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Here’s what you should know.

1. Paytm ecommerce in talks to raise up to $200m from Alibaba

The funding round will take the stake of Alibaba and its affiliate Ant Financial in Paytm Ecommerce, an entity newly created by One97 Communications Ltd to house the online retail business, to more than 50% from 42%.

A deal will confirm that Paytm will continue to be the vehicle for Alibaba’s ecommerce play in India. In 2016, the Chinese online retailer contemplated a standalone entry into India or an acquisition.

Read the rest of story here

 

2. DHL: Cross-border ecommerce could be huge growth opportunity

According to “The 21st Century Spice Trade: A Guide to the Cross-Border Ecommerce Opportunity”, cross-border online retail is predicted to grow at twice the rate of domestic ecommerce. At this rate, the market will jump from $300 billion in 2015 to $900 billion in 2020.

Read the rest of the story here.

 

3. Indonesian email users check their inboxes for retail promotions

A survey of email users in the country conducted by research firm JakPat in January 2017 found that 30.6% of respondents named receiving shopping promotions as one of the main reasons they used email. 80% of users check email via mobile phones.

This seems like an easy win for marketing strategy.

Read the rest of the story here.

 

4. Tech Update: Snap publicly files for IPO 

Snap is expected to go public at a valuation north of $25 billion in early March, making it not only the first tech IPO of the year but also one of the largest in a while. That means Snap is not only setting itself up as a bellwether for future consumer tech IPOs, but also for the tech IPO market in general.

Read the rest of the story here.

Welcome back to our morning round-up. Here’s what you need to know before the weekend arrives.

1. Matahari Department Store’s shares up amidst controversy

Amidst controversy regarding Emirsyah Satar, the current chairman of Lippo Group’s MatahariMall.com as a potential suspect in a bribery case related to the procurement of aircrafts and engines, shares for Matahari Department Store have actually gone up 1.3% to 14,900 rupiah.

Read the rest of the story here.

 

2. As cross-border buying booms, so does Tmall global

The total number of international brands on the platform skyrocket 169% to 14,500 in 2016 from 5,400 last year. The number of product categories soared 85% to 3,700 from 2,000 over the same period.

Read the rest of the story here.

 

3. Amazon may be integrating shopping experiences into VR

Last month the company hired former Tribeca Film Festival head Genna Terranova to oversee VR projects at the company’s studio. A recent job posting shows that the company is looking for a creative director of VR to “envision the future of Amazon’s VR solutions” Variety reports. Nothing has been confirmed since then but perhaps we will be able to shop virtually on Amazon soon.

Read the rest of the story here.

Before you end the day, check out the top ecommerce headlines

1. Cross-border ecommerce ‘set to skyrocket’ in China

With Chinese authorities relaxing the rules, online purchases of overseas products are expected to increase to $285 billion in value in 2018, up from $136 billion last year.

China is already the largest eCommerce market in the world, with the use of CBEC via such marketplaces as JD Worldwide and Tmall Global being attributed to the continuing rise of the upper middle class with its growing use of the internet and belief that international brands are of higher quality.

Read the rest of the story here

 

2. 500 Startups reportedly to enter Philippines in 2017

The global early-stage VC firm, 500 Startups, is reportedly planning to enter the Philippines in 2017, according to 500 Startups Partner Vishal Harnal in a television interview with Bloomberg.

“When you invest in early stage like us, we like people on the ground, who are hearing things, meeting with entrepreneurs.Which is why rather than make those bets from Singapore, Malaysia or Indonesia, we like to have people on the ground in the Philippines,” said 500 Startups Partner Vishal Harnal.

Read the rest of the story here

 

3. Baidu’s ambitious plans for the US feature AI and adtech

Baidu seems to have found its own solution to tackling the US market that not only involves AI, but also intelligent apps and a machine learning-powered ad platform.

Baidu has been vocal about recognizing AI as the next stage of the internet, and their efforts in the Baidu Silicon Valley AI Lab show their commitment to research in the field, specifically: image recognition, speech recognition, natural language processing, robotics, and big data.

Read the rest of the story here

Diving into Friday morning? Here’s what you need to know.

1. Online retailer Ymatou expects huge Black Friday sales

China’s cross-border e-commerce has been growing over the past few years. The Shanghai-based cross-border e-commerce site ymatou.com expects the scale of the Black Friday event this year to be 10 times over last year by hiring more than 30,000 overseas buyers.

Ymatou said it is set to ensure that Chinese online shoppers can get the same deals that their Western counterparts enjoy during Black Friday. Buyers can broadcast their shopping process at the online shopping platforms.

Read the rest of the story here

 

2. Fashion re-seller Banananina gets into ecommerce

Jakarta branded fashion reseller Banananina has moved into ecommerce in a bid to reach potential customers outside the Indonesian capital.

Founder Fitri Maya Safira says the new sales channel is expected to grow daily transactions from 30 to 70 items, and that her customers mainly live in Bandung, Blak, Jayapura etc.

Read the rest of the story here

 

3. Chinese majors Baidu, Alibaba, Tencent & JD may see decline in US deals

Baidu, Alibaba, Tencent and JD have participated in more than 90 deals totaling over $7.7 billion since 2012. Their deal activity in the US peaked in 2015, rising nearly 5x between 2012 and 2015.

However, this pattern may shift following Baidu announcing the launch of a $3 billion late-stage fund in October in the form of Baidu Capital and its $200 million early-stage fund, under the management to Baidu Ventures. This specific fund is targeting investments in AI and virtual reality.

Read the rest of the story here.

 

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

 

4PX Express has grown into China’s biggest cross border ecommerce platform, reports Singapore Straits Times.

The logistics platform helps merchants such as AliExpress, TaoBao, eBay and Newegg to get their goods delivered to customers across the world.

In terms of scale, 4PX is twice the size of the #2 and #3 players in China combined.

As China’s ecommerce boom spreads to other parts of the world, outbound volumes have spiked over the last two years, with 4PX founder Kevin Li predicting that the market will grow at least 80% each year for the next few years.

Approximately 40% of shipments handled by 4PX are bound for shoppers in the United States, Russia and followed by Brazil. Shoppers in the UK, Germany, Spain and France count for another 40-45% of overseas shipments.

As Li puts bluntly, “the world economy is not good, but foreigners like online shopping.”

4PX turns an annual profit of approximately $101.1 million (50 million yuan) and employs 3,500 people across 50 centers in China and 17 overseas.

As the items sold by Chinese sellers grow in value, the company plans to expand its network of overseas warehouses, where sellers’ inventory is sorted, packed, consolidated and shipped out. It also aims to be the biggest Chinese employer in the Czech Republic, with a promise to add 600 jobs over five years as it serves Western Europe with a warehouse there.

4PX’s big name investors 

The company closed its latest investment round last month, with Alibaba’s logistics arm Cainiao injecting an undisclosed sum into the firm for a 15% stake.

SingPost is an early investor, with roughly 30% share in the company. The partnership goes back to 2008, when 4PX first identified opportunities in cross border ecommerce. During that time, online sales were booming, but the parcel service industry lagged behind.

The sellers were new, they didn’t know how to sell and choose a logistics company. DHL and FedEx did professional fulfillment but were focused on the business-to-business segment. – Kevin Li, Founder of 4PX Express

From that, 4PX started to build a complete product line for parcel services, and SingPost became its first postal partner outside of China. Small parcels from China would be routed to Singapore and sent out to various countries across the world from there.

Li expects his company’s margins to fall as the ecommerce sector matures, but this shouldn’t be a cause for concern. “We are an integrator of different firms’ solutions. We exist because of our technology”.

A version of this appeared in The Straits Times on August 14. Read the full version here.