HANOI -- Young entrepreneurs and seasoned executives alike are setting up e-commerce businesses in Vietnam. But before the anticipated explosion in the market can happen, these pioneers need to overcome several obstacles.
When Thanh Tam's local bookstore did not have the memoir she was looking for, she ordered it from Tiki.vn, a website her Facebook friend recommended.
"Buying from Tiki was very nice," said Tam, who works in the office of an industrial manufacturing company. "Instead of spending a lot of time going to the bookstore, I could sit at my desk and click 'buy.' And I liked the customer service."
Tran Son created Tiki.vn in 2010 after he returned from graduate school in Australia and had been frustrated with how difficult it was to find books in Vietnam, which had no local equivalent of Amazon.com. The name, a play on words in Vietnamese, is shorthand for the site's mission: search (timkiem) and save (tietkiem).
"You'd go around dozens of stores and come back empty-handed because the book you want wasn't there," Son said. "So I quit my job and used my savings to build the website. We didn't have money for advertising, so we just relied on word of mouth, both online and offline."
Tiki.vn received funding from the Japanese online advertising firm CyberAgent Ventures in 2012. The following year, the Japanese conglomerate Sumitomo Corp. took a 30% stake in the company, its first investment in Vietnamese e-commerce. When U.S. Secretary of State John Kerry came to Vietnam last December, he paid visits to the offices of Tiki.vn alongside Intel and Microsoft.
"When we invested in Tiki in 2012, they only got 1,000 orders per month," said Dzung Nguyen, the head of Vietnam and Thailand for CyberAgent Ventures. "Now they get 50,000. That shows you how fast e-commerce is growing."
Vietnam's young, tech-savvy population is making e-commerce an increasingly lucrative area. E-commerce sales totaled $700 million in 2012, and are likely to reach $1.3 billion by 2015, according to the Vietnam E-Commerce and Information Technology Agency. While this seems small in comparison with China and Japan, where annual transactions easily top $100 billion, it is impressive growth for this country, where most of the 90 million people still shop at trusted neighborhood vendors and family-run stores.
"Internet connectivity is high -- 61% of the country is under the age of 35, 56% is under 30. E-commerce is really taking hold," said Don Phan, former managing director of Rocket Internet Vietnam and founder of Taembe.vn, a local adaptation of Diapers.com of the U.S., a baby products online shopping site.
Rocket Internet is a German startup incubator that takes successful ventures from developed countries and reproduces them in emerging markets. It has found big opportunities in Vietnam, where it runs six companies, including fashion site Zalora and Lazada, Southeast Asia's largest online retailer, which has so far raised nearly $500 million in funding.
"Rocket has identified two megatrends: emerging market growth and e-commerce. If you put those together, you have billion-dollar companies," Phan said.
Vingroup, Vietnam's largest property developer with revenue of $850 million in 2013, has set up a new e-commerce unit called VinE-co that aims to challenge online marketplaces backed by eBay and Alibaba as well as dozens of homegrown retailers.
Bricks over clicks
The popularity of e-commerce in Vietnam has grown despite the country's online payment network lagging far behind other Asian countries. In 2012, only 11.8% of e-commerce transactions were conducted using non-cash means. Surprisingly, most people only consider this a minor hindrance.
"People are always talking about online payment, but I don't see it as a big issue," CyberAgent's Nguyen said. "When people want to buy something, they will try to pay in whatever way they can. Even in developed countries like Japan, around 40% of transactions are still cash on delivery."
Getting goods to consumers represents a more considerable obstacle, as does attracting investment.
"The biggest challenge for e-commerce is definitely logistics," Tiki.vn founder Son said. "The infrastructure in Vietnam is still immature compared to developed countries. If you want to do B2C, you have to set up your own warehouse, payment process and even delivery fleet. At the beginning, my warehouse was my garage."
Nguyen Ngoc Diep, CEO and founder of Vatgia.com thinks shopping habits in Vietnam still have to change. Vatgia.com was founded in 2005 as one of the country's first e-commerce sites. It now gets 1.2 million unique visitors per day. However, barely 2% make purchases online. Most visitors prefer to buy products from the company's 20 physical stores across the country. Vatgia.com plans to have 500 stores within a few years.
"The future of business is online, but changing people's habits takes time. Vietnamese people don't have experience with e-commerce. They don't believe in the quality of products until they touch them," he said. "After they have a good experience in the store, they will buy things online."