Citi supports e-commerce in pursuit of qualitative growth

Could you outline the e-commerce market in Southeast Asia?

Citi recently hosted the eCommerce and Technology Summit 2024 in Ho Chi Minh City, focusing on the growth of eCommerce in Southeast Asia and Vietnam. Insights from the recent report, published in April in partnership with Citi, highlight that eCommerce in Southeast Asia has rapidly moved from a nascent phase to a mature phase.

Interestingly, online sales in the region are expected to reach a staggering $190 billion in 2024, a more than 20-fold increase in just a decade. Southeast Asia’s e-commerce market grew at an impressive 45% per year between 2012 and 2021, largely due to a low starting base and changing dynamics post-pandemic.

The Southeast Asian e-commerce market is concentrated among four major players, which together have more than 50% market share. However, we continue to see significant growth driven by increased consumer spending and innovative new business models.

Is Vietnam’s e-commerce market also experiencing a slowdown following the COVID-19 pandemic?

Not at all. Vietnam has seen impressive e-commerce growth, with growth of 34% in the first half of 2024, far outpacing the regional growth rate of 18%. This places Vietnam as one of the fastest-growing e-commerce markets in Southeast Asia.

The ongoing growth is largely driven by existing consumers shopping online, increasing their spending on the three leading platforms, which together have a 55% market share. Forecasts indicate that 2024 will be another great year for e-commerce in Vietnam, with sales expected to grow by up to 38%.

Vietnam’s population of nearly 100 million presents an attractive market opportunity. While the country’s heavy reliance on cash poses challenges to digital adoption, it also highlights the enormous potential for further digitization.

Thuy Lai, Country Head of Trade and Treasure Solutions at Citi Vietnam. Photo courtesy of Citi Vietnam

What challenges do e-commerce businesses face at the regional and local level?

Despite rapid growth, 30% of surveyed e-commerce companies in Southeast Asia reported they were not profitable in 2023. Many are struggling with low EBITDA margins, with most reporting marginal profits of 0-5% at the EBITDA level. This scenario marks a change from three to five years ago, when fewer companies reported profitability.

A recent report, which conducted in-depth research among 51 e-commerce leaders in Southeast Asia, shows increasing pressure from executives to grow their businesses profitably. There is a clear demand for “qualitative growth,” and brands are raising their expectations of e-commerce. As a result, e-commerce must not only deliver sales growth, but also prioritize profitability and positively contribute to brand momentum.

This pursuit of qualitative growth presents industry leaders with several obstacles to overcome, including rising marketing costs, tightening budgets, and increasing competition. The coming phase of e-commerce growth in Southeast Asia and Vietnam promises to be both exciting and challenging. While the online market is expected to grow significantly to $95 billion by 2027, capturing that growth will be harder than ever.

According to the latest research, what key strategies can e-commerce leaders adopt?

E-commerce has become an increasingly complex business field, requiring clear strategies on many levels.

First, digital marketing remains a key skill for e-commerce management. Brands and retailers are striving for efficiency, including piloting new advertising channels.

The second is assortment planning. Some 46% of leaders surveyed identified assortment planning as a priority. They aim to streamline their online offerings to focus on high-value products that generate larger orders and higher life-cycle value, while minimizing the need for markdowns.

The third is channel diversification. Leaders work in multiple, complex channel environments. About 45% have at least one direct-to-consumer channel, such as a brand website or social commerce. Some diversify out of necessity, while others are driven by new, fast-growing opportunities.

Finally, cost efficiency is a primary goal. E-commerce leaders are focusing on cost reduction, with a strong focus on operational efficiency. An impressive 75% currently work with service providers to streamline logistics, store management, promotions, and marketing.

What solutions is Citi offering to strengthen the e-commerce market in Vietnam?

Looking at the bigger picture, Vietnam’s e-commerce ecosystem remains vibrant but in its infancy compared to more mature markets. Citi leverages its global network and local expertise to enable clients to use non-resident accounts to manage local currency and convert currencies. Our integrated payment solutions support clients throughout the digital commerce lifecycle, from payment acceptance to funds management.

Since 2020, we have been the primary payment bank for leading markets in Vietnam. In 2021, we became the first bank in Vietnam to provide cross-border payment solutions for overseas merchants and digital service providers in the markets. In 2022 and 2023, Citi launched NRA for e-commerce and e-commerce and digital commerce framework. In 2024, we implemented several payment system improvements to support large domestic and cross-border payment volumes.

As Citi celebrates its 30th anniversary in Vietnam, I am proud to say that we have supported e-commerce leaders in achieving their growth aspirations by providing them with best practices to help them achieve success.