Vietnam is one of the fastest-growing e-commerce markets in Southeast Asia, with an annual growth rate of over 30%. Cross-border e-commerce is becoming a new trend and attracts many micro,small and medium enterprises (“MSMEs”) in Vietnam. Cross-border e-commerce opens up new opportunities for MSMEs to access global markets, diversify their customer base and promote import and export activities in Vietnam. However, besides many promising opportunities, MSMEs also face many problems and challenges when conducting business activities under this model.
What is cross-border e-commerce?
Cross-border e-commerce is a global model of online buying and selling of products and services via online e-commerce markets. Transactions on these markets can be B2B (Business to Business), B2C (Business to Consumer) or C2C (Consumer to Consumer). Buyers in this model search and look up information about products and sellers on e-commerce sites and the internet, then place orders and make payments for their orders.
These activities of buying and selling of products and services are conducted through e-commerce channels, which are platforms that helps reducing costs in coordinating transactions between buyers and sellers, as well as serving a part of or all processes and activities of buying and selling of products and services (which may or may not include payment services). Cross-border e-commerce currently has 04 primary channels: Website, Application, E-commerce Trading floor, and social media channels of product and service providers and intermediaries.
Some of prominent cross-border e-commerce platforms are Amazon, eBay, Alibaba, Etsy, Lazada, Shopee, and so on.
Growing opportunities for MSMEs in Vietnam
According to the newly released Vietnam E-Commerce Report 2023 of Vietnam’s Department of E-Commerce and Digital Economy, e-commerce in 2022 continues to be one of the bright spots in digital economic development with a strong growth rate (20%), and retail e-commerce (B2C) revenue reached USD 16.4 billion, accounting for 7.5% of total retail consumer goods and services revenue in the country. This figure is predicted to reach USD 20.5 billion in 2023, representing a USD 04 billion rise, or a 25% increase over the previous year.
According to a new report from Access Partnership (UK), retail export turnover from businesses to consumers (B2C) via e-commerce in Vietnam will reach USD 3.5 billion in 2022 (about VND 80,700 billion). The aforesaid value represents around 1% of overall export turnover in 2022.
Based on recent export patterns and the current rate at which businesses are adopting e-commerce, it is estimated that e-commerce export earnings in Vietnam might reach USD 5.5 billion (124,200 billion Dong) by 2027, with a 9% annual growth rate.
The main drivers of this growth are the increasing availability of international e-commerce platforms, the improvement of logistics and payment infrastructure, and the rising consumer confidence in online transactions. Some of the most popular product categories for cross-border e-commerce in Vietnam are fashion, beauty, electronics, health and wellness, and home and living.
In addition, in order to encourage and create opportunities for MSMEs to access international markets and seek global business partners, the Vietnamese Government has issued many policies such as the Law on Provision of Assistance for Small and Medium Enterprises (2017); Decree No. 80/2021/ND-CP on elaboration of some articles of the Law on Provision of Assistance for Small and Medium Enterprises; Law on E-transactions (2005); Decree No. 52/2013/ND-CP on e-commerce; Decree No. 72/2013/ND-CP on the management, provision, and use of Internet services and online information; Law on Cyber Security (2018); Decision No. 431/QD-TTg dated 27 March 2020 of the Prime Minister on Approving the Scheme for management of cross-border e-commerce; Decision No. 645/QD-TTg dated 15 May 2020 of the Prime Minister on Approval of national electronic commerce development master plan for the period 2021 – 2025; Decision No. 1415/QD-TTg dated 14 November 2022 of the Prime Minister on Approving the Scheme “Encouraging Vietnamese enterprises in directly participating in foreign distribution networks by 2030”, and so on.
Decree No. 80/2021/ND-CP, in particular, provides specific rates of state support to enterprises that adopt digital transformation solutions or participate in sales on major e-commerce platforms. Namely, the support covers 50% of the cost of launching and operating stores on domestic and foreign e-commerce platforms.
Decision No. 645/QD-TTg dated 15 May 2020 of the Prime Minister on Approval of national electronic commerce development master plan for the period 2021 – 2025 provides many solutions such as human resource development, e-commerce training for businesses, solutions to support businesses in digital transformation, opening websites, participating in e-commerce platforms or annual e-commerce programs to stimulate market demand, to expand the cross-border sales market through e-commerce, as well as create opportunities for businesses to demonstrate their industry, exchange information, experience and skills.
Decision No. 1415/QD-TTg dated 14 November 2022 of the Prime Minister on Approving the Scheme “Encouraging Vietnamese enterprises in directly participating in foreign distribution networks by 2030” with the core purpose is to support training and consulting to improve enterprises’ competitiveness, as well as to build capacity to participate in cross-border e-commerce, thereby encouraging Vietnamese firms to strongly participate in global production, supply, and distribution chains of commodities, exporting directly to foreign distribution networks on the basis of promoting strengths and maximizing competitive advantages of Vietnam’s exported goods.
Challenges that Vietnamese MSMEs are facing
Regulatory
These are the rules and fees that apply to the import and export of goods and services across different countries. For example, MSMEs may need to comply with various technical standards, such as safety, quality, labeling, packaging, etc., that differ from their domestic market. They may also need to pay tariffs, duties, taxes, and other charges that increase the cost of their products. Additionally, they may need to prepare and submit various documents, such as invoices, certificates of origin, customs declarations, etc., that require time and resources.
Linguistic and cultural barriers: These are the differences in language, culture, and consumer behavior that affect the communication and marketing of MSMEs in foreign markets. For example, MSMEs may need to translate their website content, product descriptions, customer service, etc., into different languages. They may also need to adapt their products, prices, promotions, etc., to suit the local preferences and expectations of their target customers. Furthermore, they may need to deal with different legal and ethical norms, such as intellectual property rights, consumer protection, data privacy, etc., that vary across countries.
Logistics and delivery barriers: These are the challenges related to the transportation and distribution of goods and services across borders. For example, MSMEs may need to find reliable and affordable logistics providers that can handle cross-border shipments, insurance, warehousing, tracking, etc. . They may also need to manage the delivery time, quality, and cost of their products . Moreover, they may need to deal with the issues of returns and exchanges, such as customer satisfaction, reverse logistics, refunds, etc. .
Payment and taxation barriers: These are the difficulties associated with the payment and taxation of cross-border transactions. For example, MSMEs may need to offer various payment methods that are convenient and secure for their customers . They may also need to handle currency conversion and exchange rate fluctuations that affect their profitability . Additionally, they may need to comply with different tax regimes and regulations that apply to their cross-border sales . Furthermore, they may need to avoid hidden costs for their customers, such as additional fees or taxes that are charged upon delivery .
In conclusion, cross-border e-commerce is a promising channel for Vietnamese exporters to expand their business and reach new customers. However, it also requires careful planning and preparation to overcome the challenges and risks involved. By following the government’s guidance, partnering with reliable logistics providers, and understanding the preferences and expectations of foreign buyers, Vietnamese exporters can succeed in cross-border e-commerce and contribute to the development of Vietnam’s digital economy.