Forging a Path to Recovery through E-Commerce

Although the outlook for the digital economy looks bright, the e-commerce industry is fraught with challenges, particularly in logistics. Compared with other ASEAN countries, Viet Nam faces steep logistics costs, which account for 30% to 40% of product sales. Moreover, logistics services are mainly available in big cities, limiting access of online businesses to rural consumers. Adding to the problems are the lack of qualified personnel and low technology application in logistics.

Another key obstacle to e-commerce is rampant fraud. Online shopping platforms are riddled with counterfeit and low-quality goods, causing dissatisfaction among customers and denting their confidence in e-commerce. In the first 9 months of 2020, about 30,000 stores on e-commerce platforms were taken down due to trade fraud, counterfeit, and contraband goods. Consumers with legitimate claims are often left without remedies because of the absence of an official online dispute resolution mechanism in the country. From an intellectual property rights (IPR) standpoint, there is a need to enhance the legal framework to ensure authenticity of products and a safe online environment, which could also promote the development of cross-border e-commerce.

When it comes to payments, cash is king in Viet Nam because of the lack of trust in electronic payment (e-payment) and low financial inclusion. The number of unbanked is high in rural areas. While the e-payment ecosystem has grown since the onset of COVID-19, most consumers have a deep-rooted habit of using cash. This discourages large transactions and leads to significant cancellation rates. Such frictions may stymie Viet Nam’s progress in e-commerce, which requires an efficient digital payment system.

In terms of digital skills, Viet Nam ranks at the bottom among ASEAN countries in the World Economic Forum’s Global Competitiveness Report in 2019. In the 2020 Global Talent Competitiveness Index, the country dropped four spots to rank 96^th out of 132 countries. Building a pipeline of talent is dependent on the readiness of Vietnamese training institutions for the Fourth Industrial Revolution (4IR), which ADB’s recent study finds to be generally lower in relation to other ASEAN economies.

Develop mechanisms and policies in preparation for 4IR

To realize its goal of becoming one of the top ASEAN countries in e-commerce, Viet Nam needs to modernize its legal and regulatory framework to make it reflective of the new economic realities. Policies and regulations on crucial areas of the internet economy, including cybersecurity, data privacy, and consumer protection, should be regularly reviewed and updated to remain relevant in the ever-evolving digital landscape.

Policies on electronic transactions and data exchange are fundamental to cross-border e-commerce, and as such, Viet Nam must engage in regional cooperation and bilateral agreements to harmonize legislations with other countries and reduce the complexity and cost of digital trade. To this end, Viet Nam’s digital economy agreement with Singapore will support alignment of digital trade rules and facilitate interoperability between digital systems. It will encourage collaboration in nascent areas and support the participation of micro, small, and medium-sized enterprises (MSMEs) in e-commerce. A notable feature of the agreement is its modular approach, which allows flexibility to adapt rules to local conditions where warranted and accommodates countries’ varying levels of trade readiness.

A strategic road map could be useful in mainstreaming e-commerce in national development plans as well as in coordinating broader digitalization endeavors. Set with time-bound targets, Viet Nam’s National Strategy for Digital Transformation by 2025, Toward 2030 is designed to improve the efficiency of the public sector through the implementation of e-government, narrow the digital gap through infrastructure investments, and bolster economic competitiveness through the digital economy. The government has also set a goal on e-commerce training at universities to equip workers with skills aligned with the industry.

In addition, industry associations can play an instrumental role for e-commerce by serving as a coordinating body to bring players from various sectors and influence policymaking. The Viet Nam E-Commerce Association (VECOM), which comprises companies, organizations, and individuals, complements the government’s efforts to foster e-commerce in Viet Nam. VECOM serves local firms and MSMEs to enable them to capture opportunities offered by e-commerce.

Build consumer trust and improve capacity to mitigate fraud, infringement of IPR, and unfair competition

While the upward trend in online shopping is expected to persist, Vietnamese consumers are still wary of engaging in digital transactions due to concerns over security and fraud. Thus, strengthening data governance and privacy laws is becoming highly urgent to raise consumer confidence in e-commerce.

Free trade agreements, such as those between the European Union and Viet Nam and the United Kingdom and Viet Nam as well as the advent of the Regional Comprehensive Economic Partnership, should push Viet Nam to step up its measures on protection of consumers and IPR to stop unfair, deceptive, and fraudulent online business practices. Equally important are appropriate enforcement mechanisms and agencies with the right capacity to deal with anticompetitive or fraudulent behaviors in the cyberspace. An online dispute resolution system can provide consumers with a fair and timely mechanism for the redress of their grievances without undue cost or burden.

Promote e-commerce in provinces and other sectors

VECOM’s yearly Viet Nam E-Business Index, which provides e-commerce trends and data across the country, could be leveraged to assess gaps at the subnational level and identify the investment needs for laying the foundation of e-commerce systems in provinces.

Creating a larger market for e-commerce also requires a wider adoption of e-payment. As reflected in its national strategy, Viet Nam’s goal is to increase cashless payments to 50% by 2025 and 80% by 2030. Given the high smart phone penetration in the country, mobile money is the most efficient means to expand the use of e-payment, which will facilitate swift and seamless online transactions. This method could be easily deployed in rural and remote areas, where the unbanked are largely concentrated.

Finally, digital opportunities in budding sectors should be explored. In the health sector, technological solutions have proven valuable during COVID-19 lockdowns, and further harnessing these tools beyond the pandemic could improve access to quality health care while reducing costs for rural households. In agriculture, strengthening support for farmers to engage online can help them tap into high-value e-commerce markets, thereby boosting agricultural incomes and rural livelihoods overall.

Enhance infrastructure systems and auxiliary services of e-commerce

Information technology (IT) connectivity is the backbone of e-commerce and the digital economy. Viet Nam must further invest in IT infrastructure to become a digital powerhouse. Although great strides to expand internet access have been made, it still needs to provide universal access to 4G networks and invest in 5G mobile networks.

As the market continues to grow, long-term prospects for e-commerce also depend on improving both the hardware and software components of the country’s logistics system to meet current and future industry needs. This involves enhancing last-mile connectivity, reliability, and speed of delivery, particularly for low-value or business-to-customer shipments.

The following policies are recommended for Viet Nam, ASEAN member states, and other economies to promote the development of their e-commerce sector.

Participate in multilateral and bilateral cooperation to harmonize approaches and collectively mitigate challenges

Viet Nam and other economies need to work together to unify rules and laws to enable seamless cross-border electronic trade. ASEAN has been pioneering harmonization of laws, and it is continuously taking stock of progress in e-commerce to identify areas for further alignment and collaboration.

Participation in ASEAN and other regional and global cooperation mechanisms facilitates regulatory coordination on matters that have implications on the digital economy of Viet Nam and the region as a whole. For instance, the cross-border nature of cyberthreats requires cooperation with regional and international parties to effectively respond to growing security risks. As consumers gain more access to international products online, they become more susceptible to cross-border fraudulent practices. Therefore, there is a need to solidify alliances with international partners to better safeguard consumers and to build a well-functioning e-commerce system.

Raise awareness to stimulate e-commerce adoption

Although COVID-19 has accelerated the shift to digital, educating consumers is still a key component to increasing conversions on e-commerce platforms. It is important to extend knowledge-building activities to governments and entrepreneurs as well. Governments must enrich their knowledge of the constantly changing technologies and trends to ensure that policies remain up to date. As large buyers of goods and services, national and local governments also need to gain a better understanding of how they can leverage online marketplaces to streamline public procurement.

Governments should lead digital transformation by example. In Viet Nam, the government has set goals to leverage technologies for public service delivery, aiming to achieve a good performance rating on the E-Government Development Index by 2030.

Businesses could benefit from capacity-building activities, including in effective advertising and marketing of their brands online, deployment of analytics tools for data-driven decisions to boost sales, and promotion of Vietnamese products in international markets. Amazon’s partnership with VECOM, for instance, aims to develop the digital capabilities of local businesses and provide them with the know-how to succeed in e-commerce.

Nurture digital skills and innovation to reap the benefits of digitalization

Rapid digitalization cannot be sustained without technologically savvy and highly skilled workers that can respond and adapt to the digital economy. Recommended measures are to strengthen IT education and training at all levels, partner with the private sector to ensure quality and relevant curricula, and facilitate industry exposure of students through work–study programs. In addition to technical competencies, there should be emphasis on soft skills to foster agility and resilience, which are essential to thrive in the changing world of work.

Asian Development Bank. 2021. Reaping the Benefits of Industry 4.0 through Skills Development in High-Growth Industries in Southeast Asia: Insights from Cambodia, Indonesia, the Philippines, and Viet Nam. Manila.

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Google, Temasek, Bain & Company. 2021. e-Conomy SEA 2021 Report.

INSEAD, Google, The Adecco Group. 2020. The Global Talent Competitiveness Index.

K. Schwab, ed. 2019. The Global Competitiveness Report. Cologny/Geneva: World Economic Forum.

L. T. Phuc. 2021. Viet Nam’s Policies to Facilitate and Digital Transformation. Presented at the Policy Actions for COVID-19 Economic Recovery Dialogues of the Asian Development Bank. 28 September.  

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