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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.”

The “O2O2O Solution”, jointly developed by UBM and Alibaba B2B business units, aims to improve the B2B trading experience reports Yahoo Finance.

The partnership includes:

  • Alibaba B2B business units (includes Alibaba.com and 1688.com, the platform for domestic B2B trade in China)
  • UBM, Asia’s leading trade show organizer

What is O2O2O?

The “O2O2O Solution” is targeted at small industrial companies that are looking to expand their businesses beyond their local market, with the partnership facilitating that expansion. In the future, Alibaba will also offer ecommerce integration via Alibaba’s B2B transactions, payment, protection and logistics services for companies that sign up.

Essentially, this partnership will allow Alibaba to consolidate the smaller industrial players in China who are looking for the know-how to expand online.

The ‘O2O2O Solution is expected to reshape the B2B trading experience by integrating the online and offline trading scenes, resulting in unprecedented convenience for buyers to search and contact sellers, arrange meetings and place orders online.

The ‘O2O2O’ Solution will launch at SIGN and LED CHINA events where all participating exhibitors are given online product and company showrooms by Alibaba B2B through the O2O2O Solution System, allowing potential buyers to search and view their listings, contact the exhibitors, and even request a meeting ahead of the event.

“Through our strategic partnership, we have discovered the keys which unlock a greater potential for enabling better trade sourcing through the online and offline world,” says Jime Essink, President and CEO UBM Asia.

It seems that Alibaba is making a move to consolidate the B2B arena in different countries, as seen by the company’s recent partnership with DHL and Dehlivery in India, a move that will reinforce the buyer-seller relationship.

With O2O2O Solution, Alibaba is inching closer to facilitating the entire B2B landscape in China.

A version of this appeared in Yahoo Finance on September 18. Read the rest of the story here.

 Southeast Asian Stocks Rise As Brexit Concerns Drop

Source: finance.yahoo.com

Stocks across Southeast Asia in four countries rose as possibility of Britain remaining in the European Union increased, reducing market risks.

  • Singapore stocks closed more than 1%, led by oil and gas stocks
  • Philippines closed 0.6% higher with consumer cyclical such as Bloomberry Resorts Corp leading the market
  • Vietnam was up more than 1%, as oil and gas stocks such as Petrovietnam Gas Joint Stock Corp rose
  • Indonesia ended higher, helped by energy shares

Britons will cast their votes on June 23 in a referendum on whether to leave the EU. The probability of Britain remaining in the union rose to 72%, up from 60% in the previous week.

“Perception is that the British public is likely to vote in favour of remaining in the EU. If that is the case, it would remove the overhang of risk in the markets,” said Nirgunan Tiruchelvam, an analyst with Religare Capital Markets in Singapore.

Southeast Asian optimism in the context of Brexit

Initially, panic was spreading across markets in fear of Britain exiting the European Union but now it serves as an important reminder to protect the global market.

Countries such as Philippines has expressed optimism about the new President-elect, Rodrigo Duterte, who is beginning his six-year term on June 30.  Duterte’s economic team will be committed to boosting infrastructure, fixing traffic congestion and improve investment frameworks. Not only will this serve to improve ecommerce infrastructure and transportation roadblocks, it will also improve Philippines’ economic growth as a whole.

A version of this appeared in Jakarta Globe on June 21. Read the full article here.

Thailand-Cambodia Partnership Aims To Boost Trade

Foreign Ministers Don Pramudwinai and Prak Sokhon; Source: vietnambreakingnews.com

Thailand and Cambodia have agreed to upgrade four border checkpoints and open new ones to boost bilateral trade and tourism along the shared border. The goal is to increase trade volume between the two countries to $15 billion US over the next five years.

Thailand Foreign Minister, Don Pramudwinai, and his Cambodian counterpart, Prak Sokhon, have agreed to upgrade small border checkpoints, i.e An Ses, Phnom Dei, Thmor Da and Chub Kokei, to international standard checkpoints. The two ministers have also agreed to open the Stung Bot-Nong Earn international checkpoint and another border checkpoint at O Neng-Banbaray.

Trade exchanges will be a priority for the border as the two sides aim to increase the number of trucks carrying goods across the border, as well as facilitate trade application procedures.

The aim is to increase bilateral trade to $15 billion US in 2020, three times more than the current $5 billion. Currently, about 70% of Thai products exported to Cambodia were transported by road and passed through the Poipet international border checkpoint.

There is also a railway link between Thailand and Cambodia planned for the end of 2016 to increase trade between the two countries.

Advantages of upgrades checkpoints

The aim to open new checkpoints comes after reports show a 15% decrease in the two-way trade volume. Bilateral trade will urge Thai traders to strengthen the quality of products and promote new ones for Cambodia to import. This strategic partnership should be leveraged in order to boost the economic growth of both countries, while the new checkouts should create more trade opportunities in the region.

A version of this appeared in Khmer Times on June 22. Read the full article here.

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