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Here’s what you need to know today.

1. Alibaba makes its move in Indonesia, partners Emtek on mobile payments

Alibaba’s Ant Financial has locked in a partnership with Indonesian media conglomerate Emtek. Together, they’ll launch a new mobile payments product as well as other financial services.

The payments solution will be offered on Blackberry Messenger (BBM), which is operated by an Emtek subsidiary and has 63 million monthly active users in Indonesia. 

Emtek is turning BBM into much more than just a chat app. It allows people to shop, play games, watch videos, and more.

Read the rest of the story here

2. Amazon gets a wallet license in India

Amazon India has received permission to run a wallet license in India, becoming one of the 84 companies authorised by the Reserve Bank of India to operate payment licenses.

The wallet will probably be linked to Amazon Pay, which Amazon introduced in India last December, although then it was seen as a rebranding of its gift cards business.

A one-click payment option doesn’t work in India without a wallet

Amazon also offers customers faster refunds with Amazon Pay, within 24 hours. Storing money in the wallet will help Amazon ensure that the money is spend on Amazon directly, and also allows it to offer cashbacks on purchases to wallets.

Read the rest of the story here.

 

3. Recommended Reading: Closing shop on China’s online platforms

The online store closures of a number of retail and luxury brand giants indicate that the competition is no less fierce online.

The closure of Lotte’s Tmall store seems to have stemmed from the fact that China is Lotte’s only international market where growth is stymying. Sales fell during the last three months of 2016, year-on-year. ASOS, the UK’s largest online fashion retailer, entered China in 2013 with high expectations but announced its closure in April 2016 due to a running loss of 4 million GBP.

Companies looking to take advantage of China’s market size and sell to Chinese consumers often mistakenly believe that ecommerce offers a shortcut to success because there are fewer licensing requirements to operate through ecommerce, and customs clearance is faster.

However, as high-profile store closures in 2016 demonstrate, ecommerce requires extensive pre-entry knowledge of regulations, a realistic logistics plan, and a local marketing strategy.

Read the rest of the story here.

Not many companies can say they are growing faster than the country’s expansion but Jing Dong Mall or JD.com, one of China’s most well known online retailers, is growing at almost 40% year on year. The B2C company can also add the following achievements under its belt: Fortune Global 500 member, biggest competitor to Alibaba’s Tmall and last year, acquired Wal-Mart’s Chinese division, Yihaodian.

Louis Li, the Deputy General Manager of JD Worldwide, wants to let the world know that China’s market is still maturing and open for business.

It’s hard for industry businesses to forget about China when the superpower has overtaken the US in total online spend at $752 billion in 2016, see fig below, and expected to grow 20% annually by 2020.

What are some important factors brands and retailers need to consider before selling to consumers in China’s red ocean? eIQ speaks to Louis about his views at Last Mile Fulfillment Asia.

Be the little guy

“Even if you’re big overseas, don’t assume the Chinese will know who you are and what you offer,” comments Louis.

“Be prepared to do what the smaller brands have to do to become familiar.”

This means dedicating resources to consumer education about what your business can offer and rigorous content marketing on the right platforms. This also means legwork to build a trustable name from scratch no matter how big you are elsewhere.

The channels are different

“Unlike the West, the Chinese don’t use Google, Youtube or Facebook,” comments Louis. “Companies will need to find the right tools to do marketing.”

Some of China’s most popular platforms are Mobile QQ and Tencent’s WeChat, the country’s largest chatting app that also facilitates payments, taxi-hailing, news services, food delivery and much more.

The platform boasts over 800 million users and has welcomed notable brands such as Coach, Chanel, Burberry and Apple onboard who share promotions, support followers and run sales campaigns.

JD and Tencent formed a strategic partnership in May 2016 to share big data with brands to reach more niche customers versus general sweeping TV or newspaper ads.

Source: eMarketer

Through a WeChat campaign during Chinese New Year last year, JD was able to increase Japanese skincare SK-II brand followers by 20,000.

Knowledgeable customer service reps

It’s understood that strong customer support is vital to any successful business. Louis suggests automating as much of the general inquiries as possible, for example a chatbot answering common questions such as “where can I track my package? How can I get a refund?“

A few other pointers to keep in mind when serving the Chinese consumer:

  • 73% of consumers would expand their purchases with a merchant by 10% if the merchant delivered superior customer experience
  • If they already provided their telephone number and credit card information online, they do not expect to have to provide the same information again
  • Chinese consumers like to share online and expect to be heard, the reply of the company can determine their repurchase rate
  • 86% of consumers are willing to pay more for a better customer experience

*Source: Deloitte’s “Delivering Superior Customer Experience in China”

Invest heavily or drown in the red ocean

Ecommerce in China is extremely competitive, much more than other markets, so companies should be ready to allocate resources to a team and to logistics to ensure products are delivered quickly to the end customer – especially the Chinese consumer who already has expectations.

“If you promise people to deliver same day, people will more likely buy,” says Louis. “Our people will literally cross rivers and climb mountains to get the package to the end customer.”

In 2016, JD fulfilled a total of 1.6 billion orders through its own extensive logistics network: 256 warehouses covering 5.6 million m2 and 6,906 delivery and pickup stations in China.

China’s cross-border future

By 2020, a quarter of the country’s population will be shopping either directly on foreign-based sites or through third parties. Online consumption already accounted for 13.5% of all retail spending in the country in 2016 and consumers in low-tier cities are outspending those in high-tier cities online.

The demand for goods exists. The demand for goods in Southeast Asia also exists and is strong. Not only do Chinese consumers want Thai consumer goods such as fresh fruits, the amount of trade between China and Cambodia has taken off since 2012.

Source: Bloomberg

The more online retailers, the better growth for China’s economy and its citizens is how Louis sees it.

“Ecommerce helps consumers,” says Louis. “The farmer in China’s outer provinces would never have been able to get their hands on an iPhone 7 until now.”

Forget about China? I doubt anyone will any time soon.

By: Cynthia Luo

With 600 million people, a growing middle class and rising internet penetration, Southeast Asia is often considered as the next gold rush for ecommerce. Alibaba’s $1 billion landmark acquisition of Lazada — Jack Ma’s largest overseas acquisition to date — happened here earlier this year. But headlines and hyperboles aside, how big is the opportunity for ecommerce in Southeast Asia exactly?

The $88 Billion Opportunity?

Little data exists on the current and projected size of the ecommerce market in Southeast Asia. Part of this is because it’s still a nascent industry and, as a result, legacy institutions like government and research firms are still playing catch up. Part of it is also due to the fact that C2C ecommerce, estimated to be anywhere from one-third to half of total ecommerce GMV, is mainly unregulated and untaxed. It doesn’t help that the majority of C2C in Southeast Asia actually happens on social platforms like Facebook and Instagram, facilitated by conversations on messaging apps like LINE and Facebook Messenger.

Having said that, several reputable organizations have taken a stab at assessing the size of ecommerce in this region. One of the earliest attempts at market sizing comes from AT Kearney in collaboration with CIMB. Published in early 2015 and titled ‘Lifting the Barriers to E-Commerce in ASEAN’, the report estimates the current market size at $7 billion (as of 2013), and projecting a future potential of $89 billion.

More recently, Google partnering with Temasek, released a report titled ‘e-conomy SEA: Unlocking the $200 billion digital opportunity in Southeast Asia’ that sizes the current ecommerce market at $5.5 billion (as of 2015) and foresees it to grow into an $88 billion market as early as 2025. However, it’s important to note that Google and Temasek paint only a partial picture as they are leaving out C2C and P2P marketplaces such as OLX, Carousell and Instagram because of difficulties in obtaining data.

Western vs. Chinese Ecommerce Growth Models: Why Existing Estimates on Southeast Asia’s Ecommerce Potential Are Wrong

$88 billion seems like a big deal but as soon as you put it in context, one may start to wonder if this is the right number. The US ecommerce market today is a $394 billion market. But then again, and quite obviously, the US is a much more mature ecommerce market and both Amazon and eBay are older than some of the junior staff on my team. What about China? China surpassed the US in 2013 to become the world’s largest ecommerce market in terms of GMV.

And today, Chinese ecommerce is a $700 billion market, making up about 13% of total retail in the country. With a population half the size of China, shouldn’t the future potential of ecommerce in SEA be a little bit brighter than a mere $88 billion?

southeast asia ecommerce

Things become even more interesting when we look at the projected 2025 numbers and normalize them based on population size. This metric gives us an idea how much an average person spends on ecommerce in a given year. We’ve done this calculation below for key SEA markets as well as benchmark countries like the US and China:

ecommerceIQ

A couple of things stand out here. Obviously, China is still the world’s largest ecommerce market reaching $3 trillion GMV and 25% penetration. By 2025, the average Chinese shopper is expected to spend north of $2,000 per year online, almost triple the amount Singaporeans will spend online and catching up quickly to Americans who, 10 years from now, will be spending almost $3,000 on ecommerce annually.

The other interesting bit is emerging SEA countries represented here by Thailand and Indonesia. Google and Temasek’s report projects ecommerce in these two markets to reach $11.1 and $46 billion, respectively. This number in and by itself is impressive but when normalized with respect to population size, the ecommerce GMV per capita numbers are disappointingly low $155 and $157 for Thailand and Indonesia, respectively. Perhaps there’s an explanation for this.

US and Singapore’s GDP per capita are obviously much higher than that of emerging markets like Thailand and Indonesia, people have more money to spend in general, and China’s not exactly a developing country anymore with its GDP per capita projected to reach $14,000 by 2025.

Yet if we compare China and Thailand in the table below, we can see that Thailand’s GDP per capita is estimated to reach $11,000 by 2025, which is higher than China’s GDP per capita today and not far from China’s projected 2025 number. However, based on current ecommerce projections, Thailand’s per capita online spend will only be $155 or 1% of household purchasing power.

This doesn’t make sense given that Thai consumers do have spending power and retail makes up a large part of Thailand’s economy as evidenced by below retail penetration and GDP per capita numbers. Even if accounting for the missing C2C and P2P part—let’s say the other 50%, bringing the $155 to roughly $300—this number is still low compared to China today.

southeast-asia-ecommerce-potential

From 2006 to 2016, China’s ecommerce GMV per capita grew 127x. It’s hard then to believe that Thailand’s GMV per capita will only grow 9x over the next decade, especially given that Thai people are already spending more online on a per person basis today than Chinese did at the beginning of the Chinese ecommerce boom around 2006. This only makes sense if we assume SEA’s growth markets like Thailand and Indonesia will grow at a modest, Western-style pace of 18% (US 2000-2015) and won’t be growing at China ecommerce’s last 10-year CAGR of 68%.

As we’ll soon find out, the reason for this discrepancy is the faulty application of a Western-centric ecommerce growth model whereas the right model to size up ecommerce in emerging SEA is actually the Chinese model of hyper-growth.

Brothers From Different Mothers? Emerging Southeast Asia Ecommerce Has More Similarities With China Than Anything Else

The fallacy of existing projections is that they’re often based on a Western-centric model, in which the West is seen as the tried-and-true path towards ecommerce. However, for various reasons explained below, SEA ecommerce resembles China more than markets that developed earlier such as the US, Europe and Japan. As a result, we should be expecting high double-digit hyper-growth similar to the one China experienced over the last decade instead of the more gradual year-on-year progress of more legacy ecommerce markets.

1. Lack of offline retail infrastructure

“Why did internet ecommerce grow so much faster in China than in the USA? Because the infrastructure of commerce in China was bad. Unlike here, where you have all the (physical) shops: Wal-Mart, K-Mart, everything, everywhere. But in China, we have nothing, nowhere. So ecommerce in the US is just a dessert; it’s complementary to the main business. But in China, it’s the main course.” Jack Ma, Alibaba Founder and Chairman

Bangkok and Jakarta are home to some of the most high-end malls and department stores across the region such as Central World, Paragon and Grand Indonesia. However, once outside of the capital cities, there’s much left to be desired. China is very similar, with most offline retail concentrated in tier 1 cities such as Beijing, Shanghai, and Guangzhou.

Retail GFA (Gross Floor Area) per capita is 2,200 sqm in the US versus 500, 500 and 100 sqm in China, Thailand and Indonesia, respectively, according to data from CLSA. As a result, the majority of consumers in Thailand and Indonesia have no choice but to shop online, especially those outside the bigger cities. Based on aCommerce aggregate numbers, 70% of orders are from outside Bangkok.

Like in China, all this is expected to accelerate ecommerce growth at a much higher pace than in legacy markets.

2. Cash-on-delivery as the dominant payment method

The lack of credit cards didn’t deter ecommerce in China from growing at 68% annually over the last decade. With a less than ideal financial system, logistics and delivery companies ended up filling the gap by offering cash-on-delivery (COD) solutions. In its heydays in 2008, COD was 70% of total B2C transactions in China. However, by 2014, Alibaba’s Alipay had surpassed COD as the dominant payment method, with over 85% of 11/11 shoppers expressing a preference towards using Alipay vs. only 21% for COD.

Today’s SEA is eerily similar to China 10 years ago. With credit card penetration in the low single digits, COD has become the dominant payment method, with 74% of transactions in emerging SEA paid through cash based on data from aCommerce. Like China, SEA ecommerce won’t rely on COD forever. With Lazada’s acquisition, Alibaba now is executing its master plan to bring Alipay and Ant Financial services into the region.

3. Lack of cross-border ecommerce due to high import duties and taxes

Cross-border ecommerce in China was never a big thing until recently, with the establishment of government-approved bonded warehouse zones which allow for faster international shipping times and lower fees. Global brands and retailers can now tap into the lucrative Chinese market by setting up stores on platforms like Tmall Global and JD Worldwide without having a costly physical presence in the Middle Kingdom.

Prior to this, ordering abroad was limited for many Chinese consumers due to high import duties (30%). (These import duties still apply to merchants who are not licensed to sell in China’s cross-border ecommerce network, e.g. ordering directly from Amazon.com).

Similar to China, SEA’s growth markets like Thailand and Indonesia today have prohibitive import duties and taxes. This lack of a level global playing field puts the pressure on developing a strong local ecommerce ecosystem which is what we’re seeing right now with the ecommerce bloodbath in Indonesia.

southeast-asia-ecommerce-potential-3

4. “No-Tail” ecosystem

Internet adoption in China and emerging SEA countries didn’t reach critical mass until the mid-2000’s. These markets skipped most of the Web 1.0 and “Web 1.5” booms and jumped straight into Web 2.0, leading to the formation of what we call a “No-Tail” ecosystem. As a result, digital advertising in these countries has lagged behind that of more mature markets like the US and Japan where companies like Facebook and Pinterest often see selling ads as the most obvious—and sometimes only—way to make money.

Lacking a mature advertising environment, Chinese internet companies have had no choice but to look at commerce to monetize which has lifted the Chinese ecommerce industry to its present day juggernaut status.

“While US firms focus on ad revenue, Chinese companies have become pacesetters in ecommerce,” reports The Washington Post.

“You go on Facebook and you can’t even buy anything, but on WeChat and Weibo you can buy anything you see,” said William Bao Bean, a Shanghai-based partner at SOS Ventures and the managing director of Chinaccelerator, in the very same Washington Post article.

Uber didn’t lose in China because of lack of deep pockets; the ride-sharing giant lost because it was battling a competitor that was focused on long-term ecommerce monetization, not on short-term transportation revenues.

Similar to China a decade ago, emerging SEA has an equally nascent advertising market. “There are not enough local publishers therefore not enough spend from advertisers,” said Lichi Wu, an SEA ad tech expert previously with Google and AdMob.

With “walled gardens” like Facebook and Instagram dominating all content creation, there’s not a strong enough force to break the vicious chicken-and-egg cycle. Faced with the grim reality of low RPMs (revenue per 1,000 impressions or pageviews) many online businesses have embraced ecommerce as a business model.

It’s not surprising then that one of the most popular sources of “passive” income in Thailand and Indonesia is buying merchandise from Taobao and AliExpress and reselling it for a margin on Facebook and Instagram, whereas in the US stay-at-home entrepreneurs often resort to blogging, SEO and affiliate marketing to generate advertising income.

Sizing Up Southeast Asia Ecommerce Based On The China Ecommerce Growth Model

Looking at all the previous metrics, we can observe similarities between emerging SEA ecommerce today and China in 2006. For example, Thailand’s 2016 ecommerce GMV per capita and ecommerce penetration numbers are comparable to China in 2006. (Granted, and to be precise, based on these numbers Thailand ecommerce in 2016 is already ahead of China in 2006.)

To benchmark where emerging SEA ecommerce could be roughly 10 years from now, let’s look at ecommerce GMV per capita as percentage of national GDP per capita. This metric should give us an idea of an individual’s ecommerce spending power relative to living standards. We can’t really use China’s 2016 ecommerce GMV per capita because Thailand’s GDP per capita by 2025 will be higher than China in 2016, resulting in us underestimating the potential.

China’s ecommerce GMV per capita as percentage of national GDP per capita is 6% in 2016. Multiplying this with Thailand and Indonesia’s projected GDP per capita for 2016 we’ll get $711 and $533 ecommerce GMV per capita. Then applying this to the projected population count, we’ll get a $51 and $157 billion ecommerce market size for Thailand and Indonesia, respectively. Contrast this to Google and Temasek’s projections of $11 and $46 billion and we can see how much money is left on the table.

Taking Google and Temasek’s 2015 Thailand and Indonesia numbers and including an estimate for C2C, let’s say 30%, gives us the starting point for our annual projection. Then averaging out annual growth to reach the $51 and $157 billion numbers, we’ll get the below annual projections. In this scenario, new CAGRs are 43% and 50% for Thailand and Indonesia, versus the previous ones of 29% and 39%.

southeast asia ecommerce

Without adjusting for Singapore, Malaysia, Philippines and Vietnam (former two don’t follow the China model), we’ll get a total projected size of at least $238 billion. Indonesia’s re-adjusted ecommerce projection of $157 billion alone is bigger than the original $88 billion estimated for all six SEA markets combined.

This revised projection does justice to the true potential of ecommerce in Southeast Asia and explains why everyone here is doubling down, with Alibaba acquiring Lazada for $1 billion, Tokopedia having raised $248 million to date, and MatahariMall just fresh off a $100 million round. Like in China ten years ago, those that invest in ecommerce early and take a long-term, strategic outlook will end up owning the biggest chunks of this $238 billion — not $88 billion — ecommerce goldmine in SEA.

BY SHEJI HO, CMO AT aCommerce

 

Mainland chinese cross-border ecommerce reached $17.963 billion in 2015 and a turning point, says new research from international management consulting firm Oliver Wyman, reports Retail News Asia.

According to iResearch, this number is expected to grow more than 60% reaching 7% of total Chinese ecommerce value by 2018.

However, the research firm has warned that increasing regulation in China may mean that the industry has reached an inflection point.

“Chinese consumers are probably the most informed and digitalised in the world,” the report detailed. “As Chinese consumers travel abroad, they are increasingly aware of offline prices around the world.”

Cross-border ecommerce provides Chinese consumers with access to the best products at the best prices without leaving home. The report, titled Shopping Without Boundaries found that one in five online Chinese shoppers made a purchase on cross-border ecommerce platforms in 2015, double the proportion in 2014.

chinese cross border ecommerce

Today’s cross-border ecommerce businesses expanded out of the Daigou model “buying on behalf of”, which involved small businesses abroad who brought or sent products back to China. In 2013, the Chinese government established experimental zones of cross-border ecommerce for better regulation.

The most common are platform providers such as Tmall International and self-operated plays such as Jumei – JD Worldwide operates across both models.

What can happen next?

After a strong boom, the report finds that cross-border ecommerce has arrived at a tipping point.

The future now seems unclear to many players due to a series of government regulations. Tax, product safety, manufacturing standards and logistics, these regulations have not been fully defined and leave room for speculation, the report concluded.

While cross-border ecommerce still present various opportunities, companies may want to have a plan B in the works in case the market dynamics changes.

According to aCommerce Chief Marketing Officer, Sheji Ho, cross-border ecommerce in China can be seen as a desperate move to cope with the fact that the domestic market is reaching saturation. Despite the hype, it is still a very small business compared to the domestic ecommerce market. Therefore, it should be said that the surge in cross-border ecommerce is not indicative of China’s overall ecommerce landscape.

A version of this appeared in Retail News Asia on September 17. Read the rest of the story here

Walton Brown, a brand management company under The Lane Crawford Joyce Group and eCargo, a China-based ecommerce enabler have announced a strategic joint venture to capture the Chinese market in an official press release July 25.

The two companies will join forces to under WWE & Company Limited (WWE) and launch a social mobile, multi-brand, lifestyle eMarketplace — MyMM.com — in early 2017 offering a product range of fashion, beauty and lifestyle items from international brands exclusively to customers in China.

The new company is initially capitalized at $45 million (RMB300 million) and will be led jointly by Thomson Cheng, President of Walton Brown, and Christopher Lau, CEO and Founder of ECG.

The newly formed WWE brings together two companies with very specific and different specialties; Walton Brown is a brand management company and eCargo is a specialized logistics and tech ecommerce enabler for brands in China and Australia.

According to ‘The China Playbook’ by Boston Consulting Group,

The company will tap into China’s growing mobile ecommerce market, predicted to account for 74% of all online sales by 2020 

WWE promises to provide profitable opportunities for international brands to accelerate growth and a viable option for new brands to launch into China for the first time to capture new consumers, leveraging the government’s new regulatory direction to facilitate cross-border transactions.

The press release can be found here.

The ecommerce giant’s 400 million customers will soon be able to buy products from stores all over the world, by wearing a VR helmet or glasses designed to simulate being in a physical store.

Alibaba says it plans to launch a demonstration VR store by the end of this month and could launch a large-scale rollout by the end of this year.

Shoppers can rotate products they see in the virtual store by moving the controller that connects to the Vive helmet and even ask for a model to show how the product works or is worn. Users can also use the controller to click the buy button to purchase the item in the digital store.

“VR is a great way to demonstrate products or services, especially for some categories, like furniture and travel products.” Zhuang Zhuoran, senior director of mobile at Alibaba, said at the briefing. “It also adds more fun to shopping.”

Alibaba has set up a facility, its Gnome Magic Lab, in March, to develop software that would enable merchants to build virtual stores more easily.

A shopper who wants to test the virtual reality will need VR gear, which ranges in price from $20 to $1,000. VR products are hot at the moment, with consumers buying 300,000 units of VR gear on Alibaba’s Chinese online marketplaces each month, Alibaba says.

Alibaba also has invested in VR technology startups. For example, earlier this year Alibaba led the $794 million funding round for US-based startup Magic Leap Inc.

A version of this appeared in Internet Retailer on July 9. Read the full article here