Regulatory hurdles stall Temu in Vietnam amid Southeast Asia e-commerce boom

On December 5, Vietnam’s Ministry of Industry and Trade announced that it had ordered Temu to suspend operations due to the company’s failure to meet business registration requirements.

Temu launched its Vietnam site in October, signaling its ambitions in Southeast Asia. According to media reports, the company has applied for the necessary approvals to conduct e-commerce activities in the country. However, the government has not provided a timeline for when operations might resume.

Temu is not alone in facing regulatory hurdles in Vietnam. Shein, which has been active in the country for at least two years, was also required to complete its registration by a set deadline. Both companies have confirmed they are cooperating with Vietnam’s trade ministry to finalize the necessary processes.

Temu’s rapid expansion has been a standout success in global e-commerce. A report from market research firm Sensor Tower, released in October, identified Temu as the most downloaded shopping app in the US during the third quarter, ahead of Shein and Amazon, which ranked second and third, respectively.

Although Temu operates in over 80 countries, its push into Southeast Asia has been relatively cautious and not without obstacles. Before the suspension in Vietnam, Temu had entered other regional markets, including the Philippines, Malaysia, Brunei, and Thailand. Notably, Indonesia and Singapore remain untapped, signaling potential growth areas as the company navigates regulatory complexities in the region.

Southeast Asia’s e-commerce landscape

The Southeast Asian e-commerce market is fiercely competitive and saturated, dominated by platforms like Shopee, Lazada, and TikTok Shop with low-price strategies being the norm.

“Unlike China, where major shopping festivals like Singles’ Day and Double 12 dominate, Southeast Asian platforms run promotions almost every month, issuing coupons and live streaming sales that are increasingly popular among sellers,” a Thai e-commerce industry insider told 36Kr.

Among Southeast Asian nations, Vietnam stands out as the fastest-growing e-commerce market. E-commerce accounts for 60% of the country’s digital economy, supported by a legal framework considered one of the most conducive for e-commerce development within ASEAN. Vietnam’s government has actively promoted national digital transformation through comprehensive e-commerce development plans, highlighting the sector’s importance in driving the digital economy.

While Vietnam’s policy environment is broadly supportive of e-commerce platforms, Temu’s recent challenges highlight the complexities of navigating foreign markets, even in business-friendly countries.

Vietnamese consumer shopping habits are also evolving, reminiscent of China several years ago. According to NielsenIQ Vietnam, the likelihood of consumers shopping online doubled compared to 2023. On average, consumers shop online nearly four times per month, spending over eight hours a week browsing. This is nearly twice the frequency with which Vietnamese consumers visit supermarkets monthly.

The top three product categories purchased online include food, beverages, and cosmetics, followed by fashion and sports goods, household care items, technology, baby products, and digital services such as subscriptions, online bookings, and logistics. Previously, Vietnamese consumers primarily used e-commerce platforms for electronics, home appliances, and fashion items.

This shift from non-essentials to daily necessities highlights the growing maturity of Vietnam’s e-commerce market. Unlike other Southeast Asian countries that impose higher import tariffs on e-commerce goods, the Vietnamese government encourages domestic businesses to participate in e-commerce.

Vietnam supports initiatives like those led by the Vietnam E-commerce Association (Vecom) to train sellers on platforms such as TikTok Shop and Shopee. Since May, Vecom has trained approximately 450 sellers across nine markets on opening stores, managing online orders, and live stream sales.

In December last year, a TikTok event at Ben Thanh Market in Ho Chi Minh City demonstrated the power of live streaming. Influencers helped merchants sell thousands of products during the event. Local media also reported that a digital persona developed by a local company processed hundreds of orders, ranging from home appliances to coffee.

To further develop e-commerce, the Vietnamese government has encouraged cashless transactions, capping cash payments at no more than 10% of total transactions. This approach aligns well with Temu’s payment model.

In Southeast Asia, cash-on-delivery remains the dominant payment method. Shopee, with years of experience, supports e-wallet payments, while Lazada continues to offer cash-on-delivery options.

By contrast, Temu primarily relies on international credit cards and PayPal, which can lead to payment challenges in the Southeast Asian market.

Vietnam’s supportive policies have fostered the fastest e-commerce growth among ASEAN countries. According to Metric, an e-commerce data platform, the combined revenue of Vietnam’s top five online retail platforms—Shopee, Lazada, Tiki, Sendo, and TikTok Shop—is projected to reach approximately VND 85 trillion (USD 3.3 billion) in Q2 2024, representing a 78% increase from the same period in 2024.

For the first half of 2024, these five platforms are expected to generate total revenue of VND 156 trillion (USD 6.1 billion), a 78% increase compared to the same period in 2023.

Currently, Vietnam’s e-commerce market exhibits a clear competitive structure. Shopee holds an overwhelming lead with a market share exceeding 60%, while TikTok Shop ranks second with around 20%. Shopee benefits from its established presence in Southeast Asia, while TikTok Shop leverages its dominance in social media to focus on live stream sales.

Nonetheless, the Southeast Asian e-commerce landscape remains fiercely competitive, particularly in the low-price segment. A Thai e-commerce insider compared the region’s market to the early days of Taobao in China, where low prices reign supreme, and competition based on product quality has yet to take hold.

While Temu demonstrates exceptional prowess in deploying low-price strategies, its status as a newcomer presents inherent challenges, including building consumer trust and overcoming market entry hurdles.

Regulatory constraints and tight timelines

Temu’s suspension in Vietnam appears tied to the government’s regulatory framework for cross-border e-commerce activities.

On November 4, Vietnam’s General Department of Taxation announced plans to enhance oversight of domestic and cross-border e-commerce platforms operating in the country. The aim is to ensure tax accuracy, integrity, fairness, and transparency in compliance with Vietnam’s tax laws. At the same time, the government seeks to create favorable conditions for domestic enterprises, enabling them to operate with peace of mind while contributing to the national treasury.

Additionally, under a decree issued by the Vietnamese government on May 16, 2013, e-commerce platform operators must obtain a license and are subject to the management of the Ministry of Industry and Trade. They are required to register with the General Department of Taxation via its online portal, independently calculate and declare taxes, and ensure timely payments. For cross-border e-commerce activities, foreign suppliers generating revenue in Vietnam without tax registration will be audited, and appropriate measures will be taken to ensure tax compliance, transparency, and parity with traditional businesses.

From a legal perspective, Vietnam’s demands on Temu are unassailable.

Currently, multiple Southeast Asian countries are stepping up regulatory measures for cross-border e-commerce platforms.

In Thailand, the Revenue Department announced new regulations on December 27, 2023, requiring e-commerce platforms to establish dedicated accounts to report seller income to tax authorities. This rule has taken effect since January 1 this year. Additionally, Thailand has imposed a 7% value-added tax (VAT) on imported products valued under THB 1,500 (USD 44.5), active since July 5 this year.

This development poses a significant challenge for cross-border sellers targeting the Thai market.

According to 36Kr, Thailand’s logistics infrastructure has improved significantly in recent years. Local e-commerce companies have shortened delivery times, with some areas now offering same-day or next-day delivery. In contrast, the longer delivery cycles of cross-border goods, combined with the VAT hike, will undoubtedly reduce the appeal of cross-border sellers.

In Indonesia, Southeast Asia’s largest e-commerce market, regulations have also tightened. As early as August 2023, Indonesia introduced restrictions on the online sale of imported goods priced below USD 100 and mandated compliance with the Indonesian National Standard (SNI) certification.

TikTok Shop, for instance, was shut down in Indonesia following a regulation banning social media platforms from conducting sales transactions. The platform resumed operations only after acquiring a majority stakein the local e-commerce platform Tokopedia. After its relaunch, TikTok expressed its commitment to supporting local small and medium enterprises in areas like marketing, branding, and internationalization.

Amid the growing push for tighter regulations and standardization, e-commerce platforms navigating Southeast Asia must not only stay competitive but also develop a deep understanding of and compliance with local regulations.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Leslie Zhang for 36Kr.

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