Yesterday, in an internal event, exclusively for former students of finance and operations at Equitix, a founder in the FFP100 group asked for my insights on Temu’s attack on the Vietnamese market. They asked me to provide an analysis from my perspective.
As is customary, the content shared in these events is not meant for public consumption, as it’s a privilege for our community. Typically, the content from these internal sessions is shared publicly after 1-3 quarters to help founders adapt quickly to the changing business landscape influenced by financial and macroeconomic fluctuations. This is to ensure that founders, regardless of their company size, can respond effectively to market changes without being overly anxious or complacent when reading news and analysis.
Today, I’m writing to share a public post to help other founders, especially in light of Temu’s aggressive entry into the Vietnamese market.
1. In 2018 and 2019, I forewarned my students who were selling products on Shopee and Lazada, as well as those providing training services to shop owners and other platforms, about the unsustainable nature of their temporary business success. The profits they were making were largely driven by the platforms’ deep-pocketed marketing strategies, offering promotions, vouchers, and discounts. This was essentially a strategy of buying market share using investor capital.
In any partnership where one party benefits while the other loses money, the relationship is inherently unsustainable.
2. While this approach provided sellers with significant earnings over the years, it was not a sustainable model. Vietnamese sellers, for the most part, lacked a unique competitive advantage and were heavily reliant on intermediary platforms and their suppliers.
3. In my classes on finance and competitive strategy, I’ve always emphasized three primary competitive strategies:
Differentiation: Offering unique features, functionalities, or value propositions that are difficult for competitors to replicate.
Cost Leadership: This isn’t about simply offering the lowest price, but about optimizing costs through efficient operations, procurement, or technological advancements.
Competitive Advantage through Business Model: Creating a unique value proposition that is difficult for competitors to imitate.
Most Vietnamese sellers have neglected these strategies, preferring instead to follow trends and quick-win approaches.
4. Essentially, Temu’s attack isn’t anything new. It merely highlights the existing lack of competitiveness among Vietnamese sellers. Those who have successfully built brands and established independent supply chains will continue to thrive. However, those who have been relying solely on platforms and have not diversified will face challenges as platforms adjust their strategies.
After a decade of aggressive market education, platforms are now looking to become profitable and regulatory pressures are increasing. This will lead to a more level playing field for businesses.
5. China, with its massive population, has developed deep expertise in e-commerce. This expertise, particularly in cost optimization, is often not fully appreciated by those who merely observe the surface-level phenomena like affiliate marketing, discounts, and fast shipping. By focusing on these tactics, sellers are essentially putting their businesses at the mercy of platforms.
6. While Shopee has reported a profit, the overall e-commerce market in Vietnam is still largely unprofitable. The profits made by sellers have often been driven by investor funding used to stimulate market growth.
7. There’s no need to be overly pessimistic. The current situation simply highlights the importance of building a sustainable business. Those who have relied on short-term gains may find it difficult to adapt to the changing market. Building a successful business requires long-term planning, investment in knowledge, and a resilient mindset.
8. For over 20-30 years, China devalued its currency to encourage foreign investment. Now, with a higher GDP per capita, China’s production costs are becoming less competitive. Many Chinese manufacturing zones are now dominated by older workers, while others are automating to reduce costs.
China is shifting its focus to high-value products like automobiles, aircraft, and infrastructure, while gradually offloading low-value, labor-intensive goods to countries like Vietnam. Despite this shift, China’s scale and efficiency still give it a significant cost advantage.
9. However, China is now facing a problem of excess supply or deflation. Unlike inflation, where prices rise, deflation means prices fall. This is due to factors like increased productivity, technological advancements, and aggressive discounting by e-commerce platforms.
10. The US imposing tariffs on Chinese goods has reduced the competitiveness of Chinese products in the US market. As a result, China is seeking new markets to absorb its excess production.
The influx of cheap Chinese goods into Vietnam poses a significant threat to domestic businesses, especially smaller ones with limited resources.
11. After a period of rapid growth from 1993 until now, the government is shifting its focus towards specialization, encouraging Vietnamese businesses to develop in sectors where Vietnam has a competitive advantage.
The Equitix team has long been focusing on industries where Vietnam has a strong foundation and control over raw materials:
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- Food and Beverage
- Healthcare
- Retail, branding, and direct-to-consumer
- Education
- Finance
- Tourism
- Logistics and supply chain
Investing in sectors where we lack a competitive advantage is risky. We’ve seen countless examples of businesses struggling because they don’t have control over key factors such as:
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- Platforms
- Customers
- Logistics
- Competitive advantages
- Technology
- Manufacturing know-how
For years, many businesses have been chasing after short-term opportunities without building a solid foundation.
12. Temu’s attack is a positive catalyst for change, forcing Vietnamese founders and business owners to seriously evaluate their competitive abilities. While short-term performance is important, it’s time to focus on building long-term sustainable businesses.
13. Vietnam will benefit from China’s shift towards higher-value industries, but this is a medium-to-long term process. While Vietnam’s GDP is $500 billion compared to China’s $29,629 billion, even attracting $1000 billion in investment would be significant.
14. To survive and thrive in the future, founders should focus on learning about finance and operations. Vietnam is moving towards sustainable growth, and businesses need to adapt.
15. Those who have a strong foundation of knowledge and experience will have a significant advantage in the future.
16. While third-party platforms are important, they shouldn’t be the primary sales channel for your business.
17. Businesses should focus on providing value to customers rather than just competing on price. There’s always room for smaller businesses that focus on quality and customer service.
18. The government should play a role in protecting domestic businesses, especially those that are smaller and less competitive. This analysis aims to provide founders with valuable insights and help them build more resilient businesses.
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