Who will conquer the USD 11 Billion e-commerce market in Southeast Asia?
The ASEAN has become a hotbed for e-commerce that two international giants are now competing for supremacy in the region.
But the unique opportunities that this emerging market presents does not come without challenges. With its population of over 600 million, hundreds of languages, cultural megadiversity, and in some nations, underdeveloped internet and mobile infrastructure, will Alibaba or Amazon be in it for the long haul?
“Southeast Asia is China 10 years ago”
In a December 2017 report by Google LLC and Singapore government-owned wealth fund Temasek Holdings, Southeast Asia’s e-commerce market grew from USD 5.5 billion to USD 10.9 billion in 2017 and is expected to expand to USD 88.1 billion by 2025. There is currently no other market with this much force of growth anywhere else in the world.
In reality, though, there are significant differences among ASEAN countries — such as quality of internet maintenance, the rate of smartphone penetration, obtaining logical systems and storage, and the extent of digital payment system adoption — which is why lumping them into one big market can create serious issues. However, the area is gradually starting to function as an economic community, as can be seen in the abolishment of goods taxation between countries. Infrastructure maintenance is also reasonably improving and the usage rate of e-commerce is seeing a sharp increase. When it comes to smartphone proliferation and increase in e-commerce activity running in parallel with each other, ASEAN is looking like China 10 years ago.
China’s largest e-commerce enterprise, Alibaba, has been earnestly engaging with the Southeast Asian market. Along with considerable financial muscle, their confidence stems from their experience in having already cleared the issues of this market in their home country.
In 2016, Executive Chairman of Alibaba Jack Ma became the Malaysian Government’s “Digital Economic Advisor,” and in the following year, was appointed “E-Commerce Advisor” by the Indonesian Government. In the Philippines, he has collaborated with the Department of Finance in areas of financial technology and personnel training. Also in Malaysia and Thailand, he has announced large projects for the building of international logistics bases.
The reasons ASEAN countries have unanimously developed alliances with Alibaba on a national level is both for advice on how to proceed with their country’s economic and societal digitization, as well as their approval Ma’s proposed plan of the “Electronic World Trade Platform” or eWTP. The realization of eWTP involves tackling the issues of logistics hubs, electronic service platforms, digital payment, financing, and training of IT personnel, while calling for differing business practices between countries, which are seen as barriers, to be removed to build border-free e-commerce. Through this, there can be opportunities for small and medium-sized local businesses and individuals to advance towards the world market.
Alibaba’s Malaysia endeavors
It’s Malaysia who has so far collaborated the most progressively with Alibaba. Not only do they plan to build an Alibaba international logistics center next to Kuala Lumpur’s international airport by 2020, they have started constructing the first data center outside of China to handle eWTP data processing in cooperation with the government. They have also launched a network that supports the e-commerce of small and medium-sized businesses.
Furthermore, this year Alibaba’s group company Alibaba Cloud announced they will initiate in Malaysia their big data and AI-utilizing city management project “City Brain” in collaboration with the government-owned Malaysia Digital Economy Corporation.
This solid involvement in the construction of infrastructure on a national level is a characteristic of Alibaba’s Malaysian expansion and was particularly held in high esteem by the previous Prime Minister Najib Razak. The general election in May saw a changeover in the political administration, which has led to large-scale national projects being revised; however, it seems unlikely that these IT projects will be disrupted.
Spread of digital payments
For e-commerce, digital payment systems are just as important as logistics. Southeast Asia has an extremely low rate of people owning credit cards or bank accounts. For around 70% of the populace, the preferred payment methods are cash-on-delivery and deposits via ATMs. China was once like this. In around 2008 in China, when e-commerce started to take off, about 70% of B2C transactions were done via cash-on-delivery. Then, Alibaba’s digital payment service Alipay soared, and by 2014 had surpassed cash-on-delivery.
Being aware of this, Alibaba then took the opportunity to acquire e-commerce site LAZADA that had expanded to six countries in Southeast Asia and introduced Alipay to Asian countries that had entered into the e-commerce industry. Alibaba’s subsidiary Ant Financial Service also invested in e-commerce-related local businesses, and this has spurred the increasingly strong spread of mobile payment businesses in Thailand, Indonesia, and Malaysia.
In a similar way, the owner of China’s largest social media network, Tencent, has also been steadily cementing its foothold in the ASEAN. While introducing digital transactions on their affiliated e-commerce sites, Tencent is currently aiming to build an environment overseas where Chinese tourists can use WeChatPay (alongside the already available Alipay) at retailer shops in each country.
In 2017, Vietnamese Parliament approved a government-led project to bring down cash usage to below 10% of all transactions by 2020 and aim for 200 million digital transactions annually, and this is on-track to make all e-commerce transactions digital. In general, legal reforms to improve the reliability of digital payments and reassessment of bank account opening procedures are making progress in Vietnam, and since 2016, the number of digital payment users is sharply increasing.
Amazon eyes the supremacy of Alibaba
In Singapore, where the headquarters of Alibaba subsidiary LAZADA is located, the battle for share in the crowded e-commerce market is cutthroat. Alibaba currently stands supreme here with its efforts for a future-driven approach that involves industry, government, and academia. This can be seen in Ma’s announcements for plans to build an IT technology R&D hub and a joint project with Nanyang Technological University. At the same time, Alibaba is keeping an eye on other enterprises, such as Amazon, who is showing interest in overtaking their territory.
March in 2018, Amazon teamed up with the Vietnam E-Commerce Association (VECOM), which is made up of 140 e-commerce-related Vietnamese companies. Amazon has started allowing Vietnamese companies to sell their products overseas via the platform this year. As a first strategy, they are currently supporting exportation to VECOM-member companies. After that, there’s a big chance they will enter the Vietnamese market through their “Marketplace” format which doesn’t require owning warehouses and storage.
If all goes to plan, they will likely go on to establish their own large-scale warehouses, similar as in Japan and the United States, and firmly start their online shopping business. In that event, Vietnam will become the next country after Singapore to host both platforms of Alibaba and Amazon. Due perhaps to its complicated history with China, Vietnam’s cooperation with Alibaba is lagging behind compared to other ASEAN countries. With these circumstances, Amazon sees it as a market ripe for the taking by way of their brand power and unique know-how.
Meanwhile, China’s second-biggest e-commerce enterprise, JD.com, established a base in Indonesia in 2015, launching the site “JD.id.” With their adept merchant-style operations, JD.id has established its foothold in Indonesia with five warehouses in Jakarta and four in regional areas.
Along with their investment in Vietnam’s tiki.vn in 2017, JD.com has furthermore established an e-commerce and financial technology or fintech-related joint venture with Thailand’s retail giant Central Group. They have made Thailand their product supply and logistics base for their Southeast Asian market, and in Indonesia, by substantially establishing logistics bases for domestic-use, they have made clear their intention to create a hub for this archipelagic region.
Considering the current conditions, it’s still premature to say that Alibaba will go on to conquer Southeast Asia and stand supreme. However, it’s a natural consequence that they will become a model within the area due to their role in boosting the once IT-impoverished China into the developed nation it is today.
While carrying the banner of eWTP, they are currently attempting to apply their heretofore rule-of-thumb to Southeast Asia. On the other hand, even though there is a sense of affinity among these Southeast Asian nations, the region features a multitude of languages, cultures, and religions, unlike China.
In reality, despite the comprehensive e-commerce services of Alibaba and Amazon, there are consumers whose needs have not yet been covered, leaving room for start-ups and local businesses to nudge their way in. While the giants who are blessed with both the financial muscle and technology are allowed to lead infrastructure development, the next generation will likely be watching with eagle eyes to swoop in and take advantage with distinctively local and specialized e-commerce sites and infrastructure developments.
Text: Christine Roque
Original text (Japanese): Chiharu Kuwajima
