With Ali, Jingdong and other e-commerce giants have entered the sinking market, the last piece of domestic e-commerce “new continent” is also divided up. This means that it will become increasingly difficult to continue to tap into the stock market of domestic e-commerce. The competition in the future will revolve around the stock market, and it is conceivable that it will be far more intense than before.
In the above context, out of China, to the world to find the market has become the new choice of some e-commerce platform. However, in the current international situation, Chinese companies want to develop foreign e-commerce market is not easy. In terms of market size, the United States and Europe are still the largest overseas markets.
However, these regions and China’s current relationship are relatively delicate, plus like Amazon and other giants have occupied a large share of these markets, the construction of high barriers, so to enter these markets, the difficulty can be imagined. And South America, Africa and other regions, although the population base is not small, the market potential is huge, but either political turmoil, or not enough basic conditions, coupled with huge cultural differences, and therefore not too favored by domestic enterprises. After ruling out the above options, many Chinese companies finally focused on the same place, which is Southeast Asia.
First, why is Southeast Asia important?
In many people’s impression, Southeast Asia seems to be just a few good scenery, but the development of relatively backward collection of small countries, the development of e-commerce does not seem to have much room. But in fact, there is a big error in this impression. Although compared with China, Southeast Asia, whether in terms of total population or market size, are far from each other, but if you look at the world, it is an economic force to be reckoned with.
At present, there are eleven countries in Southeast Asia, with a total population of nearly 700 million, which is close to one tenth of the world’s total population, and the population size should not be underestimated. In terms of economic strength, according to the IMF, in 2018, the total GDP of these 11 countries was about $3 trillion, which is about 1/4 of China’s GDP in the same year.
If we look at the GDP per capita, the top three of these 11 countries-Singapore, Brunei and Malaysia-are even higher than China back then. Therefore, if we look at the potential purchasing power needed to develop e-commerce, Southeast Asia should fit the bill.
Of course, to develop e-commerce, the Internet and other infrastructure is naturally essential. What is the state of Internet penetration in Southeast Asia at this stage? Google, Temasek and Bain once jointly released an “Internet Economy in Southeast Asia 2020 Report” (ecoonomySEA2020), which provides statistics on the Internet development status of six major countries in Southeast Asia – Vietnam, Thailand, the Philippines, Malaysia, Singapore and Indonesia.
According to the data published in this report, in 2015, the total number of Internet users in the six Southeast Asian countries was 260 million, and by 2019, this number has risen to 360 million. In 2020, the number of Internet users in Southeast Asia increased further by 0.4 billion to reach 400 million. Based on this figure, the Internet penetration rate in the six Southeast Asian countries has reached 68.6%. And according to the figures released by China Internet Network Information Center (CNNIC), China’s Internet penetration rate is about 67% in the same period. This shows that, in terms of the development of e-commerce network foundation, Southeast Asia also has.
However, although Southeast Asia has a huge market potential and a high Internet penetration rate, at this stage, its e-commerce development is still at a relatively low level. Statista, a statistical consulting firm, had conducted a survey on the scale of e-commerce in Southeast Asia. According to the data they published, in 2015, the GMV of Southeast Asia’s e-commerce market was only US$5 billion; in 2019, the figure rose to US$38 billion.
In 2020, due to the impact of the “new crown” epidemic, e-commerce experienced relatively high growth, with the annual GMV rising 63% from 2019 to reach $62 billion. According to the forecast, by 2025, the e-commerce GMV in Southeast Asia will reach $172 billion. If we just look at its growth rate, it should still be good. However, if you compare it with more developed e-commerce regions such as China, you will find a very obvious gap.
In 2020, China’s total online retail sales will be about 11.76 trillion RMB, or about $1.8 trillion. Assuming that e-commerce in Southeast Asia reaches a similar level as China, then according to its population size, it should be able to support a GMV scale of more than $0.7 trillion. And according to the actual situation now, Southeast Asia has achieved less than even a tenth of this figure of e-commerce GMV.
For this figure, of course, there are many different possible ways of interpretation. But no matter which way of interpretation, we can see a fact, that is, Southeast Asia’s e-commerce potential is still far from being released. And once this potential has been released, then the value contained in it will be extremely considerable.
Second, Southeast Asia’s e-commerce development profile
So, Southeast Asia is a very promising market, how is the current state of development? Roughly speaking, it presents a kind of “head tripod, followed by the group of heroes chasing” situation.
There are many companies engaged in e-commerce business in Southeast Asia, and the top three – Shopee, Lazada and Tokopedia – have a clear advantage and are in the first tier. According to the latest statistics, Shopee’s monthly visits are close to 200 million, Lazada’s monthly visits are around 160 million, and Tokopedia’s monthly visits are 0.72 billion.
If we look at GMV, then in 2019, Shopee, Lazada and Tokopedia are roughly in the same order of magnitude with GMV of $17.7 billion, $13 billion and $15.8 billion, respectively. The second echelon of e-commerce behind these three giants has a large gap with the first echelon in terms of volume. In terms of visits, even the top ones, Bukalapak and Tiki, have only 20 million visits per month.
And in terms of GMV, the gap between the second tier and the first tier is even bigger. Therefore, in the coming period, the main competition in Southeast Asian e-commerce should be concentrated among the three Shopee, Lazada and Tokopedia, while the subsequent second tier may become an unexpected disruptive force under certain conditions.
Interestingly, behind the major e-commerce platforms in Southeast Asia, we can easily find the shadow of the domestic Internet giants, especially the three giants now ranked in the first tier is very deeply entangled with the domestic giants. In this sense, Southeast Asia’s e-commerce market can actually be seen as the second battlefield opened up by the domestic Internet giants overseas.
In the first echelon of Southeast Asian e-commerce, Lazada and the domestic Internet giants are the closest relationship. In 2016, Alibaba invested US$1 billion to acquire 51% of Lazada’s shares, achieving a controlling stake in the company.
In 2017, Alibaba invested an additional $1 billion to increase its stake to 83%. Subsequently, Alibaba has made several additional multi-billion investments in Lazada. Therefore, in terms of share structure, Lazada can basically be regarded as a wholly owned subsidiary of Alibaba in Southeast Asia.
Alibaba’s old rival in China, Tencent, can not be willing to lag behind? Soon after Alibaba entered Southeast Asia by investing in Lazada, Tencent also entered the market by way of investment in Lazada’s Southeast Asian rival, Shopee. 2015, Shopee was founded in Singapore, its parent company is Sea.
Speaking of Sea, Chinese friends may not be familiar with, but talking about its origins, there is a person we should not be unfamiliar with, is that in previous years often appear on television, “for their own endorsement” of the founder of Jumei Youpin Chen Ou. In 2005, Chen Ou founded GGGame, an online platform while studying in Singapore, and the following year, he left it to his friend Li Xiaodong to take care of it because he was going to study in the US. Shortly after, Chen Ou sold all shares of GGGame for some unknown reason and withdrew from the platform completely.
After that, Li Xiaodong adjusted the direction of the company’s operation, shifted the business to game development and operation, and changed the company’s name to Garena, whose business took off and attracted Tencent’s attention. Since 2013, Tencent has been making continuous investments in Garena. By 2017 Garena changed its name to Sea, and on the eve of its Nasdaq listing, Tencent’s stake in the company had reached 39.8%, ranking first among all shareholders.
In the industry, Sea is often referred to as Southeast Asia’s “Little Tencent” in part because of this. Since Tencent is the majority shareholder of its parent company, Shopee can also be seen in a sense as an e-commerce venture by Tencent in Southeast Asia.
Tokopedia is a bit more complex than Lazada and Shopee, as it now has investments from both Ali and Tencent, two of the country’s biggest Internet giants. established in 2009, Tokopedia was one of the first e-commerce platforms in Indonesia. Unlike Lazada and Shopee, which are dedicated to doing business throughout Southeast Asia, Tokopedia is more focused and focuses on deepening its focus on the local Indonesian market.
Because of Indonesia’s large population and market, Tokopedia has grown rapidly and has become the top domestic e-commerce company in Indonesia in just a few years. Because its business model is very similar to that of Taobao in China, it is often referred to as the “Indonesian Taobao”.
In 2016, Alibaba invested $1.1 billion in Tokopedia. Tokopedia has grown rapidly since the introduction of Alibaba’s investment. According to the 2020 Hurun Global Unicorn List, Tokopedia has reached a valuation of about RMB 55 billion in 2020, ranking 35th on the list.
But Tokopedia isn’t satisfied with that. Just last month, it and Gojek, another major Indonesian Internet company, a mobile on-demand service and payment platform, jointly announced that the two companies would merge to form a new company called Goto. Since Gojek itself has Tencent’s investment, Tokopedia, which is a platform under Goto, will naturally take on Tencent’s genes after the merger.
Through the above analysis, we can see that two major Internet companies, Alibaba and Tencent, have already entered the Southeast Asian market one after another through investment. Therefore, for quite some time, the Southeast Asian e-commerce battle can be interpreted as a continuation of the competition between the two domestic Internet giants overseas.
Third, the “small Tencent” temporary lead
We already know quite well about the competition between Alibaba and Tencent in China.
In terms of time, the gap between the two companies involved in the field of e-commerce is actually not very big.
Taobao got its start in 2003. In 2004, Taobao took advantage of the strategic mistake of its rival ebay and successfully defeated its strong rival to occupy the first chair of C-commerce.
In 2005, Tencent took advantage of the east wind of listing and quickly launched its own e-commerce trading platform, pat. It should be said that, at that time, pat is a huge opportunity for development.
On the one hand, at that time, the domestic e-commerce market has just developed, the market opportunity is very broad. The competitor, ebay, gradually faded out of the Chinese market due to the failure of competition with Taobao, and the temporary leader Taobao was also deeply involved in various criticisms due to the charges of the tool “Zhaocaijinbao”.
On the other hand, at that time, Tencent’s QQ already had a considerable scale, so it successfully grasped the important resource needed for the development of e-commerce – the traffic advantage. It is reasonable to say that in this context, pat actually has the opportunity to take the lead, or, at least, can be equal to it. However, the plot did not develop in this direction later.
Because pats are too similar to Taobao in various attributes, it is difficult to break through Taobao’s first-mover advantage with differentiation. The company’s main focus is on C2C, and people are not used to their friends knowing what they are buying and selling, so QQ’s diversion not only did not play a positive role, but also made a botch of it.
Under the combined effect of the above factors, Tencent soon abandoned pat, and finally simply sold all kinds of e-commerce businesses, including its own, to Jingdong. Since then, although Tencent has also made several attempts in the field of e-commerce, but all ended in failure. Alibaba, on the other hand, has gotten better and better in the e-commerce field, taking Taobao’s branded products out independently and setting up the Tmall platform, which focuses on B2C. To date, Tmall and Taobao are still the largest B2C and C2C e-commerce platforms in China.
So how will the situation be different when Alibaba and Tencent meet again in Southeast Asia? Will they use their old ways, or what new tricks? In the answer to this question, the answers given by the two giants are still very different.
For Alibaba, its pioneering in Southeast Asia is basically an attempt to take the path it has taken in China again. Before Alibaba entered Southeast Asia, Lazada had basically replicated the initial journey taken by Taobao in China, becoming the No. 1 e-commerce platform in the Southeast Asian market.
However, like the original Taobao, Lazada is still largely in a muddled state. A variety of good and bad merchants are mixed together, and it is difficult to control the quality. Since taking control of Lazada in 2016, Alibaba has worked to break this chaos by trying to replicate the successful domestic template directly onto the platform, which is Tmall.
At first, Alibaba mainly let Lazada operate independently, giving advice itself. But soon, Ali found that its own will was difficult to be well implemented. For example, when Alibaba on its part asked Lazada to shelve more branded goods, the latter would put it off on the grounds that it was not suitable for the local buying level; and when Alibaba asked to build a large warehouse base, Lazada would say that the scale was too big and ask to change the area to a smaller one. This resistant attitude soon annoyed Alibaba, prompting it to continue to invest more and take full control of Lazada.
After achieving full control of Lazada in terms of shares, Alibaba sent a large number of employees with excellent business skills and absolute loyalty to the company to Southeast Asia. Among them, Peng Lei, the former head of Ant Financial Services, was one of them. After the funds and personnel are in place, Alibaba can finally make a complete transformation of Lazada by its own will.
Considering the confusion of the positioning of goods on the Lazada platform, Alibaba firstly set up a brand mall LazMall independently on this platform. in this way, Laz-Mall can play a role similar to Tmall in a certain sense, while the rest of the Lazada platform is responsible for playing the role of Taobao.
The separation of B2C and C2C has been realized in Lazada since then. After this was achieved, Alibaba then carried out a comprehensive transformation of the entire Lazada platform based on its own experience in China, and a large number of tools that had been accumulated in China for more than a decade were transplanted to this platform in a single stream. In addition to the hardware and software transformation of Lazada, Alibaba also introduced the domestic e-commerce culture into Southeast Asia, a representative of which is the “Double Eleven”, a very Chinese festival with Chinese characteristics, was also copied by Alibaba.
Unfortunately, Alibaba’s set of “Qiankun Danyuan” did not achieve the expected effect.
On the one hand, the environment in Southeast Asia is very different from that in China, and many of Alibaba’s successes in China cannot be simply copied. Many of the features and tools that are popular in China were copied to Southeast Asia, but local merchants and consumers were confused.
On the other hand, Alibaba’s consistent toughness towards the acquired companies also led to serious confrontation between the “parachuted” employees and the old Lazada employees, resulting in chaos in the work of the whole platform for a while.
And in Lazada into chaos, a rival has been ignored – by the Tencent-backed Shopee began to quietly rise. Unlike in China, this time, Tencent did not try to copy another business like Alibaba to compete with it. Instead, Shopee has taken care to differentiate itself from Lazada from the start.
In Alibaba’s strategy, Lazada should be developed into a platform similar to Tmall, targeting middle and high income groups and selling mainly branded goods. shopee has gone the other way, taking a downward path similar to that of Jindo in China.
We know that the reason why Jindo can quickly occupy the sink market in the country, there are two conditions is very critical, one is the organization to cheap enough goods; two is to rely on Tencent as an ally to get huge traffic.
However, for Shopee, both of these conditions are very difficult to achieve. On the one hand, the cheap goods that Poundland organized to in the country back then, in fact, many came from the inventory backlog of domestic factories, as well as batch production, while Southeast Asia does not have a complete industrial system, so it is difficult to organize similar products. On the other hand, although the Tencent system is the king of traffic in China, but in Southeast Asia, Tencent does not have an advantage in traffic acquisition. Therefore, even if Shopee is backed by Tencent, it is difficult to get the light.
To cope with these two problems, Shopee has made a lot of attempts. Southeast Asia is not no home-grown cheap goods? But China has ah. So it contacted many wholesalers who specialize in selling domestic goods in Southeast Asia and invited them into the platform. These wholesalers have a lot of quality and cheap “made in China” in their hands, so Shopee has the ammunition.
As for the traffic problem, since they do not have in their hands, they will use the bought. So, Shopee began to invest heavily, put the overwhelming advertising. In this way, in a very short time, Shopee has achieved a rapid rise, its platform visits from the initial only a fraction of Lazada quickly rose to equal with it, and then quickly overtake. Of course, with cheap goods and user traffic, is not the same as the sinking route to go through.
In Southeast Asia, the development of logistics system is far behind China, the cost of e-commerce logistics is much higher than the domestic, but the speed is much slower. To really go through the road similar to Poundland, we must crack this problem. How to do it? In fact, the answer is very simple, is the old road of Jindo – subsidies. Under the massive subsidies, the logistics cost of e-commerce has achieved a significant decline, and Shopee has succeeded in overtaking Lazada. So far, this Alibaba and Tencent in the overseas e-commerce war, Tencent-backed Shopee to take the lead and temporarily ended.
Reviewing the competition between Lazada and Shopee, we can easily see that Lazada supported by Alibaba actually took a lot of faint moves.
For one, it blindly replicated the Tmall model and took the high-end route before it could sit in the market, disregarding the local reality in Southeast Asia. Even in China, Tmall contributes a lot in terms of revenue, but in fact most of its traffic comes from Taobao’s diversion. And in Southeast Asia, its income level is generally lower than the domestic, so its users’ needs are more focused on relatively inexpensive products. If you give up on this kind of people, then you risk losing most of your customers.
Second, because of the difference between domestic and Southeast Asian e-commerce development, many domestic tools that work well are not adapted to Southeast Asia, but Alibaba is very persistent in copying all these tools, resulting in the water and land.
Third, Alibaba’s tough style also makes local employees very uncomfortable, which directly led to the Lazada platform in a considerable period of “downtime”.
Shopee not only did not repeat the mistakes of Tencent in the country, but also well combined with the actual situation in Southeast Asia, and chose a road to sink the market. In the choice of various strategies, also reflects the law of local conditions. Therefore, Shopee can temporarily win in the competition, it is not so surprising.
Fourth, far from the end game
It should be pointed out that this does not mean that the e-commerce forces supported by Tencent have achieved the ultimate victory in this market.
First, Alibaba will never easily give up the Southeast Asian market. In recent years, Alibaba’s business in the country has gradually approached a bottleneck in growth, and in the face of rivals such as Jingdong and Meituan, it has become increasingly difficult to continue the super-fast growth in the country. In contrast, the potential of the Southeast Asian market is far greater, so its ambitions for Southeast Asia should not change, even if it suffers a temporary setback at this stage.
Although Shopee has gained some head start in the market through massive advertising and subsidies, the gap between Lazada and Shopee is not too big.
In fact, as both platforms have a strong geographical presence, Lazada still has a clear advantage in countries like the Philippines, which gives Alibaba every opportunity to fight back. In addition to Lazada, Alibaba currently has a much higher stake in Goto than Tencent, so its impact on Tokopedia, the third largest e-commerce platform in Southeast Asia, will also be relatively large. In this case, if Alibaba adjusts its strategy in time, it is entirely possible to achieve a turnaround.
Secondly, in the current Southeast Asian market, a lot of infrastructure to support the development of e-commerce is still not perfect, which leaves variables for the development of e-commerce. In a sense, the competition of e-commerce is ultimately the competition of payment, logistics, cloud computing and other infrastructure. The reason why Alibaba can win in domestic e-commerce, relying on the payment system, and the reason why Jingdong can and Alibaba lasting resistance, its logistics system plays a very key role.
At present, in Southeast Asian markets, these important infrastructures are still not perfect. Take payment for example, many Southeast Asian residents do not even have a bank account, many places also rely on cash for payment. And logistics, as pointed out earlier, is slow and expensive. In this case, who can solve these infrastructure problems, who will be able to get a head start in the competition of e-commerce.
Now, many domestic companies are beginning to invest in the fight for the construction of these infrastructures. In this, in addition to the two giants Alibaba and Tencent, there are also new domestic Internet forces such as Pinedo and Byte Jumping. Exactly who can win in this melee is not yet known.
Again, new models such as live e-commerce and social e-commerce are emerging in Southeast Asia, which could make a huge change in the local e-commerce ecosystem. Although the start of e-commerce in Southeast Asia is much later than in China, its evolution is much faster – in a sense, it seems to be compressing the long history of e-commerce evolution in China.
Now, in addition to traditional e-commerce, social e-commerce is quietly starting to influence Southeast Asia. It is not a domestic company that has triggered this new wave, but the American social giant Facebook. It has easily cut into the e-commerce market by implanting shopping functions within its platform. Relying on Facebook’s own huge traffic advantages, this model developed very quickly.
And then, including Lazada, Shopee and other e-commerce platforms are now after the launch of the live function, the introduction of social elements, other well-known domestic and foreign companies have also been involved. From the current point of view, this new war of social e-commerce just emerged, may last a long time in Southeast Asia.
Finally, including Amazon, Facebook and other Internet giants have also entered the Southeast Asian market, their entry will bring a lot of variables to the battle for e-commerce.
Comprehensive above points, we can conclude: the current Southeast Asian e-commerce, still only in an early stage of development, from the final formation of its market structure, there may be a long distance. Therefore, whether it is Alibaba, Tencent, or any of the companies wishing to engage in e-commerce business in Southeast Asia, must be prepared to fight a protracted war.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/southeast-asia-e-commerce-the-second-battlefield-for-chinas-internet-giants/
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