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Over the last few weeks, we have looked at the ecommerce landscapes in Indonesia, Thailand, Malaysia, Singapore and the Philippines to see how the five largest markets in the region are faring. The region itself is a diverse and fragmented landscape having disparate infrastructure and fickle government regulations, making it hard for global brands to find a one-size-fits-all solution to conquer $238 billion in market potential.

However, despite the diversity of each country, there is a common theme apparent for ecommerce in the region. Here’s what we have discovered from the Southeast Asian ecommerce landscape in 2016.

1. The domination of Lazada – or soon, Alibaba

One player that has succeeded in making a name for itself in every country across the region is Lazada Group. The company, introduced by Samwer Brother’s Rocket Internet in 2012, has dominated monthly web traffic by millions in almost every country. Their recent acquisition by Alibaba has only cemented their position of power and plays a key role in Jack Ma’s big plan for Southeast Asia.

The only market with local players that puts up a decent fight with the giant is Indonesia. The country has several big players in the B2B2C sector – MatahariMall and Blibli to name a few – backed by big enterprises or conglomerates. But deep pockets is not the only thing that gives these players an upper hand, local knowledge of the market is also a big advantage.

southeast asia ecommerce landscape

With the looming news of Amazon’s expansion into Southeast Asia with Singapore next year, Lazada doesn’t seem to be worried as they have the advantage of years of consumer data and its latest acquisition of Redmart is seen as the latest effort to thwart Amazon at its own game.

2. M&A as a strategy to survive

Ecommerce is a long term game. Even with a good business model, companies need to be able to sustain themselves for the marathon before they even have a chance to make profit, let alone reap the other additional benefits of going online.

This year, the region has seen a lot of acquisitions as players attempt to expand market share or make an entrance. This includes the old news of ‘Alizada’, a $1 billion acquisition that left players in the industry trembling with excitement or the acquisition of Caarly by Carousell to accommodate the growing interest of people looking for cars on the mobile platform.

Some of the acquisitions were done by non-ecommerce players hoping to expand their reach. There is the latest move by K-Fit, a subscription fitness startup, acquiring Groupon in Indonesia and Malaysia; and the exit of Zalora in Thailand and Vietnam to Thailand’s conglomerate, Central Group, earlier this year.

With hundreds of players clamoring for a chunk of market share, it’s only time before natural selection leaves only the strongest and most committed players in the arena.

3. Payments sector is saturated, but no true problem-solver

Payments is still one of the largest hurdles for ecommerce in the region despite the financing boom for Southeast Asian fintech startups in 2016. Numerous startups are attempting to create a payments product for the sake of ‘doing fintech’ but aren’t addressing fundamental payment issues like a high unbanked population.

All across the region we see players in every market trying to address local financial challenges with little success. In Thailand, the government’s effort to create a cashless society with PromptPay has been halted indefinitely when Government Saving Banks (GSB) ATMs fell victim to the cyber criminal.  

Coins.ph in the Philippines is using bitcoin to increase financial inclusion in the country but is still at a nascent stage. In Indonesia, Telcos and even ride-sharing apps are fueling the high-profile race of mobile wallets – no doubt inspired by Alipay’s and WeChat early days strategy in China – but not a single e-payment option has become widespread.

southeast asia ecommerce landscape

Bank transfers and cash-on-delivery (COD) still remain the top two most preferred payment methods and continues to cripple ecommerce.

4. The key to C2C is through mobile

Consumer-to-consumer is estimated to make up at least 30% of ecommerce market share in the region but is tricky to measure because it happens on social channels like Facebook and Instagram and payment typically happens offline.

In Thailand, around 50% of online shoppers make purchases through a social network – making it the biggest social commerce market in the world. Consequently, it has attracted Facebook to make the country its first test base for social commerce payments and Facebook Shop.

This habit of preferring social commerce pushes players to focus on mobile to be able to capture the customer in an already familiar environment. In Singapore, 38% of online shoppers are making purchases through mobile, higher than the global average of 28%, and inspires home-grown companies like Imsold, Shopee and Duriana to focus on mobile platforms to appeal to more customers.

singapore ecommerce landscape

C2C players are also seen dominating Google Play Store in the Shopping category for every market, with Shopee being the most favored in almost all the countries. In the Philippines, the platform has become the answer to the high demand for popular international brands that only recently available in the country through official offline channels

5. Delivering ecommerce packages gets easier

The rise of ecommerce in the region has also boosted logistics infrastructure. The sector has reached an all time high of funding at $28.16 million in 2015 – led by aCommerce, the tech-logistics ecommerce solutions provider, with $20.2 million before its bridge series of $10 million earlier this July.

Meanwhile, JNE, the largest logistics company in Indonesia, stated that 70-80% of its revenue came from the retail sector dominated by ecommerce and hopes to maintain its annual growth of 30-40%. German-based DHL is also reportedly raising the stakes to grab market share, including the opening of a hub in Singapore.

The on-demand delivery service, led by ride-hailing apps like Gojek and Grab, is also thriving in markets where traffic congestion is distressing like in Indonesia and Thailand. Their motorbike fleets allow them to achieve same day delivery.

Where in the Philippines, cross-border package forwarding services like ShippingCart and POBox.ph are targeting the unique high volume of cross-border transactions in the country to fuel their businesses.

The many facets of Southeast Asia’s ecommerce landscape

Despite the warnings about the region’s diversity, the core ecommerce bottlenecks in Southeast Asia boil down to one – poor infrastructure. Lazada’s strong footprint in the region did not happen overnight, its early-adopter status enabled collection of customer data and the ability to build its own infrastructure – logistics (LEX) and payments solution (Hellopay) – in almost every market. But it almost cost them its business before getting swept off its feet by Alibaba.

southeast asia ecommerce landscape

It comes to show that regional players need to be able to adapt their strategies by keeping tabs on the dynamic trends and consumer behaviors. They need to prepare for a long-term investment before hoping to make their mark in the region and if not – better stick to just one market.

Find the ECOMScape series here: Indonesia, Thailand, Malaysia, Singapore, and the Philippines.

SingPost ecommerce delivered positive sales growth in the last quarter by 30.9% to $248 million (S333.4 million), but saw a decrease in net profit by 23%.

The increase reflects expansion in cross border ecommerce activities, as well as the integration of new US subsidiaries TradeGlobal and Jagged Peak. Both of these companies run ecommerce fulfillment and logistics operations, acquired in November 2015 and March 2016, respectively. The company recently won Japanese fashion brand UNIQLO’s ecommerce business in Thailand.

Ecommerce related revenues more than doubled from $54.3 million to $122 million. They now make up 49.3 % of Group revenue, up from 28.7% last year. 

Ecommerce related revenues now make up 49.3% of the total Group revenue, up from 28.7% last year. 

Logistics revenue rose 11.9% to $116.7 million, with steady organic growth at Quantium Solutions and CouriersPlease, as well as the inclusion of a new subsidiary under Famous Holdings. Increased cross border ecommerce related activities led postal revenues to a 1.5% rise, indicating an increased demand of cross border services. 

Increased cross border ecommerce related activities led postal revenues to a 1.5% rise, indicating an increased demand of cross border services. 

Total expenses increased 33.6%, driven largely by growth in international mail traffic and ecommerce logistics volumes that reflect the change in the Group’s business mix.

Net profit attributable to equity holders declined 23.0% to S$35.9 million, due largely to one-off gains from the divestments of Novation Solutions and DataPost HK in the corresponding period last year.

From the SingPost Press Release:

Underlying net profit, which excludes one-off items, was down 11.2%, due to investments in business transformation. Rental income declined as the Singapore Post Centre (“SPC”) retail mall is being redeveloped, while depreciation charges were incurred for the Regional ecommerce Logistics Hub, which obtained a Temporary Occupation Permit in April 2016.

SingPost also continued to invest in ecommerce IT and operational capabilities. Mr Mervyn Lim, Covering Group Chief Executive Officer, said, “We are investing in our business transformation and that will take time to contribute materially to earnings. We are focused on executing our strategy to create value from our acquisitions and build an integrated global ecommerce logistics ecosystem. SingPost’s strategy to protect the postal core and grow its ecommerce logistics network remains on track.”

The good news will be welcomed by SingPost, following the company’s spell of negative headlines regarding internal investigation over board members, and the stepping down of Director Keith Tay in May.

Access the press release here

By Anutra Chatikavanij & Felicia Moursalien

 

Rocket Internet’s food delivery startup Foodpanda has announced that it is acquiring local competitor, Hungerstation in Saudi Arabia, reports Tech in Asia.

The terms of the acquisition are not disclosed.

Foodpanda operates in Saudi Arabia under the ‘Hellofood’ name, and has been active since 2013. Hungerstation, which was founded in 2012, will continue to operate as a standalone site.

The combined business will cater to an inventory of over 2,000 restaurants spread across 30 cities in the country. It claims its entire Middle Eastern business will now turn profitable as a result of the acquisition.

Just last month, Foodpanda has announced that it was on its way to profitability in Southeast Asia, namely with thriving business in Singapore.

“Along with our other businesses in the Middle East, Hungerstation and Hellofood consolidate our market leadership in the region and we are proud to have achieved overall profitability just three years after launch,” says Raf Wenzel, CEO of Foodpanda.

Foodpanda’s latest funding round came in March 2015, when it received $110 million in funding. The startup also went on an acquisition spree in the same year, where it acquired rival sites in seven countries. It seems that Foodpanda is continuing the move quickly through acquisition, this time targeting local competitors in the Middle East.

A version of this appeared in Tech in Asia on August 9. Read the full version here.

Wal-Mart Yihaodian Fails in China, B2C bloodbath

(Hint: It’s a red ocean bloodbath), Image source: FactsRider

Its demise was inevitable. Since its 2008 launch, Wal-Mart’s online grocery business Yihaodian struggled to gain traction in China in the red sea of deep pocketed local B2C ecommerce players. Finally, Yihaodian has thrown in the towel and being sold to ecommerce Goliath JD.Com. The recently announced deal means JD will take over Yihaodian online and Wal-Mart will acquire a 5% stake in JD.com.

The Chinese branch of Sam’s Club, an American chain of membership-only retail warehouse clubs owned and operated by Walmart, will open a flagship store on JD.com, and the two companies will link their supply chains, broadening the range of imported goods. Wal-Mart, No. 8 in the China 500, will receive approximately 145 million newly issued Class A shares of JD.com in the transaction. So why and how did Wal-Mart’s seemingly successful Yihaodian fail so quickly in China?

 

Wal-Mart Yihaodian Fails in China Acquired by JD.com

Wal-Mart Yihaodian fails in China because the B2C market in China is a bloodbath. Smaller or global players will be hard-pressed to succeed there.

Wal-Mart’s Yihaodian fails in China, but why?

Walmart’s China strategy sought to establish itself as a source of high-quality food products after a series of safety issues in China, but failed because it could not adapt to local culture and buying patterns. It could also not compete with the economies of scale that giants JD and Alibaba wield. In TechCrunch last year, Sheji Ho and I predicted this when writing Forget China, There’s a Gold Rush in Southeast Asian Ecommerce Sphere

“In the Chinese ecommerce race the market giants have taken too large a lead for too long in China.

“Smaller” players such as Amazon, Rakuten, and Neiman Marcus entering the market struggle to compete because of fewer domestic resources, a lack of understanding of the Chinese market, as well as slower execution. Recent examples include Macys and Neiman Marcus shutting down their China ecommerce initiatives and Amazon throwing in the towel and opening a store on Tmall, China’s largest B2C marketplace.

With Tmall and JD owning close to three quarters of the Chinese B2C ecommerce market, there just isn’t much room for both “smaller” global and local players like Yihaodian, Suning, Amazon and VIPShop to compete. They cannot tap into the economies of scale enjoyed by the market leaders. B2C ecommerce is a winner-takes-all market where the rich get even richer.”

With nearly 6,000 delivery and pickup stations in approximately  2,500 counties and districts across China compared to Yihaodian’s mere 250 hubs, it sadly did not have a strong chance.

Cross-border ecommerce isn’t the answer either

Nonetheless, the company seemed optimistic last year. At a logistics conference in Shanghai, Yihaodian senior manager Yang Shenling said with confidence that ‘cross-border is the last blue ocean for Chinese ecommerce.’

The inbound cross-border market is estimated to be 155 billion RMB ($25 billion) and is expected to grow to a whopping 1 trillion RMB ($164 billion) by the end of 2018 according to The China e-Business Research Center cited by Shenling. But when we asked Yihaodian how big its new cross-border business was in terms of percentage of total company sales it turned out to be only 2% and projected to go up to 10% over the next five years.

Ten percent is still a very small number and getting there would be an uphill battle as the quality and safety of domestic products will no doubt increase over the next few years thanks to increased government pressure and regulation. As quality improves, there will be no need for Chinese consumers to look abroad.

In many ways, cross-border ecommerce in China can be seen as a desperate move to cope with the fact that the domestic market is reaching saturation. And despite all the hype, it is still a very small business compared to the Chinese domestic ecommerce market.

Lucky for them, JD.com has been doubling down on winning the food category. Last August, it bought a 10% stake in Yonghui, a rival that specializes in fresh food. From the Yihaodian acquisition, the company stands to gain credibility of a global brand in its efforts to be seen as a more trusted food retailer in the rightfully suspicious Chinese food ecommerce landscape.

Businesses are realizing that China is a Venus Flytrap – plenty of allure but crushing once inside.

This is just the beginning as global players are increasingly realizing that China is a Venus Flytrap – plenty of allure but crushed once inside. They instead start to look longingly south towards the real blue ocean- Southeast Asia. Expect China’s B2C ecommerce bloodbath to get a lot murkier as global and smaller ecommerce players learn the Amazon and Yihaodian China lesson the hard way.

By Felicia Moursalien

Please share your feedback to @ecomIQ and @LilFel