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FOREIGN TRADE UNIVERSITY HO CHI MINH CAMPUS --------***--------

STRATEGIC MANAGEMENT COURSE MIDTERM REPORT TOPIC: STRATEGIC ANALYSIS OF SHOPEE AND SUGGESTION FOR FURTHER DEVELOPMENT Lecturer: Le Thi Thanh Ngan Class: K55CLC1

Ho Chi Minh, April 2019

MEMBER LIST Student’s name

Student number

Đoàn Quỳnh Hương

1601025066

Nguyễn Anh Huy

1601025071

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SUPERVISOR’S REMARKS ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· ···························································································································································· Ho Chi Minh City, April, 2019 iii | P a g e

TABLE OF CONTENTS EXECUTIVE SUMMARY...........................................................................................................1 CHAPTER 1: INTRODUCTION TO SEA LIMITED COMPANY AND E-COMMERCE PLATFORM SHOPEE..................................................................................................................2 1.1. SEA Limited........................................................................................................................2 1.2. Shopee e-commerce platform............................................................................................2 CHAPTER 2: ANALYSIS AND EVALUATION OF SHOPEE’S STRATEGY IN VIETNAM......................................................................................................................................4 2.1. Shopee’s strategy in Vietnam.............................................................................................4 2.1.1. External Analysis...........................................................................................................4 2.1.2. Internal Analysis:...........................................................................................................8 2.1.3. SWOT analysis and Shopee’s general business model.................................................11 2.2. Evaluation of Shopee’s strategy.......................................................................................12 CHAPTER 3: PROPOSED STRATEGIES FOR SHOPEE VIETNAM IN 5 YEARS.........14

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TABLE OF FIGURES No.

Name

Page

1.2.1

Basic statistics of Shopee as of August 2016

3

1.2.2

Mapping of Vietnam’s leading e-commerce players by 2018

3

2.1.1

GDP composition of Vietnam in 2017 (%)

4

2.1.2

Vietnamese’s preference for payment methods in 2017 (%)

5

2.1.3

Analysis of Internet use in Vietnam in 2018

6

2.1.4

Overview of Vietnamese’s e-commerce industry in 2018

7

2.1.5

SEO score of Shopee.vn computed by SEO Check Rank

9

2.1.6

SEA’s report of Shopee in the last quarter of 2018

9

2.2.1

Percentage of shipping costs in Shopee’s total expenses

13

LIST OF ABBREVIATIONS Abbreviation

Meaning

ASEAN

Association of South-East Asian Nations

CEO

Chief Executive Officer

FDI

Foreign Direct Investment

FTA

Free Trade Area

GDP

Gross Domestic Product

KPI

Key Performance Indicator

PC

Personal Computer

SEO

Search Engine Optimization

WTO

World Trade Organization

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EXECUTIVE SUMMARY This report provides an analysis and evaluation into the strategy of Shopee Vietnam as well as a suggestion of objectives to develop in the next five years. This is achieved through analyses of the business-level strategy of Shopee through the PESTEL, Five forces models, value chain and SWOT analysis. Results found that even though the growth of the Vietnamese e-commerce industry is high and Shopee has the strength and resources as one of the leaders, the business still recorded massive loss in 2018, due to intensive investment in marketing and sales in an attempt to catch up with the key players, such as Lazada, Tiki or Sendo who have infiltrated the industry much earlier. The report finds that Shopee’s current strategy is quite solid and able to help it become a major force in the e-commerce industry in just a few years. However, there are still issues which need to be addressed if Shopee wants to remain at the top in the long-term.

1|Page

CHAPTER 1: INTRODUCTION TO SEA LIMITED COMPANY AND E-COMMERCE PLATFORM SHOPEE 1.1. SEA Limited Formerly known as Garena Interactive Holding Limited and established in May 2009 by current Chairman and Group CEO, Forrest Li, SEA is an internet company based in Singapore and is one of the leaders in digital entertainment, e-commerce as well as digital financial services across Greater Southeast Asia. Some of the group’s most notable products consist of Garena, a digital entertainment platform for users to access mobile and PC online games as well as participate in eSport events; Shopee ecommerce platform, a mobile-centric marketplace that offers integrated payment and logistics infrastructure and seller services and digital financial services to both individuals and businesses, including e-wallet and payment services through AirPay, etc. The group’s name, SEA, is inspired by its home region of South East Asia and symbolizes the vast sea that connects the entire region together. SEA’s vision is “Connecting the dots”. With this, the company aims to establish connections between Internet users all across its home region with its products: connecting online game players through Garena, connecting buyers and sellers through Shopee and enabling payment process through AirPay, which also fits perfectly with the group’s name. In accordance with its vision, the mission SEA has taken upon itself is “to better the lives of the consumers and small businesses of Greater Southeast Asia with technology.” So far, the company has carried out this mission successfully with two of its products, Shopee and Garena, being well-received across the Southeast Asia region. In October 2017, SEA is publicly listed on the New York Stock Exchange, with price ranging from 21,50 to 24,65 USD within the month of March 2019. 1.2. Shopee e-commerce platform Shopee is the leading e-commerce platform in Greater Southeast Asia. It is a platform tailored for the region, providing both buyers and sellers with an easy, secure and fast online shopping experience through strong payment and logistical support. With a wide selection of product categories ranging from consumer electronics to home & living, health & beauty, baby & toys, fashion and fitness equipment, Shopee aims to continually enhance its platform and become the region’s e-commerce destination of choice. Shopee’s vision is to continuously enhance its platform to deliver a seamless and enjoyable shopping experience for all users and be the region’s e-commerce platform of choice. In order to do so, it set a mission to create a simple and secure mobile marketplace for everyone to buy and sell, anytime, anywhere. 2|Page

Figure 1.2.1. Basic statistics of Shopee as of August 2016 By the end of 2018, in a ranking of e-commerce businesses based on their average quarterly traffic, Shopee was the top e-commerce platform in the Vietnamese market and was generally placed among the top three in other Southeast Asia countries.

Figure 1.2.2. Mapping of Vietnam’s leading e-commerce players by 2018 3|Page

CHAPTER 2: ANALYSIS AND EVALUATION OF SHOPEE’S STRATEGY IN VIETNAM 2.1. Shopee’s strategy in Vietnam 2.1.1. External Analysis  PESTEL analysis of Vietnamese market 

Political and Legal factor

Vietnam enjoys a fairly stable political environment with only one political party, the Communist Party of Vietnam, in control with no major opposing forces vying for control and influence; therefore, regimes and policies rarely vary greatly over the year. Terrorism also rarely, if never, happen in the country. In an attempt to attract foreign investment into the country, Vietnam government imposed very little restrictions on import, export and taxation. For example, the government have announced a series of policies in order to attract more foreign direct investment which include tax holidays and preferential corporate income tax rates. They also improve the taxation rate in order to further the economy such as the decreasing the standard corporate income tax rates to 20% from January 2016. Besides that, Vietnam is also a member of WTO and ASEAN as well as having established trade relationship with more than 200 countries and being member of more than 8 FTA by the end of 2016. 

Economic factor

According to Global Edge, Vietnam had the following statistics up to 2017:  GDP, PPP (current international): $647.4 billion, in which the service sector composed of 40.92% of the total.  GDP per capita, PPP (current international): $6,776  GDP growth rate (annual %): 6.8%

Figure 2.1.1. GDP composition of Vietnam in 2017 (%) It also spotted an unemployment rate of 2.1%, inflation rate of 3.5%, real interest rate of 3.1% and FDI inflow of $14.1 billion in the same year. 4|Page



Socio-cultural factor

By 2017, Vietnam was estimated to have 95.5 million people, in which approximately 70% were within the working age group. This is considered as a major strength for the industrialization and modernization of the country, if the abundant labor force could be fully utilized. Concerning cultural aspects, Vietnam is a collectivist society in which the needs of the group are often placed over the individual. Family and community concerns will almost always come before business or individual needs. In addition, they employ a hierarchical structure based on age and status in which the eldest person is always respected and possesses the most influence. Moreover, Vietnam is a high-context communication culture so they will depend heavily on nonverbal clues to assess meaning. Furthermore, education is considered as one of the most important issues to which the country has to pay great attention. In fact, the literacy rate of the total population had reached 94.5% of the total population by 2015, increasing by more than 4% in comparison with the year of 1999. Nevertheless, there still existed the problem of the degradation in social ethics of students, due to weak emphasis on the teaching of humanities, which can be proved by many cases of students or young people committed violent crimes. Last but not least, Vietnamese consumers have a tendency to prefer foreign brands to domestic ones, and in recent year, they also gain a preference for healthy products or “green” products that protect the environment. As for payment method, cash-on-delivery is still the dominant solution with approximately 88% of Vietnamese do this in 2017.

Figure 2.1.2. Vietnamese’s preference for payment methods in 2017 (%) 

Technological factor 5|Page

By 2018, the number of Internet users in Vietnam has reached 64 million people, accounting for approximately 67% of the total population. And this number is predicted to continue increasing sharply in the coming years. Mobile, especially smartphones, has also become an intergral part of Vietnam’s society with 72% of people reported that they owned at least one smartphone, in which 64% of them actively connected to the Internet through their mobiles.

Figure 2.1.3. Analysis of Internet use in Vietnam in 2018 In terms of development, there is already a project running in Vietnam which will serve to narrow the scientific and technological gap between Vietnam and the rest of the world in some key fields by 2020. According to the project, the Government will focus on scientific and technological renovation to sharpen the competitive edge of local products and assisting businesses to purchase patents in some prioritized areas: biotechnology, information technology, new materials technology - nano technology , manufacturing technology and automation. 

Environmental factor

Viet Nam is blessed by nature, with a great ecological and hydrological diversity. The country is made up of equatorial lowlands, high, temperate plateaus and cooler mountainous areas. It also has a diverse wildlife, with rare and precious fauna such as elephants, rhinoceros, tiger, leopard, black bear, snub-nosed monkey, crocodile and turtle. Forest area accounts for 2% of total forests in East Asia and Pacific. Fish catch is among the 10 highest countries in the world, with 1,451,800 tons per year. On the other hand, Vietnam is also among the countries that can be seriously affected by climate change and natural disasters. Total value of damage caused by natural disasters in 2011 was estimated at over 10 trillion VND. Moreover, the rapid development and urbanization has caused significant pressure for its own environment, according to a report by the World Bank. In fact, air pollution has become a huge 6|Page

concern for Vietnamese people as more than 60,000 deaths in 2016 in Vietnam were linked to air pollution, according to WHO. In an effort to counter this, locals have begun to invest in rooftop solar panels in increasing numbers. The issues with motorbikes and cars are also being slowly addressed with subway constructions and emission standard enforcement being two suggested solutions.  Five Forces analysis of e-commerce industry Vietnam is a potential ground for e-commerce to flourish with high Internet penetration of 67% that was ranked as the 17th highest in the world. In addition to this, the number of people owning digital devices and making purchases online has also increased in recent years. By 2018, there were approximately 49.8 online shoppers, increasing by 2.6 percent in comparison to 2017. In the same year, the e-commerce industry had contributed a total revenue of $2.26 billion to GDP of Vietnam, rising by 29.4% compared to the year before.

Figure 2.1.4. Overview of Vietnamese’s e-commerce industry in 2018 

Threat of new entrants

The barrier to entry is moderately high in the e-commerce industry of Vietnam. This is because of the substantial amount of capital needed to invest in the required technology, human resources and marketing. Not only that, even if one has enough fund to start, the difficulty of building a trustworthy brand image with the customer is also a big challenge to overcome. Therefore, the threat of new entrants is rather low. 

Rivalry among existing competitors

The level of rivalry in the industry is high because there already exists many players in Vietnam. Some big names that claim the majority of online traffic include Lazada Vietnam, Tiki, Sendo, The Gioi Di Dong, Adayroi, FPT Shop; along with many more smaller e-commerce companies. 7|Page

Brands are always trying to earn a competitive advantage through low prices, better quality of products or through a better overall customer experience. 

Bargaining power of buyers

With the prevalent of both small and big brands, the bargaining power of buyers in Vietnamese ecommerce industry is fairly high. There is hardly any switching cost for the customers who are now quite well informed and have most information available at a single click, making it easier for relatively price-sensitive Vietnamese to change brands. 

Bargaining power of suppliers

Even though the suppl...