Chinese e-commerce companies are making significant investments in Southeast Asia. With the right approach, all parties stand to benefit.
E-commerce is becoming a critical part of Southeast Asia’s economic development. It is also a massive area for potential growth. Chinese companies are tapping into this with acquisitions, investments and mergers.
With investment comes opportunity and innovation. By working together, e-commerce companies can strengthen links between Southeast Asia and China. However, investors must avoid significant pitfalls as they enter fragmented and underdeveloped markets.
Economists identified e-commerce as key to growing trade and economic integration
As current ASEAN Chair, Singapore is pushing hard to develop e-commerce. Its ministers believe it will improve economic integration and boost trade. Business to consumer (B2C) e-commerce is up 23% in ASEAN in the last five years. Experts predict it will overtake traditional retailing and grow at 10 times the speed.
Credit Suisse analyst Santitarn Sathirathai predicted an “explosion” in e-commerce activities. Chinese investment will be the catalyst. He described Alibaba and Tencent as “tech dragons” awakening “hidden tigers”.
The analogy is a sound one. Southeast Asia’s e-commerce penetration stands at around 2-5%. That puts ASEAN nations well behind China, South Korea and the US. However, ASEAN’s current level of e-commerce penetration is comparable to China’s in 2010.
Source: New Straits Times
Chinese companies will continue to invest in ASEAN
The potential for growth is clear. With that in mind, Chinese companies stepped up investment in e-commerce in ASEAN. Alibaba invested US$2 billion in Lazada. JD.com linked up with Tokopedia while Tencent invested in Go-Jek as it prepares for expansion. Maybank Kim Eng analysts believe this trend of mergers and acquisitions will continue.
Amazon recently launched in Singapore. Could ASEAN be a new battleground for Amazon, Alibaba and Tencent? Competition between these significant players should drive innovation. Such competition could help both China and Southeast Asia.
There are 158 million middle-class consumers in ASEAN. Analysts see this as “the next frontier” for the e-commerce market. Increased investment from China will boost trade.
Companies in the region see e-commerce as a new growth engine. Malaysian ministers believe that China and ASEAN can build a business growth platform. Collaboration is key. Companies would prefer to work with an e-commerce giant instead of smaller partners.
China has much to offer ASEAN in return for access to a growing market
Chinese companies bring investment, know-how and experience. Companies can use their knowledge to overcome challenges. Innovations in e-payments and tech platforms can help e-commerce grow in ASEAN. China, meanwhile, gains access to an enormous customer base of around 2 billion people.
However, Chinese companies will need more than money and knowledge to make progress. There are significant challenges ahead. ASEAN markets are still fragmented. Uber failed in its bid to rival Grab and other local rivals by running its own operations. Now, pending regulatory approval, it will invest in Grab. Customers should see benefits. Other e-commerce companies are now following a similar method.
Amazon has already struggled with logistical problems. The last mile of delivery is a long-standing issue. However, Chinese companies have significant experience in this area. They can apply this to ASEAN. There are also custom issues and problems with cross-border payments. Alipay and WeChat Pay have a limited presence. Cash still dominates in Southeast Asia, but this is changing.
Some experts believe that Chinese companies are best placed to overcome these issues. They should now know that investing and scaling the market up is the best access route. Trying to launch on their own and compete with existing local companies is riskier.
In Thailand and Singapore, governments have pushed for more adoption of e-payment systems. In China, e-commerce companies drove the transition to e-payments. They now have the expertise to help. Alibaba is already guiding the Philippines towards being a cashless society. Funding local e-commerce companies will speed up the move towards e-payment adoption.
E-commerce is set to grow, but Chinese companies must focus on each market
E-commerce will continue to grow in Southeast Asia, as it will globally. Chinese investment coupled with government support will continue to stimulate the e-commerce revolution.
However, the same approach will not work everywhere. Singapore and Thailand lead the way when it comes to e-payment adoption. At the same time, experts claim Indonesia has the best growth prospects. Each country presents unique regulatory and logistical issues.
Chinese companies face challenges to make their investments work. They must seek to deliver returns for themselves and Southeast Asia. They must accept that each country’s market is different. They must tailor their strategies to take that into account. They must learn from what has worked – and what has not – in the past. If they heed those lessons, expect e-commerce in ASEAN to grow and grow.