Guest post by a Baozun Strategic Adviser and former Senior Adviser to various luxury brands’ entering China
Understanding why ecommerce in Southeast Asia and China are Different
For many years now, the world has been a bit obsessed with China – its 1.4 billion people, its single party system and the allure of that emerging middle class. For many global brands and retailers, China has irresistible appeal. However, investments and attention have turned toward Southeast Asia and Indonesia in particular. Understanding the differences in China and Southeast Asia’s ecommerce spheres will help clear misconceptions. Is it really the “next China” or will it always be the not so successful younger sister?
There are vast differences in China and Southeast Asia’s ecommerce retail spheres, so, for those businesses considering entering or growing its business there, here are our top 5 differences to note.
1. Country versus a region
This is perhaps the most important difference in China and Southeast Asia’s ecommerce outlook – China, is one country, and while there are some significant in-country regional differences (e.g. level of sophistication and dialect), there is one governing party and one focus. While no one will tell you it’s easy doing business in China, it’s at least one set of challenges, versus trying to navigate the entire Southeast Asia region – from mature English speaking markets like Singapore, to small but sophisticated countries like Thailand and the vast archipelago of Indonesia. Its focusing on six markets versus one. My advice: pick one country then gradually expand, using local partners to help you navigate the challenges.
2. The ecommerce landscape
China’s colossal ecommerce market is now #1 in the world, dominated by C2C , which is still 65% of the total ecommerce market . The stars of this show are Alibaba (Taobao, TMall, Alipay, Ali Express and Ali logistics) and their ecosystem of service providers, Tencent (WeChat, QQ) and JD.com. While Amazon is present, they don’t dominate; no Facebook, Google or eBay are in China. On the other hand, Southeast Asian online ecosystem is such a mixed bag – in Singapore, cross border reigns as the English speaking citizen/expats happily order from abroad to get the best prices or they just walk down Orchard street where thousands of foreign brands have set up shop. In Indonesia, consumers are still learning about retail, so ecommerce remains nascent.
How will Southeast Asia ecommerce grow up? Part of the Alibaba or Tencent family or more aligned with the global market, dominated by Google, Amazon, Apple & Facebook?
One thing is for sure – the marketplaces are here to stay – so if businesses don’t have a channel management strategy, get one soon because whether you like it or not, your brand will be present in the regions various marketplaces.
China is at least five years ahead of Southeast Asia in terms of the infrastructure necessary for retail and online commerce. China, most retailers/etailers guarantee delivery 1-2 days in Shanghai & Beijing, and 2-3 days in most Tier 2 and 3 cities. Once outside of Singapore and Malaysia, there is a lack of quality providers – a major reason why aCommerce, has placed its investment in being a trusted fulfillment and delivery service. This is particularly true when it comes to ecommerce. While second and third tier cities hold some of the greatest potential for ecommerce, getting a package to its destination outside of major cities can be a major challenge.
4. Local competition
Here, China and Southeast Asia have some similarities – don’t underestimate your local competition in either country! Just two examples, – in China, Ochirly, a young woman’s fashion brand, was invested by L Capital (the venture arm of LVMH) which paid $200MM for 10% of the company. Yes, that’s right, a company you’ve probably never heard of has 400 stores in China and a valuation of more than $2Bn. Your competition in China could be a multi-national corporation or a guy in a one-room apartment in Shenzhen who is happy to make 10 RMB more this week. In Indonesia, local marketplace Tokopedia raised a whopping $100MM from SoftBank and Sequoia to become the dominant C2C platform. Across Southeast Asia, LINE – although not a “local” company – dominates the messaging space over Whatsapp or Viber with over 60m users in the region and Thailand being its biggest market outside of Japan. LINE partnered with local ecommerce enablers to ramp up their ecommerce and mobile commerce initiatives. This is also why local full service ecommerce companies such as Indonesia’s 8commerce, SingPost and aCommerce have popped up to help service the market with better local knowledge and resources.
5. The cost conscious consumer
Arguably, most consumers are value conscious but the Chinese take it to a whole new level. Many take delight in negotiating (or haggling) the price down. Consumers in Southeast Asia are very similar in terms of price sensitivity. A small move such as a 10% increase in price can tank orders by 100x in a matter of few days, as an agency discovered under a client’s request. Ecommerce in this region was accelerated by the daily deals wave spearheaded by companies such as Groupon and Ensogo that catered to customers’ need for great value. The increasing popularity of price comparison sites like Priceza or Rocket Internet’s PricePanda are a testament to this as well. Recently, Lazada ran it’s Singles’ Day promotions and was able to achieve record sales by offering steep discounts to customers.
With a half billion people, ecommerce in Southeast Asia has potential but one must remember it is a long way from being the massive consumer market of China. Plus, it’s a region with different cultures, regulation, and retailer market infrastructure and dynamics. For brands and retailers interested in the region — pick one country and invest, working with local or regional partners that can help you learn. If it works, we may just see this little sister become “the belle of the ball”.