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Vietnam is poised for the next level of Social Commerce

  • Vietnam is a promising market for social commerce in Southeast Asia, with social commerce taking up more than half of its e-commerce sector1.
  • In Q1 2022, a total $13.7M in funding into Vietnamese social commerce startups was announced2, indicating a sectoral expanding and changing competitive dynamics.
  • Reseller efficiency and optimization are the current focus of social commerce innovations because of the central role that resellers play in the majority of social commerce transactions.
  • Establishing an asset-light and capital-efficient model is one of several keys to success in an increasingly competitive space.

Social commerce, a subset of e-commerce that refers to the process of buying and selling goods or services directly within social media platforms, is not new. In Vietnam, long before traditional e-commerce established a foothold with tech-savvy consumers, commerce activities largely took place on major social media platforms such as Facebook, Instagram, and Zalo. Serving both big-city shoppers and the majority of the population who live outside of core urban centers, social commerce made up about 65% of Vietnam’s $22B e-commerce3 in 2020, representing the highest rate in Southeast Asia according to Bain & Co.

While traditional e-commerce has grown significantly and received notable investment over the last few years, only within the last 2 years has a generation of startups begun harnessing the untapped potential of Vietnam’s social commerce playing field.

What makes Vietnam an ideal launchpad for social commerce startups?

Historically, Southeast Asia has been seen as a natural incubator for social commerce startups due to the region’s large and fast-growing number of social media users. Compared to the regional rate of 44%, Vietnam’s social commerce accounted for 65% of its e-commerce market size4, leading the region and representing a significant opportunity for businesses. The country is a large market for social media, with almost 77 million active social media users out of its 99 million population as of February 2022. On average, Vietnamese internet users spend ~2.5 hours per day on social media, with Facebook being the most used social media platform, accounting for 93.8% of the number of internet users aged 14 to 64, followed by Zalo (91.3%), Tiktok (75.6%), and Instagram (59.7%)5.  

Geographic and regional dynamics also play an important role. Only about 20% of the Vietnam population lives in large cities, and conventional e-commerce is primarily targeted at these consumers. The failure of e-commerce platforms to effectively penetrate regions outside of Vietnam’s larger cities means there is a large, underserved market in the rural areas where social commerce has an advantage. 

It is not just the market size that makes Vietnam an ideal place. According to AVV’s GP Eddie Thai, the unique social and consumer behaviors of Vietnamese people are also key factors.

“Commerce in Vietnam has long been quite social. Digitized social commerce is simply a natural evolution of that pre-existing behavior”, said Thai. “Consumer research even before social media platforms became popular in Vietnam showed how Vietnamese people overwhelmingly rely on recommendations from friends and family about products & services. That’s why, despite the success of Tiki, Shopee, and Lazada in building large conventional e-commerce businesses and marketplaces, a large portion of e-commerce in Vietnam is still happening as “low-fidelity” social commerce on Facebook pages or in Zalo chat groups”. 

Resellers-focused startups are the Rising Stars of social commerce innovations

Currently, startups are capitalizing on the existing social commerce behaviors through 3 different business models: content social commerce; reseller-led social commerce; and social group buying. Reseller-led solutions (ex. Selly, On, and Mandu) are growing as a popular business model in Vietnam because of the central role that resellers play in the majority of social commerce transactions. For brands and wholesalers, resellers are cost-effective customer acquisition and distribution channels. For customers, resellers provide a convenient and personalized shopping experience, better prices, and purchase options. 

Despite their vital role in driving social commerce growth, online resellers face numerous hurdles that hinder even the best performers from achieving scale. Thao Nguyen, AVV’s Senior Investment Manager shares, “[They] manage a complex, multi-step process that requires sourcing products from different suppliers, then introducing and selling products to customers, providing logistics for orders, as well as after-sales support.” These nuances and the need for working capital make it challenging for online resellers to scale their businesses. 

This presents an opportunity for startups to address significant pain points for resellers. For example, Mandu has an ecosystem for professional resellers and provides everything they need to sell online (from product sourcing, marketing content creating, to warehousing, fulfillment & logistics) without requiring resellers to buy inventory. This helps remove the need for heavy working capital and thus empowers resellers to scale their business faster and more efficiently.

Three out of the four companies that raised funding in Q1 20226 have reseller-focused business models. The economic impact of reseller startups is profound because they make entrepreneurship accessible for everyone, especially for those who are easily affected by economic fluctuations and thus need them the most: the homemakers, the unemployed, and office workers looking for an extra source of income. 

The challenge is executing the right strategy and profitability 

In a highly competitive market choosing the right strategy is the difference between success and failure. 

Thai comments, “Most current social commerce players in Vietnam are focusing on groceries and perhaps FMCG. These are small basket size, low-margin product categories. It seems likely to me that at least grocery-focused social commerce will be a tough battle in the coming few years. The challenge ahead is to build a true competitive moat while bleeding heavily.” Nguyen underlines that asset-light and capital-efficient models based are ways to scale while maintaining healthy unit economics. For example, a company that engages and retains quality resellers, sells a diverse selection of products sourced directly from brands, and does not need to pay for inventory can achieve scale and profitability. These are key considerations for building winning competitive strategies. 

Vietnamese social commerce startups are still at an early stage and no single player has won a significant market share. The influx of funding to several social commerce companies in Q1 alone is an indicator of an expanding sector and changing competitive dynamics. Increased investments and fierce competition, combined with the innate characteristics of Vietnam’s social commerce market could mean that the next big Vietnamese company will evolve from this space. Companies that can effectively seize Vietnam’s social commerce opportunity have the potential to command a lion’s share of digital economy/digital commerce. 

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1,3,4 Prim Chuwiruch, Facebook Chats Power a New $48 Billion Market in Social Commerce, Bloomberg, 2021

2 Mio, Selly, On, and Aemi respectively netted $8M, $2.6M, $2M, and $1.1M funding in Q1/2022

5 We are social & Hootsuite, Digital 2022: Vietnam, 2022

6 Selly, On, and Aemi completed financings in Q1/2022 and are reseller-focused. Mio also raised and is a social group buying platform