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9-619-051 JUNE 4, 2019 HBS Professor Kris Ferreira, Visiting Scholar Joel Goh, Assistant Director Dawn H. Lau (Asia Pacific Research Center), and Associate Professor Tuan Q. Phan (NUS) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2019 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. KRIS FERREIRA JOEL GOH DAWN H. LAU TUAN Q. PHAN GHN and AhaMove: Last-Mile Delivery in Vietnam Luong Duy Hoai and Do Thi Thuy Hang finished listening to Nguyen Xuan Truong,a CEO of AhaMove, complaining about a recent incident that occurred around the Black Friday promotion on November 24, 2017. 1 Also present in the conversation was Nguyen Tran Thi, co-founder and CEO of Giao Hang Nhanh (GHN Express, which meant “Fast Delivery”). Hoai was the co-founder of both companies and the co-founder and CEO of their private holding company called SCommerce established in July 2017. (Exhibit 1 is a chart of SCommerce’s subsidiaries). Hang was the President and Chief Operating Officer of SCommerce. The mission of SCommerce was to become a leading logistics provider and online platform that transformed the traditional offline retail economy with a new online model, using its technology, logistics network, and social resources. Its founders’ vision was to become a “Vietnamese unicorn” in the next five years, by synergizing and growing a group of subsidiary companies and building up a range of logistics-related services. Through these two subsidiaries, Hoai wanted to apply data-driven technology to transform the historically inefficient logistics industry in Vietnam, where logistic costs were estimated at 25% of the annual GDP, compared to Thailand (19%), Singapore (8%), and China (21.6%).2 GHN was founded in 2012 as a comprehensive logistics provider, but specializing in “last-mile” delivery, serving mostly e-commerce companies. Last-mile logistics referred to the last leg of the delivery that brought the product to the end consumer. GHN employed “shippers” (delivery people on wheels, either motorbike or vans/trucks) to deliver packages from merchants to consumers. In 2015 GHN began to experiment with using freelancers as a supplemental pool of labor for last-mile delivery, creating a mobile app service called AhaMove that connected merchants to freelance shippers on- demand, much like an Uber model for shippers. After a successful trial, AhaMove was spun out and established as a separate subsidiary under SCommerce. Although AhaMove did not serve GHN exclusively, the founders of SCommerce had envisioned that these two subsidiaries would support each other in their growth. “We saw it as a good hybrid between a traditional logistics model and a modern logistics model,” said Hang. a The Vietnamese business convention is to refer to individuals by their given names. Usually the last name is written first, followed by the middle name and then the given name. In this case, the full name will be used at first appearance, and thereafter the given name. Do Not Copy or Post This document is authorized for educator review use only by TUAN PHAN, National University of Singapore (NUS) until Apr 2020. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860
619-051 GHN and AhaMove: Last-Mile Delivery in Vietnam 2 At the end of 2016, GHN was one of the three largest logistics companies in Vietnam. According to Hang, GHN had achieved profitability within the first five years and employed 6,000–7,000 people, while AhaMove, with 100–200 employees, achieved “within three years what GHN took five years to achieve.” Both companies had been growing at approximately 300% a year. The teams had barely had time to catch their breath; in 2017, GHN delivered 25 million packages and planned to more than double operations by the end of 2018,3 as well as increase its market share to 16–17% over the next two years.4 A month before the Black Friday promotional event, GHN had communicated to AhaMove a forecast of the volume expected for the big event. Two weeks before the event, AhaMove started the recruitment of new shippers, and put in resources to keep already-active shippers engaged to make sure that there would be enough shippers to satisfy the expected surge of demand on the promotional days. Once the actual event took place, however, the volume of orders GHN received was lower than expected, and GHN did not deliver the amount of orders it had forecast to AhaMove. AhaMove CEO Truong, having spent money and effort on engaging shippers, was frustrated that GHN’s inaccurate forecast had caused AhaMove to fail to reach its profit targets, and furthermore, negatively impacted its goodwill with shippers. The incident caused Hang to review the mission of the parent company: “The role of SCommerce as a holding company is to bring everyone together, and look at bigger, more ambitious goals than each of the individual business units. All our businesses are in the growth stage and all have great potential.” The subsidiaries were meant to be complementary to each other, but implementing the right operating and tracking systems, figuring out the right balance between individual and collective growth, as well as getting people from different companies to work together, had been challenging, as this incident demonstrated. What could they do to improve the current way of operating to maximize the synergies between the two companies? What should they do differently? Industry Overview Vietnam had a population of 90.7 million,5 one of the largest in Southeast Asia, and the economy had grown at a compound annual rate of 5.0% per capita over the last 11 years.6 The capital was Hanoi in the north; the largest city by population was Ho Chi Minh City (HCMC) in the south. Vietnam had a young population with an average age of 30.8 and a middle class set to double to 33 million by 2020.7 Because of improvements in the national internet infrastructure and the increasing number of tablet computers and smartphones, Vietnam was one of the fastest growing e-commerce markets in the world, with revenues expected to double in the four years from 2016 to 2020.8 Market research showed that almost 80% of the population in key cities were smartphone users; this percentage fell to about 60% in rural areas.9 In 2014, Vietnamese consumers spent almost $3 billion online, equivalent to 2.12% of the nation’s total retail revenue.10During “Black Friday” [the day after Thanksgiving, like in the US] in 2016, online sales for the 30 top vendors grossed VND 644 billion (USD 28 million) in one day, and some sites saw sales increase by 200 to 300% compared to a normal day.11 In general, e-commerce volumes fluctuated quite widely within the week. Demand was typically higher during Mondays and Tuesdays, special days and events, or during sales periods. Despite the increasing popularity of e-commerce, digital payments remained low, partly because there were only 33.8 credit cards per 1,000 adults12 and partly because of people’s low trust in online transactions and product quality. Customers generally preferred to see their purchased product before they paid.13 Cash-on-delivery (COD) accounted for 85–90% of the total value of all retail sales.14 Do Not Copy or Post This document is authorized for educator review use only by TUAN PHAN, National University of Singapore (NUS) until Apr 2020. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860
GHN and AhaMove: Last-Mile Delivery in Vietnam 619-051 3 Online retailers needed increasingly efficient and high-quality logistics and delivery solutions in order to deliver products to end consumers. The boom in e-commerce therefore, “presents a great opportunity for forwarding businesses in general and fast shipping in particular,” said GHN CEO Thi. Growth rates for the logistics market were 16–20% per year.15 The logistics industry in Vietnam had traditionally been fragmented and inefficient: There were over 1,200 companies providing logistics services, mainly concentrated in HCMC and Hanoi,16 70% of which were small and medium enterprises.17 Historically inefficient, last-mile delivery required a higher percentage of cost compared to other segments of the logistics process and accounted for approximately 28% of total transportation cost.18 Shippers had to deal with issues like navigating the streets and narrow alleyways, incorrect or hard- to-find addresses, carrying bulky items, receivers not being home, vehicle breakdown, traffic accidents, and congestion. In Vietnam, last-mile logistics service providers tended to be startups, which typically had limited capabilities to do inter-city deliveries, but excelled at quick deliveries within big cities. Postal services were state-owned companies that were slower in adapting and modernizing operations. DHL Express was the first international logistics company to enter Vietnam in July 2017 and viewed Vietnam as one of its fastest-growing markets in Asia Pacific.19 Some retailers had invested in their own last-mile delivery networks; Mobile World Corp (Thegioididong.com, the largest mobile device and consumer electronics retailer in Vietnam) could deliver products in 30 minutes for areas close to its shops. In fact, Hoai said, “We’ve gotten a few offers to be bought by several e-commerce players in Vietnam, but we refused them. We’re focused very specifically on delivery and don’t want to get acquired by any partners. If we did, we would alienate all of our other merchants.”20 Background Hoai and Thi were part of the original founding team of GHN, which was made up of five ex- employees from Mobile World. Founded in 2004, Mobile World grew to become a large retailer in Vietnam that was well-known for its customer-first approach;21 at one point, it promised delivery of a mobile phone purchased online within 30 minutes. Hoai worked in Mobile World’s supply chain department from 2011 to 2012 where he met Thi, who was the chief of the tablet and digital online channel at Mobile World from 2011 to 2013. Thi was chosen as one of American Chambers of Commerce Scholars in 2011. Hoai and Thi wanted to participate in the “new economy” market, observing how Alibaba, Grab, and Uber had flourished in the region. In 2012, recognizing the inherent inefficiencies within the logistics sector caused by the severe fragmentation of the market, as well as the absence of standard processes and technology, they, along with three other colleagues from Mobile World, established GHN with the hope of applying technology to improve the bottlenecks in Vietnam’s e-commerce and retail system. Hoai said, E-commerce is in a very early stage in Vietnam. Buyers and sellers don’t trust each other yet. The warehouses, sales channels, infrastructures, and delivery systems are still underdeveloped. Our goal is to develop a trust-building service for e-commerce that can scale very big and bring Vietnam into the next level of e-commerce within the next five years. We do this with our sophisticated tracking system and rigorously training our delivery men in customer service.22 Do Not Copy or Post This document is authorized for educator review use only by TUAN PHAN, National University of Singapore (NUS) until Apr 2020. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860
619-051 GHN and AhaMove: Last-Mile Delivery in Vietnam 4 To support its vision, GHN focused on developing the infrastructure for an end-to-end logistics solution, including storage, handling, packing, transportation, and shipping. By 2017, GHN’s nationwide network covered most major cities in Vietnam, and included 50,000 square meters of warehouses, 86 freight stations, and a fleet of over 300 trucks.23 The success of GHN led to Hoai being recognized on Forbes’ 30 under 30 list in both 2014 and 2016. In 2017 the holding structure was formalized and two additional subsidiaries were launched (Exhibit 1). “SCommerce is formally a holding entity, but actually in my view SCommerce is a company, and all the other entities are product lines,” said Hoai. He envisioned it to be a data-driven platform supporting an efficient network of businesses, with its technology and systems as its core competencies and a customer-first culture the founders had inherited from Mobile World. As COO, one of Hang’s primary responsibilities was to develop a consistent operating strategy for SCommerce to maximize synergies between its subsidiaries’ products and services. “We provide reliable technology, legal, HR, finance, and infrastructure to each of our entities, so each team can focus on operations and business and get good results. It’s about how to grow into a multimillion-dollar business. Not to grow five companies in five different directions,” Hang said. SCommerce executives such as Hang, Hoai, and Le Thi Doan Trinh, SCommerce’s Human Resources Director, attended management meetings of each of SCommerce’s subsidiaries. Exhibit 2 lists some of the key executives. In addition, senior managers from all of SCommerce’s subsidiaries convened twice a month in order to keep abreast of what other subsidiaries were doing, “to make sure there is continuous dialogue.” All senior managers at the subsidiaries owned shares at the SCommerce holding level, so “everyone feels a part of a bigger ownership,” even though each subsidiary had their own targets and agenda. In their communications to outside partners and investors, SCommerce’s management presented GHN and AhaMove together: “Our investors and our partners appreciate the synergy of our model, and we share these views back to our teams. We hope this can convince both GHN and AhaMove teams to compromise on their shorter-term financial performance,” said Hang. This helped to prioritize what was best for the group, although, Hang admitted “it’s not always smooth, that’s why we are always having dialogues weekly to make sure people are on the same page.” GHN Thi recalled about starting up GHN in 2012: “At first we wanted to open a company, to use our knowledge about e-commerce and IT to solve a traditional problem and provide a service. We didn’t think to be as big as we are now. We didn’t really have a plan. It was trial and error, a day-by-day improvement.” At first the founders concentrated on half of the districts in HCMC, applying what they knew about supply chains for a B2B company. They struggled with acquiring their initial customers; the company’s very first customer was a friend who sold stationery. For the first day, Thi recalled, he delivered two packages himself, and for each package he looked up the addresses and followed the directions on Google Maps. In 2012, when GHN was first established, senders had little choice. They had to go to the post office, recalled Nguyen Ngoc Duong, GHN’s Business Intelligence Manager. GHN’s initial competitors were ViettelPost and VNPost, which were the state-owned postal services with nationwide coverage. However, Duong said, these competitors used aggressive tactics to retain their customers, remarking that “they let the merchants know that they would not deliver to areas outside of GHN’s coverage if the merchants used GHN.” This pushed GHN to expand to all districts of Ho Chi Minh City, and by the end of 2012, it had also expanded to Hanoi and Danang and some provinces in the southern part of the country. Their key accounts increasingly needed to deliver to new areas. “There’s a fierce Do Not Copy or Post competition between the big companies in that market and they want to expand as much as possible. This document is authorized for educator review use only by TUAN PHAN, National University of Singapore (NUS) until Apr 2020. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860