The recent entry of the Chinese online giant Temu into the Vietnamese e-commerce market in late 2024 has drawn significant attention and legal scrutiny. The Vietnam e-commerce landscape is witnessing rapid growth, establishing the country as a key player in Southeast Asia’s digital economy. The heightened interest from local authorities, due to various legal challenges faced by Temu, reflects the complexities and regulatory landscape that international platforms must navigate. Temu’s journey in Vietnam is a fascinating example of the balancing act that foreign e-commerce entities must perform to gain traction while adhering to local regulations.
Temu’s Operational Model and Regulatory Scrutiny
Temu, a platform launched by Pinduoduo, has quickly captured the interest of Vietnamese shoppers with its competitive discounts, fast delivery, and effective affiliate programs. Temu’s operational model stands out in the market; it connects Vietnamese consumers directly with Chinese manufacturers through a direct-to-consumer (D2C) strategy. By cutting out intermediaries, Temu offers low-cost goods, which significantly lower prices and thus appeal to cost-conscious consumers in Vietnam. This model has proven successful in rapidly growing its user base and achieving impressive sales figures.
Temu has strategically partnered with logistics players like Ninja Van and Best Express to leverage the proximity between Guangzhou province and Vietnam, allowing for shorter shipping times of approximately 4-7 days. The launch of Temu was marked by high visibility through frequent flash sales and daily deals, with discounts reaching up to 80 percent off. Furthermore, Temu’s referral programs have incentivized users to invite friends, thereby expanding their user base and offering savings to existing customers. Despite this successful entry into the market, Temu faced significant regulatory scrutiny in Vietnam. The primary issues include non-compliance with local regulations, potential tax evasion, and unfair competition concerns. Temu launched in late September but officially registered its operations only on October 24, which potentially violated Decree 52/2013 mandating foreign e-commerce entities to comply with local regulations. Additionally, Temu’s aggressive discount strategy may conflict with Article 6 of Decree 81/2018/ND-CP, limiting promotional values to 50 percent of a product’s sale value.
Temu’s minimum purchase requirement of US$35-US$40 appears to be a strategy to cover shipping costs while avoiding import tax regulations. Despite initiating sales in early September, Temu reported no revenue in Vietnam for Q3 2024, raising suspicions of possible financial discrepancies. Moreover, Temu’s aggressive pricing strategies, offering goods at deeply discounted prices, often subsidized to attract customers, could potentially undermine local competitors. This strategy may lead to market instability and disadvantage existing companies unable to sustain prolonged price wars. These regulatory challenges highlight the Vietnamese government’s proactive efforts to ensure fair competition and compliance among foreign and local e-commerce players, emphasizing the importance of transparency and adherence to the law.
Vietnam’s Booming E-Commerce Landscape
Vietnam has shown remarkable growth in its e-commerce sector, emerging as one of the fastest-growing markets in Southeast Asia. According to Momentum Work, the total gross merchandise value (GMV) of the top eight e-commerce platforms stood at US$13.8 billion in 2023, a substantial 52.9 percent increase from the previous year. This rapid expansion positioned Vietnam ahead of the Philippines as the third-largest e-commerce market in the region. The country’s e-commerce activities are concentrated mainly in Ho Chi Minh City and Hanoi, owing to their strategic locations and supportive infrastructure. These urban centers have attracted significant investments in logistics and warehousing, contributing to the impressive growth of the sector.
However, despite this impressive growth, e-commerce accounts for only 8 percent of Vietnam’s total retail sales, indicating that there is substantial scope for further expansion. Several factors are fueling this growth, including internet and smartphone penetration, rising online shopping trends, and evolving consumer behavior. Vietnam’s internet economy benefits from a growing number of internet users, with 78.44 million users reported as of early 2024, representing 79.1 percent of the population. High levels of digital engagement, with users spending over 6 hours daily online, are significantly contributing to the shift towards online shopping. The number of online shoppers in Vietnam has grown exponentially, from 18.5 million in 2013 to 61 million in 2023, reflecting a 12.69 percent increase.
This surge is being driven by the widespread adoption of smartphones and continuous improvements in digital infrastructure, leading to higher frequencies of online shopping and a rise in average consumer expenditure. In 2023, the average Vietnamese consumer spent US$336 on online shopping, with major urban households allocating about one-fifth of their income to online purchases. On average, Vietnamese digital consumers use 3.2 different platforms for online shopping, indicating a preference for a multi-platform approach rather than loyalty to a single platform. This growing trend showcases the dynamism and potential of Vietnam’s e-commerce market, which continues to attract both local and international investors.
Dominant E-Commerce Platforms
Vietnam’s e-commerce market is highly competitive, dominated by both foreign and local key players. The top five platforms in the market are Shopee, TikTok Shop, Lazada, Tiki, and Sendo. Foreign players hold the majority market share, with Shopee leading the pack with over 60 percent. TikTok Shop, although a recent entrant launched in 2022, quickly secured the second position with a 23.2 percent market share. Conversely, traditional platforms like Lazada, Tiki, and Sendo have experienced negative growth in recent times.
Shopee, originating from Singapore and backed by Tencent, dominates the market with a 67.9 percent share. This platform has experienced a substantial 65.97 percent growth in both sales and product offerings in the first half of 2024. Popular categories on Shopee include fashion, beauty care, and toys. TikTok Shop, with its origins in China, has rapidly penetrated the market, showing an impressive 150.54 percent sales growth and 242 percent product growth in the first half of 2024. The major categories on TikTok Shop include beauty care products, women’s fashion, and grocery items, indicating a strong appeal to a wide range of Vietnamese consumers.
Lazada, another platform from Singapore and owned by Alibaba, holds a 7.6 percent market share but has faced significant declines, with a 43.81 percent decrease in sales and 37.12 percent decline in product offerings. Similarly, Vietnamese platforms Tiki and Sendo, supported by JD.com and FPT respectively, hold relatively smaller market shares and have also experienced notable declines. These trends highlight the challenges faced by local players in competing against international giants with substantial resources and aggressive market strategies.
Strategic Considerations for E-Commerce Players
Prospective e-commerce entrants into Vietnam must adopt strategic approaches to maximize potential while ensuring compliance with local regulations. Ensuring adherence to local laws is crucial, including proper business registration and compliance with operational regulations even for cross-border trading. Regulatory compliance is not just a legal necessity but a trust-building measure with consumers and governmental authorities. Competitive pricing is essential in Vietnam’s price-sensitive market. Businesses must carefully craft pricing strategies that align with local laws to maintain fair market practices while appealing to the cost-conscious consumer base. Avoiding aggressive discounting that could contravene local promotional limits is critical to sustain a fair competitive environment.
Firms should continuously monitor and adapt to dynamic market conditions and evolving consumer preferences. This adaptability is key in a market as dynamic as Vietnam’s, where consumer trends and preferences can shift rapidly. Prioritizing research and development (R&D) is vital for businesses to stay competitive. Investments in product quality, after-sales service, and logistics improvements can significantly enhance consumer experiences and trust. Establishing local warehousing, promoting free shipping, and leveraging the strength of Vietnamese brands are strategic moves that can help rebuild consumer trust and loyalty.
Conclusion
The recent entry of the Chinese online giant Temu into the Vietnamese e-commerce market in late 2024 has garnered a lot of attention and legal examination. The e-commerce sector in Vietnam is expanding rapidly, positioning the country as a crucial player in Southeast Asia’s digital economy. This rise has triggered interest from local authorities, particularly due to the various legal challenges Temu faces. This situation highlights the complex regulatory framework that international platforms must navigate to successfully operate in foreign markets.
Temu’s venture into Vietnam serves as a compelling case study of the balancing act foreign e-commerce companies must manage. On one hand, they must attract customers and achieve business goals, and on the other hand, they need to comply with local regulations. This dual challenge showcases the dynamic and evolving nature of the e-commerce landscape in Vietnam.
Vietnam’s digital economy is becoming increasingly significant, drawing the attention of major international players like Temu. As Temu strives to establish itself in a competitive market, it must also address the stringent regulatory standards set forth by the Vietnamese government. This combination of rapid market growth and regulatory challenges exemplifies the hurdles that global e-commerce entities often face when entering new markets. For those looking at Vietnam as a potential market, Temu’s experience underscores the importance of understanding and adapting to local laws and consumer expectations.
