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When Singaporeans shop online, they tend to buy products sourced from outside the lion state.

Overall, it’s estimated that 55% of all ecommerce transactions in Singapore are cross-border – meaning the items were listed on etailers in the US or China, for example – and then shipped to their eventual destination.

The statistic is higher than corresponding figures for cross-border online trade in Japan, South Korea, and China.

This is undoubtedly strengthened by the fact that the overwhelming majority of ecommerce purchases in Singapore are prepaid with credit card and Singaporean consumers are exempt from GST and import duties as long as the total value of their order is below S$400.

Singapore is also a high-income country, meaning residents can afford to splurge, while also bereft of the same logistical challenges that stymie higher adoption of ecommerce in countries like Indonesia and the Philippines. Next-day delivery is the norm.

In 2016, the World Bank declared Singapore the fourth-best country for logistics infrastructure in the world noting it’s an important hub for regional and world trade, located conveniently in the heart of major shipping lanes.

There are other factors at play, too. Amazon and Singpost have a collaboration to facilitate the delivery of overseas purchases within three days – roughly the average time it takes to deliver a domestic order in Indonesia.

Despite the fantasized utopia of a truly open world economy – a scenario where goods and services can move unhindered to where demand is – the reality is that cross-border flows still involve a great deal of friction.

Cutting down cross-border fees for Singaporeans

The first problem is that there’s a high degree of financial inefficiency, with banks and payment processors trying to capitalize on arbitrage opportunities to bump up their own bottom line. Foreign exchange rates also work against consumer interest with banks routinely charging far more than official rates. And lastly, consumers are simply unaware of the available discounts and promotions that may be applicable to their purchase.

Jake Goh, CEO of RateX.

“Consumers are still paying unnecessary fees when they shop online, e.g. they pay 2%-5% in transaction fees on top of the price of the goods they purchase due to the frictions in existing payment networks,” explains Jake Goh, CEO and co-founder of RateX, a Singaporean payments startup that’s trying to iron out these inefficiencies and level the playing field.

RateX, which recently raised a US$2.3 million pre-series A funding round, has built a free browser extension – currently available on Chrome and Firefox – where users can get the lowest exchange rates for overseas purchases on Amazon and Taobao.

The extension also aggregates coupon codes, applying it directly to applicable sales. It leverages partnerships with Sephora, Zalora, ASOS, and more.

The extension is currently only available for consumers in Singapore, but the team expects to add Taiwan and Indonesia to its roster later this year. The long-term goal like most companies is to dominate the region.

“Southeast Asia is the world’s fastest-growing internet market. Gross merchandise value of ecommerce will rise to US$65.5 billion by 2021, up from US$14.3 billion in 2016,” outlines Jake referring to a study by Frost & Sullivan.

Jake claims RateX has helped shoppers save S$500,000 in both foreign exchange conversion fees and coupon codes since launch. He adds that they’re expanding at 30% month-on-month but doesn’t specify whether that’s in terms of users or transaction value.

A cursory examination of the website reveals the number to be actually S200,000 though.

Leveraging blockchain

The founder accepts that while the ultimate goal is to simplify cross-border commerce for all of Southeast Asia, a key hurdle the company faces is siloed infrastructure when it comes to payment and settlement mechanisms. There are significant overheads and fees involved when dealing with multiple currencies and paying merchants in different countries.

So what’s the solution to this problem? Jake believes blockchain can minimize the intermediaries involved in cross-border settlements. The team’s already working on the Rate3 token – a proprietary payment network built on top of the Stellar horizon platform that specifically looks to solve problems in fintech.

“This significantly reduces the risk and fees associated with different banks in various countries […] RateX eventually leverages on [it’s] own payment network to scale in a much more efficient way compared to existing methods,” explains Jake.

The eventual aim is for the Rate3 token to be used pervasively across the ecommerce ecosystem, bridging together shoppers, merchants, 3PLs, wholesalers, and manufacturers.

“We believe that blockchain technologies are key to creating this [enabling network],” affirms Jake.

The key challenge for the team will be convincing the disparate players in the ecosystem to come onboard by accepting this token as a payment mechanism. It’s unclear what the incentive structures will be for them to move away from existing structures towards Rate3.

At the moment, however, the primary mode of monetization is via affiliate sales, where merchants give RateX a commission of the sales it brings to them. The RateX browser extension will suggest products as users browse sites and the site has an updated list of trending deals.

“This business model allows us to give consumers zero markup on exchange rate conversion fees and transaction rate fees,” outlines Jake.

Singaporean shopping preferences

The startup’s been facilitating shoppers in Singapore for a couple of years now. What has it noticed about trends in the country?

Jake reiterates the view that Singaporeans are one of the top cross-border shoppers in the world. Despite a thriving mall culture, the sheer variety of international brands and fast-fashion trends means that all products cannot be found in local stores. Even when they are, it’s sometimes cheaper to purchase from overseas via online shopping even after factoring in shipping fees.

The two largest segments for its user base are consumer electronics and appliances – which are primarily sourced from either the US or China – as well as clothing and fashion brands that haven’t established a presence in Singapore yet.

The dynamic goes some way in explaining why Amazon set up shop in Singapore as well as the decision of Lazada to offer merchant goods from Alibaba’s Taobao marketplace. Consumer purchase intent is marked and vivid, why not double down to make the process even more seamless?

Jake also notes that most RateX shoppers display a tendency to purchase things late at night.

Online activity spikes between 10PM – 1AM in Singapore.

Mobile shopping is on the upswing, Jake says, but it’s still not the dominant channel particularly when it comes to big-ticket purchases. Desktop browsing and shopping are deeply ingrained in the Singaporean consumer psyche, a factor that Jake believes is due to the better product comparison features on a larger screen.

Singaporeans are also incredibly plugged in. The average resident has over three connected devices and the overall internet penetration rate is about 85%, one of the highest in Asia, but Singapore isn’t a mobile-first country like Indonesia or the Philippines. Consumers accessed the web on desktops and PCs before the smartphone revolution engulfed the region. It doesn’t seem like these preferences are going away anytime soon.

Discretionary spending, the act of buying things you don’t need by McKinsey’s definition, has been on the rise in China (unsurprisingly) as monthly disposable income of urban households double.

 

Spending expected to grow from $0.64 trillion (2000) to $4.38 trillion (2020). Source: McKinsey 2017

What does this mean? More Chinese shoppers, as well as Southeast Asians, are spending on items that are categorized as ‘semi-necessities’ (ex. high-end skin care lotions, designer hand bags, etc.).  

As one professor and author studying Chinese consumerism puts it,

“I think the Chinese dream is the American dream plus 10%.”

What’s important to note is that a growing portion of this spending is happening outside of the country.

58 million users in China are expected to engage in cross-border transactions in 2017 and cross-border ecommerce alone is expected to reach 7.5 trillion RMB ($1.1 trillion USD) this year.

Korea, Japan and the US are currently the most popular destinations for the Chinese to find products that they believe are better quality, worth the price and guarantee authenticity – some of the reasons why they shop overseas.

Recently stepping into the limelight is neighbour and resource-rich Southeast Asia, that has recently landed on China’s radar.  

Where do China-Southeast Asia trade relations stand?

China’s no. 1 and no. 2 ecommerce behemoths, Alibaba and JD.com respectively, are already directing the world’s attention to the region through recent activities. The former increased its stake in the region’s largest e-marketplace Lazada to 83% and the latter continues to fortify its local presence in Indonesia and Thailand and rumoured to be investing in existing ecommerce player Tokopedia.

The One Belt, One Road initiative that plans to build extensive roads, power plants, bridges, etc. to connect over 60 countries received financing from Chinese President Xi JinPing earlier this year.

How One Belt, One Road will connect over 60 countries. Source: Quartz

The super power’s leader pledged $109 billion SGD ($80 billion USD) to the “project of the century”.

It’s also easier to do business in China without a license as the country’s highest government authority previously approved 10 cities with a large number of warehouses for expedited handling of cross-border ecommerce purchases by customers.

Foreign retailers/brands can store merchandise they bring into China duty-free, and then send items as they are ordered through customs under the relaxed cross-border ecommerce rules.

Calculations from May 2016 counted total two-way investments between China and ASEAN countries to be over $160 billion despite political turmoil over the South China Sea.

As the gates open for easier trade between China and Southeast Asia – both literally and figuratively – businesses should have an eye open for opportunities in the other market.

It makes sense for brands operating in China to be marketing in Southeast Asia, especially when Alibaba holds around 60-70% China’s ecommerce market share and no player has more than 25% of the total cross-border ecommerce market share.

The Chinese giant long launched its very own Taobao shop-in-shop (SIS) on Lazada to target price-sensitive Singaporean shoppers with over 400,000 Chinese products.

“Southeast Asia is an attractive FDI destination for China because of its fast-growing and large domestic market,” said Lee Ju Ye Maybank economist in Singapore.

Jack Ma has also long-expressed introducing businesses to China.

These were snippets of an interview Ma participated in June this year,

“We’re interested in bringing local products to the world, to China. This has always been our focus.”

“For Thailand’s small and medium-sized ecommerce companies, don’t worry. If they want to compete with us in bringing Thai products to China and the world, maybe it’s tough, but if they do serve the customers locally, it would be great.”

In order to do this, companies in Southeast Asia need to capture Chinese consumers by bypassing marketplaces and selling direct to consumers through localized content marketing and offering products that the Chinese are already hungrily looking for.

Popular overseas goods include red wine, fresh produce such as avocados, milk and fruits.  

A BCG study also found that before Chinese customers decide to make a purchase, consumers make contact with a product through seven different touch points on average, such as store displays, product promotions, or social-media comments.  
The opportunities seem endless (keeping in mind tax revisions) or as Louis Li, the Deputy General Manager of JD Worldwide wants to remind the rest of the world, “don’t forget about China.”

Here’s what you should know today.

1. China’s JD.com reportedly in talks to invest in Indonesian marketplace Tokopedia

JD is reportedly in early-stage negotiations to invest hundreds of millions of dollars in one of Indonesia’s largest online marketplaces.

JD’s potential investment may propel Jakarta-based Tokopedia past $1 billion in valuation

A successful deal with Tokopedia will take JD’s competition with Alibaba to Indonesia, an oil-rich country of 260 million that’s experiencing a surge in smartphone usage and middle class affluence.

Unlike Alibaba and fellow Chinese internet giant Tencent, JD has tended to grow its business organically, relying on its own networks of shippers and delivery-people to control quality and service.

Read the rest of the story here.

 

2. Singapore to help SMEs compete in the global marketplace

Finance Minister Heng Swee Keat’s Budget 2017 has placed a strong emphasis on helping businesses stay competitive and grow in an increasingly global marketplace.

The new Go Digital Programme is a government ‘leg up’ for SMEs and an exciting new addition to a series of strategies to strengthen small and medium-sized businesses in Singapore.

More than $80 million will be made available from the government to fund these initiatives.

Read the rest of the story here.

 

3. Recommended Reading: A complete guide to Alibaba’s cross-border payment solution: Alipay ePass program

Alibaba’s Alipay ePass payment program is one such tool and was once expected to be the solution to international luxury brands’ battle with counterfeiting issues and the rampant overseas daigou market.

Alibaba launched its Alipay ePass payment system with U.S. brands on their e-commerce platform, allowing Chinese shoppers to pay for products with Chinese currency through Alipay.

ePass was designed to bring more than just a payment solution. Alibaba’s cross-border payment system also helps brands with logistics and marketing issues.

Merchants that join ePass also have access to Alibaba’s global logistics network.

Read the rest of the story here.

Here’s what you need to know today.

1. Fintech startup LatiPay raises funding to expand to Singapore & US

What is LatiPay? Auckland based LatiPay allows Chinese consumers to pay for goods and services using Yuan whilst merchants receive full payment for goods or services direct to their local bank account in their local currency. Chinese payers can make payment through their preferred bank payment or Alipay, WeChat pay and more.

The platform has raised $3 million in Series A funding from Singapore-based venture capital firm Jubilee Capital Management. The expansion will tap into the increasing popularity of cross-border payments.

Read the rest of the story here.

 

2. Walmart launches free, 2-day shipping

Starting today, Walmart will begin offering free, two-day shipping on over 2 million items, with no need for a membership fee for ‘everyday essentials’. Walmart owned Jet.com Jet.com also offers 2-day delivery on hundreds of thousands of common items, and ships for free on orders over $35.00.

This could be seen as a response to the Amazon threat.

Read the rest of the story here.

3. US eyewear startup Warby Parker will launch 25 new stores this year

Warby Parker plans to open at least 25 retail locations this year, a rare brick-and-mortar expansion amid store closures at several chains. The eyeglasses seller said it would open stores in Miami, Los Angeles and other cities, bringing its total store count to about 70 this year.

The brand is often used as a key example for pureplay ecommerce players who have since adopted an offline strategy, bringing up observations about the changing phase of retail.

Read the rest of the story here.

Here’s what you should know today.

1. Indonesia’s cosmetics startup Sociolla raises series B 

The startup’s series B comes from Istyle, a Tokyo  fashion company that operates, among other  popular beauty website @cosme in Japan. East Ventures also participated in the round. The terms weren’t disclosed.

Istyle plans to expand its business operations to Indonesia through its partnership with Sociolla. Taiwan, Hong Kong, and Thailand will follow later this year.

Read the rest of the story here

 

2. Amazon, eBay and Alibaba account for two-thirds of cross-border purchases

The second edition of the International Post Corporation (IPC) cross-border e-commerce shopper survey has confirmed the leading role played by Amazon, eBay and Alibaba.

The IPC survey found that consumer preferences in China differed from other developed markets. Chinese consumers are more likely to shop online than consumers in any other country, said IPC, with 36% shopping online at least once a week.

Read the rest of the story here.

 

3. Recommended reading: New luxury lies in untapped markets, business models and mindsets

Major changes are coming to luxury with new markets likely to emerge such as cannabis and pets, and new business models such as following products through their lifecycle instead of separating ties after the sale.

Read the rest of the story here

Here’s a market overview of Southeast Asia’s online space that everyone in the industry understands so far:

  • The ecommerce market is expected to be worth 238 billion USD by 2025.
  • The region is still relatively young with only 1% of total retail GMV being generated online compared to 7.1% and 15.9% in the US and China.
  • There is a fast growing young & digital savvy population of 158 million who spend approximately 19.4 hours online per week.
  • Southeast Asia is the only truly ‘mobile-first’ region.

southeast asia ecommerce

  • The region is only a decade behind China’s booming online ecosystem because of the following:

Lack of offline retail infrastructure outside tier 1 cities

Surging domestic consumption spurred by growth in GDP/capita

Major capital investment into ecommerce businesses

Cash on delivery as a dominant payment method

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

Hyper-competition

“No-Tail”ecosystem

So what do all of these numbers and comparisons mean? We take a deep dive into how these factors drive ecommerce forward in Southeast Asia and provide companies with a simple phased approach to consider before entering the market:

Almost Like China

The region is following China’s trajectory due to similar historical developments and ecosystem mentioned above. Southeast Asia is however more competitive due to it being an open market versus China’s closed one, making it easier for companies to enter.

Mobile Commerce

The leapfrog towards mobile is disrupting traditional desktop-first platforms and moving C2C ecommerce straight into mobile marketplaces such as Carousell and Garena-backed Shopee. The high smartphone penetration rate is also giving access to the rural and rapidly emerging consumer base as 85% and 79% of online shopping comes from outside of the major metro areas in Thailand and Indonesia. Thailands mobile growth exceeded developed countries like US and China within the first year 3G technology was launched with an average Thai user having 1.4 mobile phones.

Social Commerce

Browsing for items on social platforms and purchasing offline is a unique phenomenon in Southeast Asia where Lazada isn’t Thailand’s biggest ecommerce platform; Facebook and Instagram are.

 

An estimated one-third to half of total ecommerce GMV is happening on social platforms like Instagram, Facebook, and LINE in Thailand compared to 16% globally. Based on a survey done in Bangkok by ecommerceIQ, 48% of respondents indicated to have purchased something they found on  Facebook, Instagram, and/or LINE in the last three months. Page365, a startup that helps small retailers sell products via social media, estimated that social commerce is worth more than 500 million USD per year in Thailand alone.

Businesses have the opportunity to leverage the high popularity of social networks in the region to push ecommerce forward. Online transactions can be done via chat-apps and social media to reach out to Southeast Asians that prefer making ecommerce purchases through channels they’re already familiar with rather than a traditional website.

Cross-Border

Disparate infrastructure and fickle government regulations make it hard for global brands to find a one-size-fits-all solution to enter the region.

High import duties are a barrier to cross-border ecommerce, which is why companies are recommended to operate locally or partner with a specialist with on-ground knowledge.

Singapore is an exception in Southeast Asia where cross-border businesses can thrive thanks to the high local demand for overseas goods and low custom duties.

Payments

The region’s consumers still rely heavily on cash on delivery (COD) with which 70% of online payments are made. Most C2C commerce happens via bank transfer as consumers are still reluctant to share their financial information online and less than 20% of the population (excluding Singapore) make online payments via debit or credit card.

Currently, there are no dominant payment platforms who have been able to create a solution that will replace COD in the region such as Alibaba’s alipay has been able to do in China.The region is making continuous efforts to raise awareness about e-payment to overcome this challenge not just with consumers but also businesses.

Knowing all of this, companies need to take a strategic approach if they are looking to leverage the next big opportunity for ecommerce in Southeast Asia. Sheji Ho, Group CMO of aCommerce shares a step by step phased approach that companies of any sector can follow.

A Step Approach to Enter Southeast Asia

1. Organic Demand from Overseas

If a company is getting organic inquiries about its business from Southeast Asia with no marketing push, it means they are receiving organic cross-border interest.Through those inquiries and additional research of the competitive landscape, the company should look into whether there is potential for its business to carve a niche and start in one country first as the fragmented market make it difficult to enter all markets at once.

The ECOMScape series details the current players in the following landscapes: Thailand, Malaysia, Indonesia, Singapore and the Philippines

2. Reaching The Local Consumer

Once demand has been identified, the company should begin testing ways to scale online initiatives to improve it.The best combination would be through local digital marketing and a local language website and landing page.

3. Local Entity & Fulfillment

Once businesses have proven that demand can scale, they are recommended to set up an entity nearby their target demographic for a more efficient local fulfillment and operations process, especially important for casodelivery cash reconciliation. If a company decides to operate outside its target market, the costs of high-custom duties would bleed them dry.

The only cases where it may succeed would be for  low custom duty markets within the region like Singapore and to a lesser extent Malaysia. But for companies based outside Southeast Asia, such as Taiwan, a local approach is required to tap into the growth markets like Thailand and Indonesia.

What Next?

In Southeast Asia, competition is welcome as it drives more innovation in the tech and ecommerce space. Although companies in the US such as Amazon have provided a glimpse of what business models could work, Southeast Asia is still an entirely new game that plays by its own set of rules.

Entrepreneurs aiming for this region cannot simply replicate the successful business models of the US.It may succeed in the short term but when the big players such as Amazon enter the market, they are going to wipe out competitors by offering a substantially better product as a result of technological, capital and human capital advantages.  

Looking towards China, the past decade of competition in the Chinese ecommerce space has resulted into arguably the most innovative market not just in retail but also in adjacent industries like finance and banking, with products such as Alipay Wallet and WeChat Pay.

In Thailand, the heavy competition between marketplaces like Lazada, Wemall and 11street will lead companies to avoid competing on economies of scale and price only and adopt a unique spin to its business model. We’ve noted a few well-known ecommerce players below and their progress since entering Southeast Asia.  

As ecommerce becomes more mainstream, the more traditional industries like banking, insurance and healthcare in Southeast Asia are also starting to adopt a digital strategy.

Competition will only increase as companies from across the globe look to leverage the urbanization and digitization of Southeast Asia. May the smartest, most swift ecommerce company win.  

BY RUCHIPHA THAKRAL BASED ON SHEJI HO, ACOMMERCE CMO’S PRSENTATION AT MOBILE MOVES COMMERCE EVENT IN TAIPEI.

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