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

FOREIGN TRADE UNIVERSITY HO CHI MINH CAMPUS

MEMBER LIST

Đoàn Quỳnh Hương 1601025066

Nguyễn Anh Huy 1601025071

SUPERVISOR’S REMARKS

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

···

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

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

PC Personal ComputerSEO Search Engine OptimizationWTO World Trade Organization

EXECUTIVE SUMMARY

This report provides an analysis and evaluation into the strategy of Shopee Vietnam as well as asuggestion of objectives to develop in the next five years This is achieved through analyses ofthe business-level strategy of Shopee through the PESTEL, Five forces models, value chain andSWOT 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 a majorforce 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

CHAPTER 1: INTRODUCTION TO SEA LIMITED COMPANY AND E-COMMERCE PLATFORM SHOPEE

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 of theconsumers and small businesses of Greater Southeast Asia with technology.” So far, the companyhas carried out this mission successfully with two of its products, Shopee and Garena, beingwell-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 tailored forthe 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 to continuallyenhance 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 buy andsell, 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, the CommunistParty 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 verylittle restrictions on import, export and taxation For example, the government have announced aseries of policies in order to attract more foreign direct investment which include tax holidaysand preferential corporate income tax rates They also improve the taxation rate in order tofurther the economy such as the decreasing the standard corporate income tax rates to 20% fromJanuary 2016

Besides that, Vietnam is also a member of WTO and ASEAN as well as having established traderelationship with more than 200 countries and being member of more than 8 FTA by the end of2016

 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 of40.92% 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% werewithin the working age group This is considered as a major strength for the industrialization andmodernization 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 areoften 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 on non-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 of students, due toweak emphasis on the teaching of humanities, which can be proved by many cases of students oryoung 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” products thatprotect the environment As for payment method, cash-on-delivery is still the dominant solutionwith 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, accounting forapproximately 67% of the total population And this number is predicted to continue increasingsharply 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 activelyconnected 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 tonarrow the scientific and technological gap between Vietnam and the rest of the world in somekey fields by 2020 According to the project, the Government will focus on scientific andtechnological renovation to sharpen the competitive edge of local products and assistingbusinesses 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 ismade up of equatorial lowlands, high, temperate plateaus and cooler mountainous areas It alsohas 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, with1,451,800 tons per year

On the other hand, Vietnam is also among the countries that can be seriously affected by climatechange and natural disasters Total value of damage caused by natural disasters in 2011 wasestimated at over 10 trillion VND

Moreover, the rapid development and urbanization has caused significant pressure for its ownenvironment, 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 to airpollution, according to WHO In an effort to counter this, locals have begun to invest in rooftopsolar panels in increasing numbers The issues with motorbikes and cars are also being slowlyaddressed with subway constructions and emission standard enforcement being two suggestedsolutions.

 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 17 highest in the world In addition to this, the number of people owningth

digital devices and making purchases online has also increased in recent years By 2018, therewere approximately 49.8 online shoppers, increasing by 2.6 percent in comparison to 2017 Inthe 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 resourcesand marketing Not only that, even if one has enough fund to start, the difficulty of building atrustworthy brand image with the customer is also a big challenge to overcome Therefore, thethreat 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 ofproducts 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 commerce industry is fairly high There is hardly any switching cost for the customers who arenow quite well informed and have most information available at a single click, making it easierfor relatively price-sensitive Vietnamese to change brands

e- 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 bye-commerce brands regarding their supplier relationships, setting an extensive code of conductrelated 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 they caneasily switch from one e-retailer to another or from e-commerce to physical retail, so the threat

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 of sellers,its suppliers, to post product lists on its site and outbound logistics is when the sellers and buyersare 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 is thegathering and organizing information of sellers and distributing of said information to buyersthrough its mobile application in order to initiate transactions It also allows for interactiveshopping through the form of online chat in case both parties wish to negotiate on their ownprices and terms of sales

 Marketing and sales

At the beginning, Shopee chose to focus on word of mouth advertising, which graduallyexpanded 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 withthe hit-singer Bao Anh and Bui Tien Dung of U23 fame to participate in the video clip with thecatchy song “Baby Shark”, or most recently, Shopee celebrated its birthday with the Korean bandBlackpink… 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 $3.4billion of gross merchant value and 206.9 million gross orders, earning SEA an adjusted revenue

of $126.9 million, increasing by 1262% in comparison to 2017 It has also recorded more than 80million 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