BUSINESS ARTICLES

Three e-commerce business models in Vietnam

Three e-commerce business models in Vietnam
Three e-commerce business models in Vietnam

These days, with the development of the industrial revolution 4.0, the internet can connect everything and greatly influence the global economy, e-commerce is becoming a global trend and has strong growth. In recent years in Vietnam, the trend of doing business on e-commerce platforms has grown tremendously with the release of a series of e-commerce platforms such as Tiki, Lazada and Shopee, and the change in customers’ online shopping habits. However, to have a deep understanding and opt for the appropriate form of e-commerce, businesses need to capture the characteristics of e-commerce models. This article helps businesses have an overview of e-commerce business models in Vietnam before choosing the suitable one for their enterprises.

1. Definition of e-commerce

According to the World Trade Organization (WTO), “E-commerce includes the production, advertisement, sale, and distribution of products that are purchased and sold on the Internet, but delivered physically, both delivery products as well as digital information through the Internet”.

According to the provisions of Clause 1, Article 3 of Decree 52/2013/ND-CP of the Government of Vietnam on e-commerce, “e-commerce activities are the conduct of part or the whole process of commercial activities using electronic media connected to the Internet, mobilized telecommunications networks or other open networks”.

Therefore, it should be borne in mind that e-commerce only occurs in the business environment of the Internet between groups of individuals through tools, techniques, and electronic means and technologies.

2. Characteristics of e-commerce

First of all, in terms of implementation form, E-commerce activities are carried out through electronic means with telecommunications network connections, and that is why the parties do not need to meet in person to conduct negotiations and transactions. Through the internet and websites, users can remotely exchange goods, services, products, information, and currency to perform e-commerce activities.

– About the scope of operation: Implemented through electronic means with the internet connection, regardless of geographical location and time. Therefore, it offers the possibility to cut costs and improve the business efficiency of enterprises.

– Regarding participants: Current e-commerce activities are not limited by the quality of the participants (individual or organization), nor by their nationality but need to comply with the conditions prescribed by law. According to current law, participants in e-commerce activities in the territory of Vietnam include:

a) Vietnamese traders, organizations, and individuals;

b) Foreign individuals residing in Vietnam;

c) Foreign traders and organizations.

These characteristics highlights that e-commerce brings benefits to businesses such as expanding markets with low investment costs; expanding the image of businesses to consumers and business partners; increasing access to information and improving customer services; simplifying administrative procedures to help businesses save costs on paperwork and transportation compared to traditional business methods; improving business efficiency and also creating competitive advantages through personalization of products and services.

3. Forms of e-commerce models in Vietnam

E-commerce activities have 3 main actors Government (G), Business (B), and Customers (C). Accordingly, in Vietnam, e-commerce is mainly based on B2B (business to business), B2C (business to customer), and C2C (customer to customer) models.

3.1 B2B model

B2B (Business to Business) is understood as e-commerce between businesses through e-commerce platforms, websites, or channels of each enterprise. Currently, there are four popular B2B models:

The mainly buyer-oriented B2B model is commonly found in Vietnam. Businesses that own e-commerce websites will provide their products and services to third parties such as units, individuals, agents, retailers, or manufacturers.

The seller-oriented B2B model is less rife in the Vietnamese e-commerce market. However, this type of model is quite developed overseas. For this B2B model, businesses will import and collect products and goods from the manufacturer. Afterward, the third parties will access the website to quote and distribute their products.

The Intermediary B2B Model is the most widespread type of e-commerce model. This model is a form of transaction and exchange between one business and another through an e-commerce trading platform. With this form, the seller will send the products to the e-commerce platforms for buyers to search, select and purchase according to the regulations of the platform.

The Collaborative commercial B2B model is similar to the intermediary B2B model except that it is centralized and owned by many businesses. This model is often expressed in the form of electronic exchanges such as e-markets, internet exchanges, e-marketplaces, trading communities, and trading exchanges.

In general, the benefit of this model is the savings on market research costs, and at the same time,  the increased business recognition, and opportunities for cooperation with others. A typical model in the world is Alibaba.com. It has built e-commerce marketplaces intending to create an environment and combine thousands of businesses from small to large. All transactions are transparent, complete, and quick, and allow businesses to reduce marketing and distribution costs.

3.2. B2C model

B2C (Business to Consumer) is understood as commerce between businesses and final consumers through the internet. Different from the B2B model, the B2C model is a traditional retail model but implemented on an e-commerce website or through other transaction channels via the internet. Accordingly, the implementing platforms of this business model include:

  • “E-commerce website” means a website established to serve part or the whole of the process of buying and selling goods or services, from displaying and introducing goods or services to concluding the contract, providing services, making payments, and providing after-sale services.
  • “E-commerce trading floor” means an e-commerce website that allows traders, organizations, and individuals other than the website owner to conduct part or the whole of the process of buying and selling goods or services on that website.
  • “Online sales promotion website” means an e-commerce website that is established by a trader or an organization to practice sales promotion for goods and services of other traders, organizations, and individuals under the terms of sales promotion service contracts.“Online auction website” which means an e-commerce website that provides solutions for traders, organizations, and individuals other than the website owner to auction their goods on the website.

This is the most known model and also holds the largest part of the e-commerce market. The successful business companies in the world following this model are Amazon.com, Best Buy, AliExpress… In Vietnam, the prominent ones are Lazada, Tiki, Shopee, Sendo…

The benefit of this model is the cost savings when it is about building an e-commerce platform in accordance with the law to attract customers without the cost of renting space and employees. On another hand, this business model also attracts consumers due to the variety of goods from many sellers, consumers can freely choose products and make quick purchases.

3.3. C2C model

C2C (Customer to Customer) is a model of buying and selling transactions between individuals in an online environment and through a third party. This third party could be an intermediary auction or sale. Examples of this business model are eBay and Amazon. More precisely, eBay is a leading auction site, allowing individuals to publish a list of goods for customers to choose for auction, and Amazon is the world’s largest online retailer. These websites operate both B2C and C2C models simultaneously, allowing businesses to market goods directly to customers and allowing users to sell goods to each other.

The four main activities of this e-commerce model include:

The auction is an activity that allows individuals to list their products for sale by setting the minimum price. Those who want to buy will participate in the auction, whoever offers the highest will own the product. A typical example of this activity is the global auction on eBay.

An exchange transaction is an exchange of items of equal value between users.

Supportive services are To solve problems of quality and safety in transactions and the operation of e-commerce models. Specifically, the Paypal service to support payments.

The sale of virtual assets can be items in online games. Participants in C2C can bring these items to exchange and trade with others.

In Vietnam, the C2C model is developing strongly with prominent e-commerce platforms such as Shopee, Lazada, and Sendo… along with a change in customers’ online shopping habits.

The above is an overview of popular e-commerce models in Vietnam. Hopefully, businesses can easily choose the most suitable one for their products and services to develop business activities in the digital economy.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.