political Hurdles/Challenges
According to a study by The U. S. International Trade Administration (ITA), one notable observation about doing business in Vietnam is that a few U.S. e-commerce businesses have experienced intermittent blocking of their websites in Vietnam. From my personal experience, many times websites like Macy’s, Nordstrom, J.C. Penny cannot be accessed from home.
The U.S Department of State have listed challenges that international companies, especially those from North America, encounter while doing business in Vietnam:
Problems include corruption and a weak legal infrastructure, inadequate training and education systems combined with restrictive labor policies, conflicting and detrimental bureaucratic decision-making, favoritism towards local firms, land use limitations, and questions over future access to reliable and affordable energy. Investors have called for immediate reforms and the development of sound economic policies in order for Vietnam to continue to attract high-quality, foreign investment.
While these issues will have a smaller impact on global corporations like Amazon, they are still something to take into consideration.
Conclusion on Political Aspect:
Economic Aspect
I will analyze the past and present economic conditions of Vietnam. It will give you a sense of the major economic components and conditions and how they will impact Amazon’s market entry.
1/ Economic statistics (interest rates, exchange rates, inflation rate, unemployment rate)
Note: I intentionally included data from 2008–2017 to show how the economy recovered from the stock market crash and real estate bubble.
Interest rates
The Interest rate in Vietnam averaged 7.31 percent from 2000 until 2017, decreased to 6.25% in January 2018. It reached an all time high of 15 percent in June of 2008 and a record low of 4.80 percent in August of 2000.
Vietnam’s interest rate is much higher than those of neighboring countries.
Exchange rate
The Vietnam Dong (vnd) is the official currently of Vietnam, as of March 6th, 2018:
1 USD = 22,774 vnd.
Inflation Rate
On the high interest rate
Based on my research on the State Bank of Vietnam’s recent fiscal policies, the two reasons for the high interest rates compared to the regional (Southeast Asia) average are: high percentage of non-performing debts, and potential growth in inflation.
As you can see, it seems like the high interest rate from the State Bank of Vietnam is intended to lower the amount of outstanding credit/bank nonperforming loans. This number (red for Vietnam) has been relatively high for the past years.
Looking at the real interest rates, it seems like the State Bank wanted to restrain inflation growth, which has been a chronic problem of Vietnam until recently. As of March 6th, 2018:
1 USD = 22,774 Vietnam Dong = 31.34 Thai bath = 4,000 Cambodian Riel = 1.32 Singapore Dollar = 8,306 Laotian Kip
My college expense, tuition, room & board, heat and travel between home-school is about US$50,000 = 1,12 Billion Vietnam Dong, quite a bit of $$$.
I am in no capacity an economist, but from looking at this fiscal policy, the State Bank of Vietnam is trying to limit both inflation rate and outstanding credit with high interest rates, which they are doing well. Since Vietnam’s GDP growth has been in the lower — mid 6% in the past 10 years, a large decrease in interest rate would more likely increase inflation, shift the money supply to gold (a very very common practice for Vietnamese to “hold” gold rather than our depreciating currency) and USD rather than stimulating economic growth. I am not 100% sure how this will link to Amazon’s interest, but I can say that the Vietnamese government is trying to limit the depreciating of our currency and reducing bad debts to improve our global competitiveness.
Unemployment Rate
In relation to neighboring countries:
Vietnam’s unemployment rate is relatively high compared to our neighbors.
2/ Overall economic environment components such as GDP growth rate (consumer spending + business investments + net exports).
Vietnam’s GDP growth in the past 10 years has been very impressive.
Even during the 2008 economic depression, GDP growth rate decreased to 5.4%, but has risen steadily since then. It reached the record 6.81% last year (2017), reflecting strengthening domestic demand and strong manufacturing exports. The unexpected record high growth beat both the World Bank expectation and The State Bank of Vietnam’ goals of 6.7%. Total FDI capital by December 20th also had a record high of US$35.88 billion, up over 44% against last year. The impressive growth moved Vietnam 14 places to 68th/120 economies in World Bank’s Doing Business 2017.
According to Bloomberg news survey, Vietnam and the Philippines are considered the brightest stars in terms of GDP growth rate stability in Southeast Asia. In addition, international agent Moody recently upgraded Vietnam credit institution from “stable” to “positive”.
GDP Composition by year end
Consumer spending: Retail sales increased 10.9%.
Business investment: the number of newly established enterprises this year also reached a record high of over 125,000.
Net exports: international demand increased export to $213 billion.
Household consumption: 68.5%, Government consumption: 6.6%, Investment in fixed capital: 24.8%, Investment in inventories: 2.9%, Exports of goods and services: 98.6%, Imports of goods and services: -101.4% (2017 est.)
GDP composition by sectors of origin
Agriculture: 15.9%, Industry: 32.7%, Services: 41.3%
Looking closely to see the shift in GDP compositions.
We can see the gradual decrease in agriculture and increase in services here. According to the National Center for Socio-Economic Information and Forecast, Services and Manufacturing Industry contribute to 90% of the economic growth, much higher than the 2006–2010 period, which prove the effectiveness of the government’s plan in using industry and services as the transforming forces for the economy and maintain stable economic growth.
Further Analysis of GDP
GDP per capital also increased, this evidence and the increase in retail sales proved that Vietnamese are buying more and are increasingly capable of doing so. What does it have to do with Amazon?
Vietnam’s retail sales grew 10.9% in 2017 over the previous year to a highest-ever $129.6 billion is due to a rising middle class and an influx of overseas retailers. Several foreign retailers made headway into Vietnam in 2017. Japan’s Seven & i Holdings opened its first Vietnamese 7-Eleven convenience store in Ho Chi Minh City in June. Swedish clothier H&M Hennes & Mauritz launched its first store in the Southeast Asian country in the same city in September, while Spanish rival Inditex’s Zara chain introduced its second Vietnam location to Hanoi in November.
Many other companies have also established foothold in Vietnam, which I will discussed those specifically will compete with Amazon like Central Group and Alibaba in the competitive analysis section.
According to Nikkei Asia Review,
Vietnam eliminated nearly all tariffs on goods from within the region, allowing cheap imports to more easily enter the country.
Price-conscious Vietnamese consumers, meanwhile, have also begun to focus on quality. Supermarkets and convenience stores are selling meat and vegetables at 20–30% higher prices than traditional open-farmer markets, and the number of specialty shops offering organic vegetables is growing. Spending on cars, home electronics and other consumer durables is also brisk.
Strong consumer confidence is likely to underpin Vietnam’s economic growth since more than 70% of its gross domestic product comes from personal consumption.
Therefore, the rapid increase in consumer spending power and selectiveness is an opportunity for retailers like Amazon to capitalize.
Import and Export
Vietnam’s main imports include machinery and equipment, petroleum products, steel products, raw materials for the clothing and shoe industries, electronics, plastics and automobiles. Its exports include clothes, shoes, marine products, crude oil, electronics, wooden products, rice and machinery.
Labor Force
Vietnam has a notably young population, with an average national age of about 32, and more than half of its citizens (about 55%) aged 34 years or under. In total, the 15–64 age group accounted for 68% of the country’s population in 2015, up from 61% in 1999. This clearly shows that Vietnam has a large supply of young labor, something that is clearly advantageous for its on-going economic development.
Amazon, reaching over 500,000 employees in 2018, needs a strong workforce, which ranges from software developers to warehouse workers. Vietnam attracts foreign companies due to the affordable and abundant labor force, but that’s blue collar. Tech employees are much harder to find. At an interview with Forbes, executives from Lazada Vietnam, Tiki, and Bibomart (prominent baby products retailer) have pointed out how the limiting number of skilled technological workers is affecting their ability to grow. Many companies now take training into their own hands, despite the risk of spending a lot of money and ending up losing the employees to other companies. Many would use former employees of global tech firms and retailers Facebook, Microsoft, Walmart, and Amazon.
Analyzing the blue collar workforce:
As of late 2017, the minimum wage in Hanoi and Ho Chi Minh City is just 3.9 million dong ($172) per month, an attractive number for many companies to move their manufacturing operations from China to Vietnam. Note that, the manufacturing factories are located in the outskirts of these 2 cities, so the minimum wage is lower. Therefore, Amazon will be able to employ workers at low cost for its warehouse and logistics operations.
Analyzing the white collar workforce:
Something Jeff Bezos does that I am really impressed with is raising the bar after every hire. That explain why I got rejected 4 years in a row, but anyways, it is easy to say that the company will be able to apply same world-class technology in payment processing, logistics (all those legendary algorithms and infrastructure in fulfillment centers by Jeff Wilke, yes I read Brad Stone’ book 3 times), and software engineering in Vietnam, but having a workforce that is qualified enough to adopt the technology and scale it in a new market can be a hurdle. For fulfillment centers and logistics, the low entry barriers and familiarity with labor-intensive jobs of Vietnamese workers will make it easy for Amazon to hire. Material movers, truck drivers, and stock clerks don’t need a college degree to be qualified; however, for high-tech and managerial roles, it is not the cost of labor, but also the quality.
According to a study of Vietnamese workforce conducted by the World Bank,
Evidence suggests that worker skills and availability are more binding concerns for employers than labor market regulations and taxes. A majority of employers said that hiring new workers is a challenge either because of inadequate skills of job applicants (a “skills gap”), or because of a scarcity of workers in some occupations (an occupational “skills shortage”). The skills gap is particularly acute among applicants for jobs in technical, professional and managerial occupations — jobs that more likely ask workers to conduct analytical, non-manual and non-routine tasks. In contrast, a skills shortage, or a shortage in applicants in particular types of jobs, is common among more elementary occupations.
Why are many Vietnamese not qualified for hi-tech jobs? 3 reasons, we will go from past to present to fully understand it (this might be off-topic but I think it’s important when we try to understand the economy):
First reason, from a Forbes article:
The mostly rural Southeast Asian nation was climbing out from the destruction of war and interminable poverty in the 1980s when its Communist government began to invite factories. That history left a lot of people without formal education. Assemblers of furniture and builders of auto parts, both typical of Vietnam’s manufactured exports, could be taught on the job, avoiding the need for formal education.
Furniture is the first industry that exported, followed by footwear, textile, and agriculture and fruit products. These verticals don’t require heavy technical skills, and these skills can be taught on the job. Furthermore, Vietnam is fundamentally an agricultural country. Having a tropical climate and located close to the “Bean Belt”, a band of tropical regions along the equator, granted Vietnam agricultural resources. Do you know that we produce 37% of the world’s cashew? The combination of high-labor intensive opportunities and low-technical jobs have allowed Vietnam to develop its agriculture competitivenesses, but also limited the ability to develop technical skills. The labor shortage is an obstacle in Vietnam’s ambition to move up the value chain and away from the traditional low-tech model. This is why the government have welcomed FDI, which are majorly allocated to manufacturing, and increasingly hi-tech companies like Samsung, LG, and recently, Intel.
I have read somewhere that for countries that don’t have much natural resources, human is the most important asset, hence the ability/tendency to develop in finance, tech, and services. Think of Japan, which adopted American manufacturing techniques after the occupation in the 50s to built cargo ships, ammunitions, technological products and later followed by Korea, Taiwan, Hong Kong, and Singapore. Natural resource is an advantage, but it can also be a limitation. That’s why Vietnam isn’t the founding land of Samsung, LG, HTC, ASUS, HSBC, but we manufacture these products instead. Will we one day become a start-up nation with global products? Yes.
Secondly, the education system plays a major role in shaping the future workforce. On the elementary and high school levels, the out-dated programs try to give as much knowledge as possible to students, while ‘forgetting’ to train them in skills and ways of thinking. In addition, many parents dream to enroll their children in top schools in the US and succeed abroad, citing “business is tough at home”. As someone who had gone to public school, bilingual school, international school in Vietnam, and American public school, I can say the Vietnamese education prepared me really well to nail all the classes in America, but it limited my thinking process and made me very formulated and reactive instead of creative and proactive. This method of educating created challenges for Vietnamese students to think and be creative, making people like me adopters rather than an inventors. I think Vietnamese students like I am can memorize things really well, but we can’t produce things that people will memorize, yet. Why is Vietnam’s most well-known technological product is still Flappy Bird? That’s why. But I am very optimistic in our ability to create something and scale it worldwide just like how we adopted Uber, AirBnb, and e-commerce.
Back to the main topic, besides FPT University (FPT Group is a competitor of Amazon which I will analyze below), there aren’t many technology oriented education institutions to prepare Vietnamese students for hi-tech roles. The Vietnamese government is pushing ahead with skills training programs. Foreign companies are also investing in the future of the country’s workforce. Intel is leading a group of technology companies, including Siemens, to train Vietnamese workers by funding training programs intended to develop a high-tech workforce within the country. That’s why Amazon will have to bring its talents from other global offices to help the domestic employees adapt and grow.
Thirdly, the pressure to earn a bachelor’s degree has been drawing young people away from occupational training, which leads to a severe shortage of skilled labor despite the large working-age population. This, to me, is a very concerning number. It is true that the affordable cost of labor have allowed us to achieve global competitiveness in manufacturing, but to have a sustained economic growth, we need to match the skillsets with technological development, which is another topic that I will be analyzing in another post.
Solutions for Amazon and others?
What we can expect is the productivity increases that came in the wake of a rapid shift of employment out of low productivity agriculture into higher productivity non-farm jobs (demonstrated by the decrease in agriculture and increase in manufacturing and services as GDP components above). This shift, in combination with the massive flow of FDI capital into manufacturing, and diffusion of knowledge and technology have allowed Vietnamese workers to become more technically-skilled. This trend can be demonstrated by this example: When Samsung, LG manufacture their products in Vietnam, they are still struggling with finding local suppliers who can manufacture chips and other hi-tech components, so as more Vietnamese can supply the labor forces and facilitate other business processes for multinationals, more Vietnamese companies will start to adapt foreign technologies and produce chips, mainboards, etc. so that these multinationals don’t have to import them abroad. That’s the trend that I believe in.
Besides in-house trained employees, those who have worked in multinationals, and foreign employees, Vietnamese students who study abroad will be a great resource as well, due to the expertise trained abroad and cultural and social familiarity with Vietnam. Here’s one of them.
In the 2015/16 academic year, Vietnam topped Southeast Asia in students studying in the United States: 21,403, up 14.3% from the previous year. This figure is also the sixth highest among countries which have students in the United States. Many Vietnamese students who study abroad like myself who are employed by multinationals (not me, yet) are playing essential roles in managing the companies’ operations in their home country.
Other elements
According to a report by Dean Shira & Associates, companies may find it difficult to transfer employees (especially women) to different cities or areas because of their strong local connections. This has the potential to put a drag on a company’s expansion plans as it may struggle to relocate experienced employees. Thus, finding the right partner to aid in the recruitment process is crucial.
Conclusion on Economic Aspect
Social-cultural Aspect
The two social-cultural factors that present attractive opportunities for Amazon in Vietnam are the increases in consumerism and online shopping habits.
Boston Consulting Group (BCG) indicated that the middle and affluent class (MAC) in Viet Nam will double in size between 2014 and 2020, from 12 million to 33 million. Meanwhile, a report by market research company New World Wealth stated that wealth in Vietnam grew 210 percent between 2007 and 2017, and the country’s wealth market is predicted to continue growing another 200 percent in the next 10 years. These two evidences and the record US$130 billion in 2017 retail sales have demonstrated the increasing spending power.
A relatively young population, coupled with rising income levels, increased urbanization, and an attractive business environment supported by lower trade barriers and reduced corporate tax rates, have enhanced Vietnam’s position as a high potential growth market, reported by Deloitte.
Vietnamese shoppers, who are price-conscious, have begun to focus on quality. The availability of open farmer markets has allowed consumers to shop conveniently and inexpensively. However, many people are opting to shop at supermarkets to reduce concerns related to quality and safety.
Consumer Preferences and Behaviors
Global consumer-interest researchers acknowledged three ways to identify consumer decision-making styles: the psychographic/lifestyle approach; the consumer typology approach and the consumer characteristic approach. Let’s get into those :)
I will consider this social-culutral aspect from macro to micro. Starting with Internet users’ behaviors, Consumers’ shopping behaviors, and E-commerce shoppers behaviors.
Vietnamese Internet Users’ Behaviors
This part will tie to the usage of Internet, analyzed in the Technological Aspect below. As of Q4 2017, there are about 50.76 million Internet users in Vietnam, which represents 54% of the population. Many of the data below are gathered from Comscore, Google’s Consumer Barometer, Asia Plus Inc., etc. Visualization is provided by Appota, the leading mobile platform provider in Vietnam, and Hootsuite.
Vietnamese have a balance usage of multiple devices, Millennials are mobile adopters.
People would use there phones first in the morning, while drinking a cup of strong espresso at a street cafe and enjoy their banh mi before coming to work (I know, I am Vietnamese). They will use their desktops and computers at work, and use tablets for entertainment and watch video at home in the evening.
When compared to neighboring countries
Overall, Vietnamese spend less time using mobile apps than other Southeast Asians.
This findings correlate with Hootsuite’s data, which shows the high percentage of people’ spending their time on social media and texting. As you can see, shopping is not the main priority compared to other usages, but let’s get into that.
Mobile usage for shopping increased over 200% from 2014–2015, and over 30% from 2015–2016, indicating a strong adaptation of shopping habits on mobile devices.
1 out of 3 Vietnamese purchases online, and spend $55 on average.
We need to take into consideration that a lot of these purchases are made through Facebook, which is a very popular platform for individual sellers in Vietnam.
Vietnamese’ Shopping Behaviors
Vietnamese consumers are risk-averse, price-conscious (why? one reason is the combination of our inflation rate and depreciating currency, analyzed above), use cash, trust words-of-mouth, and influenced by the community they associate with. Compared to Westerners, who are more individualistic, Vietnamese, like many citizens from Asian countries, are more collective.
Let’s distinguish between collectivism and individualism because the dissimilarity among cultures reflects the difference in consumers’ buying decisions. According to Vocabulary.com:
Individualism: the quality of being individual. It focus more on “you”. In our case, you are individualistic when the products you buy completely go with your style, characteristics, and ego.
Collectivism: the idea that people should prioritize the good of society over the welfare of the individual. It focus more on “us”. In our case, you are collective when the products you buy go with your style, characteristic, ego, but also reflect what people around you purchase or the social group that you are in.
Does the fact that Vietnam is a Communist country make Vietnamese collective? It does, because collectivism, in a way, contributes to Communism, but it doesn’t play a crucial factor in our case, because many Asians, who are from non-Communist countries, also carry the same attribute. I do believe this characteristic has an effect on how people purchase.
Example? Let’s take an example from an academic research conducted by Hoang Minh:
IKEA faces difficulty when the company penetrates their business to Turkey, which is a collectivism-oriented nation. Unlike individualistic American buyers who purchase small furniture packages used for 2 or 3 people, Turkish customers normally choose large set of furniture as they live in extended families. Also, they prefer buying furniture that everyone likes because Turkish people often welcome lots of relatives and friends coming to their homes.
While this cultural factor depends on many elements and researchers have yet to make a conclusion on its effect on the retail industry, especially e-commerce, I think it will be beneficial to consider researches on this topic. Obviously Amazon will have tons of data collected from Amazon India and Singapore (and Thailand too, from what I overheard).
Diving deeper into Hoang’s extensive research on the differences between collectivism and individualism, demonstrated by the study of Collectivist mobile phone consumers (Vietnamese mobile phone consumers) vs. Individualist mobile phone consumers (Finnish mobile phone consumers).
Hoang’s first question: How decision making styles differ in terms of individualism and collectivism in mobile phone buying decisions, given that Finnish buyers are individualism oriented and Vietnamese buyers are collectivism oriented?
His finding: Vietnamese, who represent Collectivism-oriented consumers are more High quality consciousness, Brand consciousness, Recreational, hedonistic shopping consciousness, Price consciousness, Impulsive in shopping, over-choice confused, loyal towards certain brands than Finnish mobile phone buyers, who represent Individualism-oriented consumers.
Hoang’s second question: What is the biggest difference between individualist mobile phone consumers (Finnish mobile phone buyers) and collectivist mobile phone consumers (Vietnamese mobile phone buyers) in considering their choices?
His finding: The two characteristics Recreational, hedonistic shopping consciousness and Confusion from over-choice show the biggest difference. Vietnamese mobile phone buyers are much more confused by over-choice than Finnish mobile phone buyers. Therefore, mobile phones companies in Vietnam should pay more attention in providing easy to remember information of the products or creating marketing campaigns which help increase consumers’ awareness of different mobile phones’ types and usages. Additionally, Vietnamese mobile phone buyers are much more recreational, hedonistic shopping conscious than Finnish mobile phone buyers. Therefore, it would be a good idea for the mobile producers in Vietnam to improve the recreational and pleasure user experiences for their products to increase profits.
As someone who shops in both worlds, I agree. I also have an in-depth analysis of Vietnamese’s e-commerce shopping habit below, but just for shopping in general, we can say that Vietnamese shoppers are more
High quality consciousness, Brand consciousness, Recreational, hedonistic shopping consciousness, Price consciousness, Impulsive in shopping, over-choice confused, loyal towards certain brands.
I associate “recreational” with “fun”, which I will demonstrate how Vietnamese e-commerce sites design their websites to cater to this user experience.
This is Amazon.com
This is Jet.com
Ready for Vietnam?
This is Mobile World Group’s vuivui.com
This is Tiki.vn, backed by China’s JD.com and Korea’s STIC
This is Lazada, backed by China’s Alibaba.com
In other words, it’s lit.
This is how Vietnam online retailers are appealing to customer preferences. They made the website colorful with many ads and discounts. We just don’t have Kendrick Lamar on our websites.
Vietnamese consumers are among the most optimistic in the world. The Boston Consulting Group’s consumer research shows that more than 90 per cent of consumers expect to live better than their parents and expect their children to live better than themselves.
According to Google’s Consumer Barometer, Vietnamese consumers tend to seek information on a product’s price and availability rather than promotions, deals, coupons, and store sales by Thai and Malaysian online shoppers.
Payment preference
One important characteristic of Vietnamese is the preference of Cash. Vietnam has one of the highest cash dominated economy in the world, with almost 90 percent of all transactions conducted in cash. It it important to analyze the risk-averse attitude of Vietnamese, because it is the reason for cash’s popularity; also lack of trust can prove to be impactful to the sustainability of e-commerce and how companies handle customer relationship management and retain loyalty.
Vietnamese Online Shopping Behaviors
Analyzing a Vietnamese e-commerce consumer behavior survey conducted by Asia Plus Inc. Sample description: 500 people, both male and female from Ho Chi Minh City and Hanoi, 18–39 year old (millennials), July 2016:
67% of Vietnamese in a city have shopped on EC. Among these people, nearly half of them have experienced Facebook shopping, which shows the high popularity of Facebook and its wide usage almost for everything in Vietnam.
50% of them shop online once a month or more. 23% are considered as heavy users who shop once a week or more often.
Top 3 purchased products online are fashion, IT/mobile phone and kitchen/home appliances. Among 20s and male, IT/mobile phones and sport goods are popular. Among 30s and female, fashion, cosmetics and kitchen products are popular.
For a clearer distinction between male and females
As Amazon is trying to get into the fashion retail industry, it will have to aggressively push for this category in Vietnam. This will be a tough market because apparels have the highest chance of not fitting buyers’ expectation. It one of the most popular reasons that consumers hesitate when shopping online, with 57% people responded they don’t shop online due to concerns on product quality.
Factors with large variation like product sizings, body shapes, and even the difference between colors on-screen and offline, can make a huge difference in consumer purchasing decision. However, I am sure that Amazon will be able to tackle this issue. I don’t know how the company’s doing with its acquisition Shoefitr, a startup based in Pittsburgh that has developed 3D technology to help match online shoppers with shoes that will fit them better, but I am sure this technology, when combined with customer data from Zappos, will be a powerful tool in proving the best shopping experience and selection to the customers. Hopefully something like this can be applied to apparels as well. As Amazon can penetrate the Vietnamese market with more data-collecting devices such as Amazon Echo, particularly something like Amazon Echo Look, it will be able to collect more data (photos + habits included) to accurately estimate sizing and fit, hence recommend better products, that will be game-changing.
Lazada is dominant in every area. HOTDEAL is popular among female for its beauty services. Facebook is ranked as the 2nd channel of shopping
(I have done a very comprehensive analysis of all these competitors below)
Almost 1 out of 3 Vietnamese shop on their office PC (!?), well that’s concerning lol what the hell guys, get to work please.
When asked for reasons to shop online, “Order it anytime/anywhere” and “wide variety of products” are the top responses.
Just like we have mentioned above about the trust issues Vietnamese have when shopping online, the biggest concerns of non-users is “product quality.” It is not rare that shoppers complain that the product looks different from a photo on the web, which could lead to the concerns of “Is the product right?”
On slow delivery time, I expect it to be less of a concern in the next 1–2 years, when retailers can roll out attractive shipping options and the new metro system can alleviate traffic jams. Right now, Mobile World Group’s e-commerce site vuivui.com will compensate 100,000 VND (about 4 bucks) for every late order. My favorite it still Tiki’s 2-hour delivery. I have written about my experience with this service below.
I have never had a bad experience with product quality or the general ordering process from Lazada and Tiki. The whole process is easy and intuitive, see that box in the photo? 4 books in there. I have gone to 2 local book stores to price-check before I decided to purchase from Tiki (Dear Mr. Bezos, in case my analysis somehow miraculously reaches you, Tiki’s founder also started by selling books, but he thought about the packing table earlier than you did). Tiki had better deals than book stores did.
Besides that, I do agree with the security and quality concerns with ordering online. On quality and the mismatching between advertised products and received products, I am sure we have seen enough photos on Facebook about advertisement vs. reality, so I won’t dig deep on that.
On security, I and many Vietnamese consumers are concerned with other people taking our products. It’s a developing country and these things happen. However, both Lazada, Tiki, and other small businesses on Facebook will call to make sure they can see you when they make delivery, it’s a cash-on-delivery (COD) at the end of the day. Therefore, leaving package on the porch will never work here. Meeting the customers will slow down the delivery speed, but it is the only solution to build trust.
On average, 36% spend less than 300,000VND (about 14USD), while 33% spends between 300,001 and 500,000VND(about 14~24USD). Overall spending per order is relatively low.
Looking at how consumers make a purchasing decision
“Net surfing” is very common way to initially recognize a product. Price comparison at other EC sites is the next major step. Common user behaviors includes comparing the pricing at online (international / domestic) and even offline.
When interviewees were asked where they usually order and receive products, 3 out of 4 order and receive products at home, while the other 25% order and receive products at the office.
Two-third of EC users are either “satisfied” or “very satisfied” with EC sites that they are using.
“Product variety” is the top reason. Product variety is even more satisfactory among 30s who often purchase fashion and cosmetics. Also, price satisfaction is equally as high as large players are aggressive on promotions. Men are less demanding on delivery speed, while both genders share similar opinions on other factors.
As noted above, product quality is the big reason why people don’t shop online, and why those who do aren’t satisfied. The low percentages on price, promotion/discount, and product variety have proven the benefits of the values e-commerce offers to consumers. Although major EC sites offer free-delivery from 100,000VND ($US5), and even the option to not take product at point of delivery, 1/5 consumers are still concerned with this factor. I would tie the delivery cost to delivery speed, just like those with Amazon Prime who would get their orders in 2 days, with very small deviation, while those who opt for free shipping will have to wait longer. From my experience, people who select free shipping will have a pretty uncertain ETA (wide gap, such as 3–7 days), which impose an inflexibility on the consumers. I have also provided a detailed analysis on shipping methods provided by Vietnamese e-commerce companies in my competitive analysis of Amazon’s competitors in Vietnam below. Looking at the analysis, you will notice how companies are utilizing their existing brick-and-mortar locations as distribution centers to optimize last-mile delivery, very similar to the reason why Amazon purchased Whole Food Market.
On payment method, as discussed above, cash is still king. In the survey, 85% of EC users choose cash on delivery as a payment method. Also, high usage rate of cash on delivery results in high order cancellation rate in Vietnam. I will discuss the issue of transaction and trends in credit card usage in the appropriate section below.
So we have gone through what, when, why, how people purchase products only, let’s take a look at why they return.
More than 30% of people have made cancellation. Although “product failure” is the biggest reason, this includes cases that a product was different from consumer’s intention. Also, a quite number of consumers have cancelled their orders due to their change-of-mind. “Change of mind” is interesting because it involves cash on delivery, which is the main payment method. Some companies will allow customers to reject the order at point of delivery. Hence, many confirmations are carried out to decrease the delivery operation loss.
This is my experience with the purchasing process (which is very similar to those surveyed), take a look at my in-depth analysis for more details. Also thanks for keeping up with me until this point. Let’s order some stuffs from Tiki:
First, browsing.
Second, picking out a couple things,
Notice the “2h” icon, I ordered from Tiki, which promises to deliver in 2hr for a small fee of 29,000 VND ($1.25), great deal.
Because I selected COD, the process is very simple and basically risk-free.
After 2 hours, the delivery man came.
And I got my stuffs.
Note how the books are plastic wrapped, something people rave about on Tiki.
Let’s sum it up for Social-cultural aspect:
Technological Aspect
Tying technology to the shortage of highly skilled labor force, we will examine the pace of technological change, technical developments, as well as the availability of institutions involved in creating knowledge and the controlling the use of technology.
I won’t be emphasizing on the available technology that will be applied to Amazon’s operation in Vietnam, because I assume Amazon will be applying its own systems, whether in Inventory Replenishment Planning (IRP), Customer Relationship Management (CRM), or Logistics. Instead, I will focus more on the government control over the Internet, 4G/5G technology, Internet usage, smartphone usage, and the institutions that will provide Amazon and other companies the future workforce. These institution can be R&D consortia and university-sponsored technology incubators.
Vietnamese Government’s Control Over the Internet
(I will tie both Technological and Legal/Regulatory Aspects together, since they are interrelated.)
There are 3 reasons why I think this is a worthy topic.
First, the Internet is the gateway for consumers to get on Amazon, and it is influenced by the government.
Secondly, I am inspired by the Wall Street Journal’s article titled “The Uncomfortable Marriage Between China and Its Tech Giants”, which talks about the avoidance of Chinese tech companies like Alibaba, Tencent, JD.com, and Baidu in getting government attention. China and Vietnam, I believe, have similar problems with censorship and government intervention, which is why Facebook and Google couldn’t scale in China. With the huge amount of data Amazon has, will it be forced by the government to cooperate?
Thirdly, according to a study by The U.S. International Trade Administration (ITA),a few U.S. e-commerce businesses have experienced intermittent blocking of their websites in Vietnam. From my personal experience, many times websites like Macy’s, Nordstrom, J.C. Penny cannot be accessed from Vietnam. I want to understand why.
First reason, tied to Second, the influence of Vietnamese government on the Internet of Things. This is a very sensitive and complex topic, in which I don’t have expertise to analyze, so I will just define the concept and give examples.
Definition:
Internet censorship in Vietnam prevents access to websites critical of the Vietnamese government. Online police reportedly monitor Internet cafes and cyber dissidents have been imprisoned. Vietnam regulates its citizens’ Internet access using both legal and technical means.
Since the freedoms of press and speech are still regulated in Vietnam, internet access has also served as an outlet for political activism and exposés denouncing corruption and government misconduct.
Example:
According to Tuoi Tre News, the biggest newspaper of Vietnam, in late 2017, the government proposed a new legislation that requires foreign tech giants like Google, Facebook and Uber to set up offices and data servers in Vietnam.
The drafted law would force popular companies like Facebook, Google, Viber, Skype, and Uber to obtain an operating license, open a representative office in Vietnam, and operate servers within the country on which all Vietnamese user data must be stored. The draft law calls for companies who fail to comply with the new regulations to cease offering services within Vietnam’s borders. The proposed piece of legislation is expected to improve Vietnam’s cyber security, but has experts worrying that it may violate the country’s international commitments to unrestricted access.
Off-topic again but I finally understood why when I looked for Facebook and Google employees on LinkedIn to ask for more information, I notice that although they are in charge of Vietnam operations, they all work from Singapore. The companies have yet to open a representative office or data center in Vietnam, relying on their headquarters in other countries (mostly in Singapore) to manage Vietnamese user data.
Nguyen Hong Van, vice president of Vietnam Institute of Information Security, said: “What would happen if personal information such as locations and behaviors of the Vietnamese population is gathered by people with bad intentions through such services, which we neither have knowledge nor control of,” Van said. “If a cyber war was to be waged against Vietnam using such loopholes, the consequences would be immeasurable.”
Now, Facebook, Instagram are often blocked when there is are protests, national political issues, but people always find way to get around it. They will be less affected because they have large digital footprint. Amazon, which has a much larger physical footprint, larger than Uber, will have to consider this factor when it enters.
Voting starts mid-2018, and there has been oppositions from foreign companies and Vietnam Chamber of Commerce and Industry (VCCI). VCCI opposed the legislation because it violates Vietnam’s trade agreements.
Hoang Quang Phong, vice president of VCCI, said the proposed law also violates Article 14.13 of the Trans-Pacific Partnership (TPP), of which Vietnam is a signatory, which requires that “no party shall require a covered person to use or locate computing facilities in that party’s territory as a condition for conducting business in that territory”. The ratification will also violates Vietnam’s WTO and EU-Vietnam Free Trade Agreement (EVFTA) commitments.
Let’s examine an article written by the New York Times (NYW), which WSJ’s article on the Chinese’s relationship with tech giants.
Like China, Vietnam hoped to rein in the internet from the outset. It, too, tried to block Facebook, in 2009, by ordering major local service providers not to carry it. But the government didn’t dare set up a firewall outright, for fear of driving away internet business and e-commerce; it permitted certain sites instead of blocking them outright as China had, banking that it could coax them into collaborating as needed. On occasion, the Vietnamese government has asked local service providers to remove certain sites from their list of known hosts, but that is easy enough to skirt by changing domain names.
Therefore, although we have yet to know how it will affects companies and the consumers, and if it will be a contradiction to the government’s welcoming attitude to FDI, this is an important factor in both Technological and Legal/Regulatory Aspects that Amazon should consider.
I have an interesting thought, first, let’s continue on NYT’s article:
Earlier this year, the information ministry issued a circular asking websites, social media and mobile applications with more than one million users in Vietnam to “collaborate” with the authorities and remove “ill-intended and toxic” content, ranging from ads for contraband merchandise or protected wildlife to state secrets. The ministry also asked Google to take down 2,300 YouTube clips it said defamed Vietnamese leaders; Google complied in part, removing nearly 1,500.
So the government cites growing concerns over cybersecurity and fake news as reasons to exert more control over social-media platforms. Amazon will potentially have to deal with data storage and governance if this bill is passed, but what will it have to do with fake news and opposition ideas? How can people say bad things about the government on Amazon? My interesting answer: the comment section for education books.
Third Reason, on the intermittent blocking of U.S. e-commerce sites.
This is the grey area because from my experience, U.S. retailers have blocked credit cards originated from Vietnam due to fraud issues, so it remains unclear whether the blocking comes from the retailer to prevent frauds or the Vietnamese government for some reasons.
Vietnam Internet Usage
It’s important to analyze the Internet’s penetration in Vietnam, with the focus on smartphone usages, so that we understand where people will shop, whether the connectivity will have an effect on the experience, and then combine these information with the average spending on e-commerce ($55) above to calculate market size.
Internet first formally penetrated into Vietnam in November 19, 1997. In the early days, 205,000 people were early adopters, this number increased to 17 million in 2007, 31 million in 2012, and 50 million as of late 2017, a number equivalent to 54% of the population, according to a report by the Ministry of Information and Communications.
A comparison to neighboring countries and regional average. Data is accumulated by Hootsuite, as of January 2017, when the usage is still 53%.
Although the adoption of 4G technology only came in early 2016, as of Q3 2017, 4G/LTE network has covered 95% of Vietnam’s population. Furthermore, the largest telecom companies in Vietnam, which are Viettel, Vinaphone, and Mobifone, have launched 4G LTE services to meet the rapidly growing demand for fast Internet connection. Thieu Phuong Nam, general director of Qualcomm Vietnam, Laos and Cambodia, said the 4G growth rate in Vietnam has been impressive. Forecasts indicate that 60 per cent or 120 million mobile devices sold in the country would support 4G connection by 2020. Therefore, we can expect the facilitation of development in mobile connectivity to serve as an advantage for e-commerce.
Availability of Tech-Universities and R&D Institutions
After examining the government control over the Internet, 4G/5G technology, Internet usage, smartphone usage. Let’s go back to looking at the institutions that will provide Amazon and other companies the future workforce. As you can see above, I have analyzed the 3 reasons for Vietnam’s lack of highly skilled workers, particularly those that can easily adopt Amazon’s technologies. Now, Amazon will need a sustainable labor force besides its foreign employees, those from other offices and companies, to sustain its operation in Vietnam long term. I will go off-topic a little bit here to give a general sense of the education system.
At a consumer level, Vietnamese adopt technology at a very fast pace. However, at a professional working environment, there exists a need of education reform to ensure Vietnamese employees have the necessary language and technical skills to adapt to the increasingly technological and globalized work environment. Two major education problems that Vietnam’s dealing with are inadequate foreign language training and high skilled labor shortage.
Nguyen Van Dao, vice general director of Samsung Vina, a joint-venture between Samsung and the Ho Chi Minh City-based TIE Company, said in an interview with Thanh Nien News: “Job demand is very high, so it is not difficult for us to find manual laborers. But, it is very difficult to find enough engineers for our demand.”
Harvard researchers Thomas Vallely and Ben Wilkinson in 2008 described the Vietnamese education system as being in a state of crisis, characterized by international isolation, a lack of high-quality universities, inadequate foreign language training, bureaucratic obstacles, and curricula that do not prepare students for entry into the labor force. According to recent Vietnamese media reports, the majority of new university graduates are presently unable to find work, often due to a lack of skills. Again, why? What are the reasons and what is the government doing to increase quality in our education system to accommodate the increasing FDI in hi-tech? Will we be able to supply to Intel, Samsung, Amazon, in the next 5, 20 years to catch up with our economic growth?
The 2 reasons: access limitations and quality problems.
Access Limitations
Despite a growing number of new higher education institutions, Vietnam’s education system does not sufficiently absorb the fast growing youth population of a country in which 40 percent of the population is below the age of 25. Vietnamese universities reportedly only had capacity for one-third of applicants in past years.
From my experience going to Vietnamese public school, at the elementary and high school levels, the classes are always packed with 40+ students compared to 20 classmates I had when I went to school in West Virginia. The curriculum focuses on studying rather than exploring, memorizing rather than understanding. The reasons can be government censorship which enforces restricted knowledge on students rather than stimulating their questioning and debating abilities (something I really struggled with when I started school in the US), emphasis on learning many subjects instead of mastering a few that really interest the students, etc.
Quality Problems
Over the past decades, the fast-paced growth of the education system has intensified quality problems at overcrowded universities and led to the mushrooming of low-quality private providers. In addition, Vietnamese teachers who are trained with out-dated programs and high pressure from the government to teach students in a restricted program and help them to score high on examinations cannot fully utilize their ability to enlighten and engage students with interesting discussions. I believe that only when Vietnamese students can be granted the freedom to explore what they are really interested in, instead of be restrained within a rigid system, they will be able to pursue and develop skills in other areas (STEM for example) and enhance the attractiveness of our workforce.
Solutions?
These shortcomings are likely to motivate aspiring Vietnamese students to seek education abroad (like myself). According to the World Education News and Reviews, another push factor is the country’s accelerating demand for English language education, which is, as of now, not sufficiently addressed by the overburdened Vietnamese system, even though the government in 2016 directed public universities to introduce English as a second language of instruction. From my experience, increasingly more parents are sending their kids to private English centers to learn English and prepare for international examinations like IELST, SAT, TOEFL, so they can study in much more developed education systems like those in the U.S., Singapore, Australia, and European countries.
The government has pushed for education reforms with many more initiatives, which includes large-scale investments in applied, employment-geared training, requiring almost all higher education instructors to hold masters or doctoral degrees by 2020, expanding English-language education in Vietnam, and promoting transnational cooperation and exchange with countries like Australia, France, the U.S., Japan, and Germany. International education institutions also see Vietnam as an attractive market due to its high demand for international education. Hopefully
Back to our beloved Amazon, the government’s efforts in education reforms happen on much more general scale than technology, at least until this point. Schools that specialize in STEM like Ho Chi Minh City University of Technology (HUTECH), FPT University, and Hanoi University of Science and Technology are among the limited number of both education and R&D institutions that can produce technicians, engineers, programmers, and other skilled workers that will solve the labor shortage encountered by foreign companies like Samsung, Lazada, Intel, LG. These institutions are recently founded, HUTECH in 1995 and FPT in 2006, so they present a response to the high demand, but their quantity isn’t sufficient to produce enough quality employees that can beat the learning curve and get in pace with foreign employees. Therefore, the ongoing challenges that Vietnamese students and education system, in addition to the limited number of institution that can supply Amazon with a high quality labor force will be a challenge for the company as it enters Vietnam.
Let’s sum it up for Technological Aspect:
Environmental Aspect
Environment can be a bigger issue for certain industries, but for e-commerce the environmental footprint is less, so I won’t focus on this aspect.
Legal/Regulatory Aspect
They others include the regulations and laws with which companies must comply such as consumer laws, labor laws, antitrust laws, and occupational health and safety regulations. Of all of these laws, I want to highlight 2 laws that can represent the different legal environment Amazon will encounter in Vietnam. These are general to
According to PwC’s Doing Business in Vietnam 2017:
Local and foreign-invested companies doing business in the country are required by law to comply with Vietnam Accounting Standards (VAS) when recording their financial transactions. Foreign companies may choose to manage two accounting records: one based on the VAS and another compiled specifically for the overseas head office. In practice, many foreign companies maintain an accounting system according to VAS and only convert financial statements into the International Financial Reporting Standards (IFRS) on a quarterly basis for the foreign parent company’s reference.
In an effort to support the hiring of Vietnamese nationals, 30 days prior to recruiting a foreign employee, a company must determine the demand for foreign workers for every working position which Vietnamese are unable to hold, and send reports thereon to chairpersons of provincial-level People’s Committees where the head offices of the employers are located.
Annually, employers (except contractors) are required to report their use of foreign labor to the chairpersons of provincial-level People’s Committees. In the course of implementation, employers shall report any change, when arising, in their demand for foreign workers to the chairpersons of the provincial-level People’s Committees.
The two above are general, let’s going in-depth of those that will directly affect Amazon.
The Vietnamese government’s drafted legislation that requires foreign tech giants like Google, Facebook and Uber to set up offices and data servers in Vietnam will make Amazon rethink its strategy in Vietnam. I have Analyze this issue in the Technology section, but I would like to highlight it again because looking it from another perspective, not only Vietnamese consumers will benefit from the retail business, but I am sure enterprises will benefit from AWS as well. Among the legal factors, I believe this law will have the largest impact on Amazon, as of this point. It also depends on what types of products Amazon will be offering in this potential market.
The second legislation that will affect Amazon’s logistic division. Traffic jams happen every single day in Vietnam, and they intensify in metropolitan areas like Ho Chi Minh City and Hanoi. Therefore, in an effort to reduce congestions in a certain area, the government limits the operation hours of truck within certain cities. As per current regulations, trucks weighing over 2.5 metric tons are not allowed to travel on most streets in the inner city between 6:00 am and midnight. Mini trucks, weighing less than 2.5 metric tons, are banned from restricted areas during rush hours, from 6:00 am to 8:00 am and from 4:00 pm to 8:00 pm.
Retailers and logistic companies normally use mini trucks and vans for large items and scooters for small products inside Ho Chi Minh City. According to Tuoi Tre (Youth) News, the authorities are considering limiting the number of mini trucks allowed in downtown areas.The applicable areas are roads within the boundary formed by Nguyen Thi Minh Khai, Ton Duc Thang, Ham Nghi, Tran Hung Dao, Nguyen Thi Nghia, and Cach Mang Thang 8 Streets. According to the observation of Tuoi Tre (Youth) newspaper on October 1, many trucks weighing less than 2.5 metric tons currently travel on these streets. Most of the vehicles were carrying frozen foods, building materials, vegetables, and other types of consumer goods.
Nguyen Huu Dat, one mini truck driver, said that he had to deliver products to many customers on a daily basis, and banning the vehicle during the day would significantly affect his job.
Most of Dat’s clients, namely supermarkets, convenience stores, and electronics shops, require their goods shipped during the day, not at night, he stated.
The banned area displayed above (Districts 1 & 3) is the commercial downtown where most of the office buildings are located in. Therefore, although most of the goods sold on Amazon will not exceed the 2.5 metric tons and the upcoming mini truck ban will only be applicable for 2 downtown districts, this legal factor will impact Amazon’s plan for logistics.
The several examples above, along with the government regulations (FDI, Taxes) analyzed in the Political section have represented the major advantages/challenges Amazon will have in Vietnam.
PESTEL Conclusion
An overall assessment of opportunities and challenges for Amazon in Vietnam
Political Aspect
Economic Aspect
Social-cultural Aspect
Technological Aspect
Legal/Regulatory Aspect
Part 2: How Are Industry Rivals Positioned
An in-depth competitive analysis of 8 main competitor.
Part 3: How Strong Are the Industry’s Competitive Forces?
An analysis on Porter’s Five Forces of Competition. It includes the competitive forces of buyers, substitutes products, suppliers, new entrants, and competing sellers.
I combined Porter’s “The Five Competitive Forces That Shape Strategy” with the extra elements of each force in the book Essentials of Strategic Management by Gamble, Peteraf, and Thompson. Affilated link will lead to Amazon, you are very welcome Amazon :)
The Competitive Force of Buyer Bargaining Power
The buyer bargaining power is strong in this case because it is cheap to switch from Amazon to other sites, there is a high product variety and many sellers.
The Competitive Force of Substitute Products
The Competitive Force of Supplier Bargaining Power
The Competitive Force of Potential New Entrants
The Competitive Force of Rivalry Among Competing Sellers
Very Strong. This is because Amazon will compete with very strong competitors who have studied its successes and failures in the past 20 years and adapt them really well. In term of competitors, we don’t just think of
Part 4: What Are the Industry’s Driving Forces of Change, and What Impact Will They Have?
An analysis on the major underlying causes of change in Vietnam e-commerce and competitive conditions.
Part 5: How Are Industry Rivals Positioned
An in-depth competitive analysis of 8 main competitor.
Part 6: What Strategic Moves are Rivals Likely to Make Next?
Predicting potential moves of each competitor based on competitive analysis.
Part 7: What Are the Industry Key Success Factors?
Tied to Part 5, an analysis how competitive advantages that make Amazon’s potential competitors in Vietnam successful.
Part 8: Does the Industry Offer Good Prospects for Attractive Profits?
Is it worth it for Amazon to enter?
Part 9: Recommendations for a Market Entry
I don’t think it’s worth it, but what if Jeff does?
I would really focus on the last mile “experience”. That’s how you build trust, then cite example of Starbuck scaling from neighborhood coffee shop, insurance for employees’ parents, and AirBnb 9 scale experience.
Page 184–5: A customer might place an order for a half a dozen products, and the company’s software would quickly examine factors like the address of the customer, the location of the merchandise in the FCs, and the cutoff times for shipping at the various facilities around the country. Amazon’s ability to ship products efficiently and office precise delivery times to customer gave the company a competitive edge over its rivals. But the thing is, since Amazon nailed this process, everyone learned from it, and so since Tiki can deliver in 2 hours for a dollar extra, Lazada can do the same, and since the competition has set a high standard on price and delivery, the only niche factor that will differentiate and bring competitive advantage for Amazon is the last mile experience, not delivery, anyone now can do that, it’s the last mile experience.
From the analysis in the Social-cultural section above, we can see that the number one reason why Vietnamese aren’t using credit cards is trust issue, the number one reason why Vietnamese aren’t used to online shopping yet is trust issue. When Lazada is has … marketshare, Tiki gets backed from Amazon’s biggest competitor in China JD.com, Central Group, Mobile World Group, and Vincom get into the play, there is no doubt Amazon will have a very hard time in Vietnam. So let’s solve the trust issue that preventing Vietnamese from shopping online and use it to leverage and get some market share for Amazon in Vietnam. My proposed solution: train the heck out of the delivery man. We all know that Amazon is the most customer-centric company on earth, and I love how it’s done through great pricing, added on services to prime, and delivery speed. But as a Vietnamese who grew up living houses that share walls with our neighbors, going to the same neighborhood “bodegas” for 18 years, and love small businesses, I think Amazon can really reversely scale its worldwide operation to neighborhood “bodega” customer service in Vietnam. Let me explain.
Collectivism bonds people, it’s a concept, and also an definition of a community, it’s trust, it’s familiarity, and that’s how it’s work here in Vietnam. People trust others within their circle, and that’s translate to how people do business.
Let’s get sentimental about this. Many Vietnamese shop at the local farmer market, it’s convenient, relatively cheaper than supermarkets, and they know who they are buying goods from. For years my mom has always gone to the same fruit vendor, the same meat vendor, the same seafood vendor to buy things because she has been buying from them for years. The goods might change, the service might change, the duck seller might introduce a new “feature” buy offering to skin the duck for free and tell my mom she can just shop for other things and come back in 20 minutes and her washed and skin duck will be ready. The price might change, the products might change, but the trust (stemmed from existing services, and the innovative features people think of) is still there. It’s face-to-face, it’s the smiles, the questions: “How’s your kid doing?”, “Are you going back to your hometown for Lunar New Year?”. Sometimes my mom, and many others, will give the food vendors clothings for their kids, sometimes the vendors will give a couple extra oranges to say thank you. It’s beautiful, and I love it. I just don’t see it in the supermarket, and I don’t see it in e-commerce, I don’t see it in Amazon. One might argue that these things don’t scale. Yes, it doesn’t scale, but sometimes, to make something scale you have to do things that don’t scale. Many people didn’t think Amazon Prime would scale in the first place? Why? Money. Many people didn’t think that AirBnb founders Brian Chesky and Joe Gebbia should commute weekly from San Francisco and NYC to talk to the first AirBnb hosts? Why? It doesn’t scale. But when people are obsessed with Amazon Prime, and one of the first AirBnb host gave the cofounders his notes and suggestions which became the road map for the company, both Amazon and AirBnb scaled.
So my point here is, many Vietnamese haven’t trusted e-commerce because there isn’t a connection between the sellers and buyers like they are accustomed to. You click a couple buttons, get a confirmation, get a call, pay, and that’s it. No smile, no conversations, no connection.
How can we change that?
I assume that Amazon would have its own logistic division, which has delivery staffs on scooters instead of outsourcing the service to delivery companies like it does to USPS, UPS in the States.
So Jeff, the managers, the employees from different departments, me, really hopefully as a Business Analyst Intern at Amazon this summer, we all work hard to get the products to the customers, but the only, single person who represents Amazon to build the connection, to really interact with the customers, is the delivery staff. S/he represents the 700 billion dollar company and 500,000 employees worldwide who try to sell a t-shirt to a stay-at-home. S/he will be the last puzzle to connect Amazon and my mom, my family, my friends, and million of Vietnamese who have yet to trust e-commerce. From spending the past 7 months reading everything about the everything store. I know Jeff would leave an empty chair in every meeting to represent the customer (or at least that’s what Brad Stone wrote), but in Vietnam there should be a chair for the customer, and an extra chair for the delivery staff who will smile, talk, nurture the connection, and help Amazon scale.
Living in America for 5 years, one observation that intrigued me to write the last paragraph and to propose this next solution. It’s weird, but it will make sense. I notice how dogs would greet mail men and mail women as they were the house owners. Then I realized that since mail services are regional, and Amazon can potentially arrange its logistics so that the delivery staffs can deliver to a certain number of districts, and build the relationship with customers there.
Overall, price, product offerings, product quality, and delivery speed have reached a certain standard that it’s hard to stand out. Customer service will be an interesting frontier to explore, and I think Amazon can succeed in Vietnam if it can connect with the customers. We have to bring the online to the offline.
I love podcast, and my top 4 favorites are Success: How I Did It, The Tim Ferris Show, Reid Hoffman’s Masters of Scale, and the GaryVee Audio Experience. They really changed the way I live and how I think. Yesterday I listen to AirBnb’s Brian Chesky’s talk with LinkedIn cofounder Reid Hoffman about his customer experience principles. It went something like this:
If you want to build a massive successful company you have to build something that people love. The only way to make something that people love is to give them a “mind-fuck” experience when using your product. 5 stars is simply not enough.
Brian Chesky says: At Airbnb, we strive to have our customers contact the company and demand a 6th star be added to our 5 star review because the experience was so good.
AirBnb has a 10-star scale:
- 5 Stars: Knock on the door, they open, and let you in. Standard.
- 6 Stars: Knock on the door, host welcomes you, on the table there is a bottle of wine, fridge has water, and there are toiletries in the bathroom.
- 7 Stars: Knock on the door. There’s a fully stocked kitchen. The host made your surfboard lessons and a surfboard because he knows you like to surf. He lets you borrow his car, and got you a table at a fancy restaurant.
- 8 Stars: You land at the airport and there is a limousine waiting to take you to the apartment. The limousine knows all your preferences and is stocked with food and drinks.
- 9 Stars: You show up at the airport and there is a parade in your honor. There is an elephant there that you ride along with the parade to your apartment.
- 10 Stars: When you get off the plane there are 5,000 high school students cheering your name. When you get to the front yard you give a press conference announcing your arrival. This is the Beatles check in.
While AirBnb has the hosts to represent the company, Uber has the drivers, Trader Joe’s has the cashiers, Amazon has the delivery staffs. I want to draft an experience that will get people “mind fucked” and tell everyone to buy from Amazon instead of Tiki or Lazada. This will be in a stage process, which means the district delivery man gets to know me the more we interact.
- Stage 1 | 5 Stars: Delivery man calls before he gets to my house, I pick up, he asks if I am Hung “William” Mai, and if I will be home in the next half hour. He comes, rings the bell, and doesn’t take of his facial mask or helmet, greets, give me the box, and I pay, get change, and he says ‘Thank you’, and takes off. Standard.
- Stage 2 | 6 Stars: Delivery man calls before he gets to my house, I pick up ,he greets me with my first name, say that his name is An, he delivered last Tuesday, and if I will be home in the next half hour. He comes, rings the bell, greets, asks how I am doing, hands me the box, and I pay, get change, and he says ‘Thank you very much, have a good day!”, and takes off.
- Stage 3 | 7 Stars: An calls before he gets to my house, I pick up ,he says : “Hello Hung, how are you doing man, this is An from Amazon, I delivered last Tuesday and Sunday, I have a package for you here, will the next half hour good for delivery?” He comes, doesn’t rings the bell, shouts my name like everyone does in my neighborhood, a local friendly thing to do. He greets me with the biggest smile ever, we shake hand, he asks how I am doing, how’s school going, if Jeff and other folks at Amazon have read this analysis, whether they have offered me a Business Analyst Internship in Seattle this summer. He hands me the box, I pay, get the change back, and he smiles, shakes hand, says ‘Thanks man, the number I used to I called you half an hour ago is mine, so give me a text if there’s anything wrong with the product. I will come and grab it. Thanks Hung.” We shake hands, smile, and he takes off.
- 8 Stars: An calls before he gets to my house, I pick up ,he says : “Yo wassup man, I have your package here, will you be home in the next half hour? Oh you’re not? All good, I can swing my on my way home from work around 5PM. I will make sure you will get the stuffs today man. See you then.” He comes early at 4:50PM, stands outside patiently waiting, doesn’t rings the bell, shouts my name like everyone does in my neighborhood. He will greet me with the biggest smile ever, we shake hands, he asks how I am doing, apologizes for couldn’t get me the package earlier. We chat for 15 minutes about work and life. He will hand me the box, and I pay, get the change back, and he smiles, shakes hand, says ‘Thanks man, I delivery from 9–5, but I want to provide the best customer services possible, Customer Obsession is Amazon’s first in 14 principles you know, so anytime you are not home, let me know and I will try my best to get it to you, just give me a text.” He says ‘Thank you very much, have a good day! I hope you like what you have ordered today. I told the warehouse people to grab them from the shelves quickly and handle them carefully. Let me know if you enjoy it, and don’t forget to leave a review online so others can see as well. Thanks man! Great to see you.”, and takes off.
- 9 Stars: An sends me a snap that says: “Got ‘em! Wassup man. Will 5PM like last Wednesday do or 10AM like last Sunday or 3PM last Tuesday do?”. I reply with a selfie and a line of text “Hardly working, but 5 will do!”
- 10 Stars: When you get off the plane there are 5,000 high school students cheering your name. When you get to the front yard you give a press conference announcing your arrival. This is the Beatles check in.
The second recommendation would be an investment in Media. I don’t know Jeff’s motive in investing into Business Insider, but I am a sucker for it. I believe that having Infotainment sites like Buzzfeed and Business Insider will help Amazon market itself really well.
Vietnam has the most stem students, according BCG. put interview here
