STRATEGIC MANAGEMENT COURSE MIDTERM REPORT TOPIC STRATEGIC ANALYSIS OF SHOPEE AND SUGGESTION FOR FURTHER DEVELOPMENT

Shopee e-commerce platform...2 CHAPTER 2: ANALYSIS AND EVALUATION OF SHOPEE’S STRATEGY IN VIETNAM...4 2.1.. EXECUTIVE SUMMARYThis report provides an analysis and evaluation into the stra

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Ho Chi Minh City, April, 2019

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

TABLE OF FIGURES

LIST OFABBREVIATIONS

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 chainand SWOT analysis

Results found that even though the growth of the Vietnamese e-commerce industry is high andShopee has the strength and resources as one of the leaders, the business still recorded massiveloss in 2018, due to intensive investment in marketing and sales in an attempt to catch up withthe 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 amajor force in the e-commerce industry in just a few years However, there are still issueswhich need to be addressed if Shopee wants to remain at the top in the long-term

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 bycurrent Chairman and Group CEO, Forrest Li, SEA is an internet company based in Singaporeand is one of the leaders in digital entertainment, e-commerce as well as digital financialservices across Greater Southeast Asia

Some of the group’s most notable products consist of Garena, a digital entertainment platformfor users to access mobile and PC online games as well as participate in eSport events; Shopeee-commerce platform, a mobile-centric marketplace that offers integrated payment andlogistics infrastructure and seller services and digital financial services to both individuals andbusinesses, 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 thevast sea that connects the entire region together

SEA’s vision is “Connecting the dots” With this, the company aims to establish connectionsbetween Internet users all across its home region with its products: connecting online gameplayers through Garena, connecting buyers and sellers through Shopee and enabling paymentprocess 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 ofthe consumers and small businesses of Greater Southeast Asia with technology.” So far, thecompany has carried out this mission successfully with two of its products, Shopee andGarena, being well-received across the Southeast Asia region

In October 2017, SEA is publicly listed on the New York Stock Exchange, with price rangingfrom 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 tailoredfor the region, providing both buyers and sellers with an easy, secure and fast online shoppingexperience 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 tocontinually 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 enjoyableshopping 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 buyand sell, anytime, anywhere

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 quarterlytraffic, Shopee was the top e-commerce platform in the Vietnamese market and was generallyplaced among the top three in other Southeast Asia countries

Figure 1.2.2 Mapping of Vietnam’s leading e-commerce players by 2018

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, theCommunist Party of Vietnam, in control with no major opposing forces vying for control andinfluence; therefore, regimes and policies rarely vary greatly over the year Terrorism alsorarely, if never, happen in the country

In an attempt to attract foreign investment into the country, Vietnam government imposedvery little restrictions on import, export and taxation For example, the government haveannounced a series of policies in order to attract more foreign direct investment which includetax 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 establishedtrade relationship with more than 200 countries and being member of more than 8 FTA by theend 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

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 groupare often placed over the individual Family and community concerns will almost always comebefore business or individual needs In addition, they employ a hierarchical structure based onage 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 onnon-verbal clues to assess meaning

Furthermore, education is considered as one of the most important issues to which the countryhas to pay great attention In fact, the literacy rate of the total population had reached 94.5% ofthe 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 ofstudents, due to weak emphasis on the teaching of humanities, which can be proved by manycases of students or young people committed violent crimes

Last but not least, Vietnamese consumers have a tendency to prefer foreign brands to domesticones, and in recent year, they also gain a preference for healthy products or “green” productsthat protect the environment As for payment method, cash-on-delivery is still the dominantsolution with approximately 88% of Vietnamese do this in 2017

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

Technological factor

By 2018, the number of Internet users in Vietnam has reached 64 million people, accountingfor approximately 67% of the total population And this number is predicted to continueincreasing sharply in the coming years.

Mobile, especially smartphones, has also become an intergral part of Vietnam’s society with72% of people reported that they owned at least one smartphone, in which 64% of themactively 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 Italso 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% oftotal forests in East Asia and Pacific Fish catch is among the 10 highest countries in theworld, with 1,451,800 tons per year

On the other hand, Vietnam is also among the countries that can be seriously affected byclimate 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

concern for Vietnamese people as more than 60,000 deaths in 2016 in Vietnam were linked toair pollution, according to WHO In an effort to counter this, locals have begun to invest inrooftop solar panels in increasing numbers The issues with motorbikes and cars are also beingslowly addressed with subway constructions and emission standard enforcement being twosuggested solutions.

Five Forces analysis of e-commerce industry

Vietnam is a potential ground for e-commerce to flourish with high Internet penetration of67% that was ranked as the 17th highest in the world In addition to this, the number of peopleowning 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 $2.26billion 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 isbecause 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, thedifficulty of building a trustworthy brand image with the customer is also a big challenge toovercome 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.

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 inVietnamese e-commerce industry is fairly high There is hardly any switching cost for thecustomers who are now quite well informed and have most information available at a singleclick, making it easier for relatively price-sensitive Vietnamese to change brands

Bargaining power of suppliers

Even though the suppliers have more options now with the growing number of e-commercebusinesses, their bargaining power is only moderate This is due to the high caution exercised

by e-commerce brands regarding their supplier relationships, setting an extensive code ofconduct related to quality, labor and wages as well as sustainability

Threat of substitutes

There are two main threats in terms of substitutes for e-commerce brands: competing e-retailbusinesses and physical retailers The customers have relatively no switching costs and theycan easily switch from one e-retailer to another or from e-commerce to physical retail, so thethreat of substitutes is quite high

2.1.2 Internal Analysis:

Primary activities

Inbound and outbound logistics

Since Shopee is an e-commerce business, its inbound logistics involves the attracting ofsellers, its suppliers, to post product lists on its site and outbound logistics is when the sellersand buyers are able to successfully meet and negotiate transactions

Operations

Shopee is a mobile-focused business which acts as an intermediary information marketplace inorder to match the sellers and buyers of common interests The main operation of Shopee isthe gathering and organizing information of sellers and distributing of said information tobuyers through its mobile application in order to initiate transactions It also allows forinteractive shopping through the form of online chat in case both parties wish to negotiate ontheir own prices and terms of sales

Marketing and sales

At the beginning, Shopee chose to focus on word of mouth advertising, which gradually expanded to social networks with an intention to engage communities on Facebook, Instagram, Youtube… Shopee

is particularly talented at following latest trends For example, it invited Son

Tung MTP, the most famous singer in Vietnam, to become its brand ambassador; cooperated with the hit-singer Bao Anh and Bui Tien Dung of U23 fame to participate in the video clip with the catchy song “Baby Shark”, or most recently, Shopee celebrated its birthday with the Korean band Blackpink… and many other viral marketing activities that had left an impact in its customers.

In contrast, SEO management of Shopee is not very good A brief check on several SEOchecking tools yielded an average score of approximately 50

Figure 2.1.5 SEO score of Shopee.vn computed by SEO Check Rank

Regarding sales, according to SEA’s annual report in 2018, Shopee has achieved a total of

$3.4 billion of gross merchant value and 206.9 million gross orders, earning SEA an adjustedrevenue of $126.9 million, increasing by 1262% in comparison to 2017 It has also recordedmore than 80 million downloads by 2017, wherein Vietnam comprised of more than 5 million

Figure 2.1.6 SEA’s report of Shopee in the last quarter of 2018

On the other hand, due to heavy investment made by SEA on Shopee, the group has reported arecord loss of $700 in 2018 The cause for this was cited to be due to intensive investment inmarketing and sales as well as promotions, especially subsidies for shipping for Shopee users