By: Miha Zupan at: http://capitalistexploits.at/
Over the past few years, Vietnam has suffered an economic downturn. In 2007/2008 the local economy started loosing steam and eventually crashed. Fast forward 6 years, things seem to be shaping up again and foreign investors are increasingly returning to the country they once fled. This is also due to the fact that the Vietnamese economy is in the process of bottoming out while other regional (and global) markets are reaching new all time highs.
I have spent the last few weeks in Vietnam and the consensus among the people I spoke to on the ground is optimistic. Having last visited the country in 2011, I was astonished by the development that the country has undergone in the past 3 years. And this is despite the bad economy!
There is a surprisingly dynamic start-up community on the ground, particularly in the e-commerce space. This is indeed fascinating when considering the fact that the internet is literally making its way into the country just now (interestingly, Vietnam is the fastest growing market for Facebook). Combine this with the young local population and you get a very exciting trend that many entrepreneurs are seeking to capitalize on.
One of those entrepreneurs is Don Phan. Don is an e-commerce entrepreneur and founder of taembe.vn, an online baby products store and Vietnamese adaptation of diapers.com.
A bit of a background about Don is in order. Don worked for Rocket Internet as a co-founder for Zalora Vietnam and director of foodpanda Vietnam. He previously held positions at Roubini Global Economics, Goldman Sachs, and Leopard Capital, and holds a bachelor's degree from Yale University.
I met Don at a start-up weekend in Saigon and was impressed with his knowledge and obvious passion for business. More recently we caught up to discuss taembe and how his venture fits into the story of growing the local start-up community.
Miha: Don, you come from a very diverse background. Could you give our readers an insight into your "previous life"?
Don: I worked as an analyst at a macroeconomic research firm and then at a regional private equity firm before joining Rocket Internet. This is where I got my first taste of start-up life. I helped build the fashion company Zalora and then managed the online food ordering company, foodpanda, both in Vietnam. I am now the founder of a diapers.com adaptation, taembe.vn. "tã em bé" is the Vietnamese word for "diaper".
I have experience selling clothes, food, and now, baby products, all online.
Miha: You worked for all these institutions before joining Rocket Internet. How have you found the transition from institutional type companies to a far more entrepreneurial role?
Don: Being an entrepreneur is much more rewarding and stimulating. Rocket Internet removed the mystery of what an entrepreneur goes through. The process of setting up a company, doing the legal paperwork, and hiring staff was already something I was familiar with by the time we decided to start taembe.vn.
Miha: Rocket Internet has had some amazing home runs by using a model of copying. There are those who disparage them but the truth is that the model is very successful. What do you see as opportunist areas to target in this respect?
Don: Vietnam is a developing market, so I think it is important to import models that have already worked elsewhere. As an entrepreneur, there is no point in taking on business model risk AND market risk. I am happy to take someone else's successful blueprint and execute it in Vietnam.
What other opportunities do I see? An Alibaba model in Vietnam is the biggest opportunity I see. The original Alibaba business model provides a link between Chinese manufacturers and overseas buyers. Since so much manufacturing has moved to Vietnam because of rising labor costs in China, I see a large opportunity. Any online business is trying to get a sizable chunk of a much larger analog market, whether it's fashion retail, food delivery, or baby products. An Alibaba adaptation for Vietnam would be trying to capture a chunk of Vietnam's international trade. That is a great opportunity.
I think Alibaba will struggle here because it is the most famous Chinese e-commerce company in the world. Vietnamese folks tend to reject things associated with the Chinese, so there is an opportunity for someone else to come in if they are quick.
Also, GlassDoor, the job reviews site, would work really well here. A Glassdoor adaption recently launched in Korea: jobplanet.co.kr.
I loved GlassDoor when I was applying for jobs, because I could read negative reviews about companies from insiders. This is invaluable to job seekers. There are some very successful job sites in Vietnam, but there are reasons they won't go into this business. The incumbent job sites rely on revenue from corporate clients who would likely be the ones getting negative reviews.
Miha: I think you've made a great point on reducing uncertainty as an entrepreneur. I'm curious, what made you venture into the baby products niche? I would imagine that a sizable young population of Vietnam had something to with it.
Don: Right, the macro opportunity was the most striking thing. The demographics in Vietnam are great. Over 60% of the population is under the age of 35, more than half under 30. There are 1.5 million babies born each year. I constantly see babies.
As our company name implies, we spend a lot of our time focusing on the diapers category because it is deceptively large. Huggies, Pampers, and Bobby are all very big brands backed by billion dollar companies, (Kimberly-Clark, Procter & Gamble, and Unicharm respectively). The large diaper companies see the opportunity in Vietnam, so they are investing heavily in order to win the market share. At the same time they are competing fiercely with higher-end Japanese brands that are rapidly gaining market share. We are working with them to help them gain market share among tech savvy mothers.
We are also benefiting from the large number of women entering the workforce who find themselves with much less time available to focus on their careers and care for their families. This is why our company motto is "làm m? d? dàng h?n", or "Making Mom's Life Easier".
Other than the e-commerce part, we are a pretty boring business. We are a fast-moving goods retailer that happens to do a large portion of our transactions online. Once the novelty of e-commerce wears off in Vietnam, I think people will realize just how boring we are.
Miha: I think taembe is a great example of how one can hit two birds with one stone, with two birds being young demographics and emerging e-commerce industry. Could you give us an insight into the general state of e-commerce in Vietnam?
Don: Vietnam's e-commerce industry is growing rapidly since Rocket Internet arrived in 2012. According to government statistics, e-commerce revenue was $700 million in 2012 and then grew to $2.2 billion in 2013.
Miha: Indeed, e-commerce in Vietnam is experiencing astonishing growth and I was surprised about how vibrant the local e-commerce industry is. What are, in your opinion, the main drivers for that?
Don: Youthful demographics and the fast adaptation of mobile phones and tablets are driving growth here. Vietnam is Apple's fastest growing market. We are already experiencing considerable growth on the mobile side and have had to adjust accordingly. The other big driver I should mention is that there are a lot of e-commerce entrepreneurs working to make this happen.
Miha: What are some specifics of doing e-commerce in a developing country like Vietnam?
Don: Online payment has not caught on yet in a big way, but I am guessing Vietnam may skip to mobile payment like it has in Kenya. We primarily deal with cash on delivery and bank transfers. Online bank transfer is actually very convenient in Vietnam.
Miha: Speaking of delivery, could you shed some light on how does delivery work?
Don: In Vietnam, the delivery infrastructure is not very good. It has been more cost-effective for us to build delivery in-house. We have a team of drivers who handle deliveries. Customers buying from us have already run out of diapers, so speed is a necessity.
The operations of our company are closer to a pizza delivery company. Domino's and Pizza Hut also take payment through cash-on-delivery (COD).
Miha: As you said, speed is a necessity, so this definitely makes sense. Where do you see the local e-commerce market headed?
Don: Since I moved to Vietnam, the older and wiser e-commerce veterans all told me to look to China instead of the U.S. to understand where the market is headed. Alibaba founder Jack Ma says "E-commerce in the States is a dessert, but in China it has become the main course".
Jack Ma believes that because infrastructure is so good in the United States, this tends to benefit retail over e-commerce. Jack Ma's narrative for e-commerce and economic development makes sense to me. We both believe technological adaptation will progress faster than infrastructure development in many developing markets, allowing e-commerce to grab larger market share than it would in developed countries. None of the retailers in Vietnam are nearly as good as Target or Wal-Mart in the US.
In the US, e-commerce was only 6.2% of retail last quarter. E-commerce can be a much larger share of retail in China, Vietnam, and other developing markets. Ten years from now, do I think e-commerce will make up more than 6.2% of overall Vietnamese retail volume? Yes, definitely.
China is currently going through an e-commerce frenzy right now, with private equity firms giving e-commerce companies very high valuations. I expect to see something similar in Vietnam and Southeast Asia within the next five years, possibly with some of the biggest Chinese companies attempting to make strategic acquisitions. Some questionable ventures will get eye-popping valuations, and then some strong ones will emerge. I hope we continue building a strong company that will outlast us.
We are closely tracking multiple early stage private equity deals with our Seraph syndicate, and are looking to actively get involved in the Vietnamese start-up community. We will discuss this more in details at our upcoming Meet Up in Aspen in August. You can get more information about Seraph and the Meet Up here.
"The difference between China e-commerce and US e-commerce is that e-commerce in the USA is what I call the dessert – it's supplementary to their main business, because the USA's infrastructure of doing business is so good. So it is very difficult for e-commerce in the USA to grow, to develop, to surpass the traditional business. But in China, because the infrastructure of commerce is too bad, then e-commerce becomes the main course." - Jack Ma, founder of Alibaba