Vietnam is one of the most efficient power market in Southeast Asia, driven by low-cost resources such as hydro and coal. The country has achieved almost 99 percent electrification with relatively low cost in comparison to neighboring countries, leading it to be a net energy exporter. With energy demand projected to increase by more than 10 percent annually in the next five years and required power capacity to double; the government is moving forward to develop the renewable energy sources to ensure energy security and addressing the growing power demand.
Vietnam is aiming to move towards a 90 percent cashless economy by 2020 by reducing cash transactions and increasing electronic payments. With 90 percent of current transactions conducted in cash and only 30 percent of citizens having a bank account, the government faces an uphill task to achieve its goals. Nonetheless, recent regulatory reforms and emergence of private players in the last few years have been encouraging towards creating a sustainable digital payments market. In this article, we will look at the current state of the cash based economy, rise of fintech solutions, government cashless policies, rising internet penetration, and what the government needs to do to ensure the transition.
By: Chau Pham
Offering a low-cost production hub and a young workforce, Vietnam is quickly becoming the best alternative to China for investors across Asia. Attracting more and more investments every year, the demand for power in Vietnam is also rising rapidly. In order to encourage the development of solar power facilities, an alternative power source thought to help Vietnam reduce its reliance on coal-fired power and deal with environmental concerns, Decision No. 11/2017/QD-TTg (“Decision 11”) was signed on April 11, 2017 to support the development of solar power projects. It officially entered into force on June 1, 2017.
By: Trang Le
E-commerce in Vietnam is not a new concept as it was 5 years ago. The market has witnessed the entrance of many large players in recent years, with lotte.vn and aeoneshop.com joining in early 2017 alone. Boasting a projected annual growth rate of 30 percent over the next five years, the e-commerce sector is expected to reach US$10 billion by the early 2020s. Yet, e-commerce extends beyond sales and slick web design.
The speeded of product delivery is increasingly important as is the quality for both customers and merchants. As the market continues to grow, it becomes increasingly clear that the long-term prospects of Vietnamese e-commerce lie in the development of a good logistics system to facilitate the sector. At present, the major challenge is that companies involved in e-commerce cannot handle logistics alone. As a result, outsourcing e-commerce logistics functions to third-party logistics providers (3PLs) is an increasingly important trend.
According to the Vietnam Logistics Business Association (VLBA), logistics in Vietnam accounts for 20 to 25 percent of GDP with the sector projected to grow by roughly 12 percent per year in the near future. The high growth of the e-commerce industry offers more opportunities for logistics companies to tap into the market’s potential. In particular, express delivery and logistics services targeting e-commerce are fertile ground for investment.
In recent years, a number of notable companies have begun investing in logistics within Vietnam and help to showcase the success and opportunities which Vietnam can afford. DHL eCommerce – one of four divisions of Deutsche Post DHL Group, is currently raising its stakes in the e-commerce logistics battle. As of early January 2017, DHL eCommerce has successfully offered end-to-end domestic delivery service for e-commerce merchants in Thailand which pave the way for its ambitious plan to double its fleet and number of depots by 2017 to neighboring markets, including Vietnam.
With the goal of becoming a leading company in the field of e-commerce logistics, Indo Tran Logistics and Transport JSC (ITL Corp) is a new entrant to the field of express delivery in Vietnam. with its brand SpeedLink. Since 2016, the office network of SpeedLink has been present in 50 provinces and cities across the country.
Giao Hang Nhanh, an e-commerce delivery and logistics business, has emerged in the country vibrant online stores. Giao Hang Nhanh currently serves over 800 online merchants, 20 of which are larger scale B2C e-commerce sites such as Tiki.vn, and Project Lana. Its aim is to enable a better e-commerce experience for both consumers and merchants through efficient logistics service.
Giants join the battle
Lazada is the first e-commerce enterprise with its own delivery company called LEX. In its formation stage, LEX was built on a scale exclusively for Lazada. However, realizing the growing demand for e-commerce in the world and Vietnam, Lazada decided to split LEX into a separate company. Earlier this year, Lazada has also invested in three large warehouses in Ho Chi Minh City, Da Nang, and Hanoi with a total area of 22,000 square meters and a network of 34 distribution centers throughout the country. Even so, Lazada’s logistics network does face limitations. On a daily basis, LEX as well as Lazada must join forces with Giao Hang Nhanh, VNPost and Viettel Post to fulfill its orders.
“Uber for logistics” is another area that has already seen immense potential for profitability as a means of bridging existing gaps in Vietnamese logistics networks. Grab, the Uber rival in Southeast Asia, recently announced a rebranding alongside a few new services last year which included delivery service (GrabExpress). Known locally for its ability to set trends within the Vietnamese market, it is likely that this model of logistics will gain momentum in the years to come.
E-commerce logistics cost
Despite the influx of logistics providers, transport infrastructure and logistics facilities in Vietnam are still underdeveloped. As of 2017, Indian e-commerce retailers spent between 5 to 15 percent of their revenue on logistics while US logistics cost Amazon 11.7 percent of its revenue in 2015. The number in Vietnam is much higher, with some estimates pointing to 30 percent of revenues being used to cover logistics costs. According to a report from World Bank (WB), logistics costs in Vietnam are estimated to run at about 25 percent of annual GDP, significantly higher than 19 percent in Thailand and 8 percent in Singapore.
The main reason for this is Vietnamese logistics companies have weak capacity as well as a lack of modern information systems. Moreover, the legal framework and regulations covering the logistics sector remain difficult and complex. These issues become more pronounced as companies seek to gain footholds outside of Vietnam’s first-tier cities, such as Ho Chi Minh City, Hanoi, and Da Nang.
Despite facing major hurdles, many experts believe that there will be a positive future for logistics enterprises in Vietnam, especially since free trade agreements (FTA) have been negotiated and will promote foreign direct investment in Vietnam’s infrastructure and information system. On top trade, recent legislation looks set to improve regulatory hurdles faced by the industry. Decision No. 200/QD-TTg on enhancing competitiveness and development of logistics services in Vietnam by 2025 has seen recent passage and focuses on creating favorable conditions for an effective logistics sector as well as increasing cooperation and outsourcing rate.
With the conditions for investment improving and regulatory reform ongoing, it is anticipated that capital expenditure from current investors will continue to rise in the years ahead and that new entrants will continue to consider the Vietnamese market for investment. The key to success for existing and prospective investors in e-commerce logistics will ultimately remain in maintaining a firm understanding of the challenges inherent in the Vietnamese market and finding the most cost-effective ways to provide solutions to these challenges.
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An Introduction to Doing Business in Vietnam 2017
An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.
Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.
By: Chau Pham
Viet Nam is rising in its popularity as a tourist destination in South East Asia. In 2016, the number of international guests which visited the country reached over 10 million people, representing an increase of 26 percent. Home to diverse attractions and delicious food, Vietnam provides appeal for a wide range of travelers. As interest continues to mount, so too do opportunities for investors catering to the hospitality industry. The demand for leisure activities and accommodation, especially four to five-star hotels remains particularly high and government support programs are also increasingly playing an important role by providing incentives to investors.
According to the Vietnam Sea Culture Association, exports of marine aquaculture produce are predicted to reach US$12-13 billion (VND 276-299 trillion) by 2020 and US$30-35 billion (VND 690-805 trillion) by 2030. To achieve their goals, the Ministry of Agriculture and Rural Development (MARD) has approved a project to increase competitiveness in seafood sector with financial support from the State Budget and foreign businesses, to restructure the sector towards improving its value added products.
By: Loan Quach
Vietnam has progressed to become the world’s fifth largest exporter of agro-food commodities including aquatic products, rice, coffee, tea, cashews, black pepper, rubber, and cassava according to a World Bank report released in 2016. However, while increasing its stature as a global exporter, the quality of growth in the sector overall remains low. In order to improve it and, in turn, enhance the country’s economic competitive capacity, the Ministry of Agriculture plans to introduce incentives such as tax exemptions or land use fee cuts to attract private investments, especially from overseas investors. At the forefront of this drive are hi-tech agriculture and clean agriculture which will be the two focus fields targeted to start the modernization and diversification of Vietnam’s agriculture sector.
By Mike Vinkenborg
As Ho Chi Minh City battles growing traffic congestion, municipal authorities are considering a range of measures to improve transportation in the bustling city of over eight million. The city is currently debating altering work hours to spread out traffic during peak hours and trimming sidewalks to create more space for vehicles, while also building several new overpasses. These are just a few of the many proposed measures to tackle the gridlock issue that is becoming increasingly problematic.
These are all short-term solutions that fail to tackle the root of the problem, however. Every day, an estimated of 1,000 new motorbikes and 180 new cars are registered in Ho Chi Minh City. In total, 8.5 million motorbikes and 627,000 cars are currently registered in the city, the latter indicating a 500 percent increase compared with the year 2000. And as Vietnam is set to cut tariffs on ASEAN car imports in 2019, thereby reducing car prices by 42 percent, these numbers are poised to increase even more in the future. As a result, cars on major roads didn’t exceed an average of eight kilometers per hour during afternoon rush hours as of 2010, and the situation has not improved since then.
By Mike Vinkenborg
Due to rapid industrialization, energy consumption growth levels have been double that of Vietnam’s already high GDP growth levels, growing on average with approximately 12 percent per year from 2006 to 2015. As a result, almost all Vietnamese receive electricity at home, and the last rural villages are expected to be powered up by 2020.
On 18 March 2016, the government revised the 7th Power Development Plan for 2011 to 2030 and placed a stronger emphasis on renewable energy and the liberalization of the market. Fossil fuels and coal, recently overtook hydropower’s throne by becoming the main supplier of Vietnam’s energy consumption and were scheduled to grow strongly in the 2011 version. In the revised 2016 version, however, the 2030 target for coal production has been cut by approximately 30 percent from 76 gigawatt-hours (GW) to 55GW. Contrary, renewable energy – generated by solar technology in particular – will play a much larger role in 2030 compared to the 2011 estimate.
By Marquise Clarke
With a rapidly expanding middle class and massive tariff reductions from free trade agreements (FTAs) expected to come into effect in the coming years, Vietnam is poised to experience significant growth in its beverage industry. By 2020, Vietnam is projected to consume 4.5 billion liters of beer, 350 million liters of alcohol and spirits, and 8.8 billion liters of other beverages per year. Growth in the beverage sector is underpinned by the rising living standards of Vietnamese families, and the industry is generally underpenetrated in comparison to the country’s Asia-Pacific peers. Indeed, on a per capita basis, spending on packaged foods and beverages in Vietnam is still relatively low compared to its emerging market counterparts, demonstrating the significant growth potential of the market.
According to Euromonitor, per capita expenditure on food and non-alcoholic beverages is projected to have reached US$276 in 2016. Future growth is expected to be driven by the continuing change in urban consumer lifestyle as they place a higher importance on convenience, safety, and health. In addition, rising consumption of branded fast-moving consumer goods (FMCG) products in rural Vietnam will drive market growth as rural consumers gradually gain better access to products backed by higher levels of disposable income.