Tigers Vs. Dragons: Asia’s Booming E-commerce Market and the Challenge to China’s Regional Dominance
E-commerce is one of the greatest business success stories of the past decade. It has created jobs, injected new dynamism into our economies, created countless ‘unicorns’ and given people, who wouldn’t otherwise have had it, access to goods and services that improve their lives.
This is most apparent within Asia. It is the largest and most populous continent on the planet with a combined population of approximately 4.4 billion, meaning roughly three out of five people on Earth call this region their home. It’s fair to say that e-commerce is already booming within the region — 993 million people currently shop online, with this figure set to grow by an additional 454 million new users by 2021.
Driven by an emerging middle class, movements toward deregulation of cross-border trade and improvements in technology such as more affordable mobile internet access, the Asia market represents a huge opportunity for businesses that want to be a part of the e-commerce success story. But before choosing which country within Asia to target first, there are a few aspects to consider as part of an e-commerce route to market.
The Dragon: breaking out of China
China has traditionally been seen as the natural starting point for many online retailers looking to break into the Asian market. However, this trend is starting to change. The Chinese Dragon once monopolized and dominated the Asian e-commerce market, but Asia now has an array of lucrative markets to offer. One particular incentive for online merchants to look beyond China is due to the current trade negotiations with the United States that have put the future of the country’s trade at stake. On September 17th, 2018, the United States announced tariffs of 10 percent on Chinese imports worth $200 billion a year. Earlier this month, President Trump increased those tariffs to 25 percent, worsening the trade war. The uncertainty surrounding further negotiations and the potential outcomes between the two countries presents an opportunity for the rest of the Asian markets to flex their e-commerce muscles.
The Tiger: which countries in Asia are growing fastest, and why
Over the next five years, 88 percent of the growth in the global middle class will come from Asia. Every month, millions of people in Asia climb out of poverty into the middle class, giving people a greater opportunity to be a part of the e-commerce success story.
With the political uncertainty in China, manufacturers have begun to look for new destinations across Asia for investment and to base factories, which opens opportunity for those countries. The Tiger Club economies collectively refer to the economies of what we would traditionally call the developing countries of Southeast Asia (Indonesia, Malaysia, the Philippines, Thailand and Vietnam). But this is changing, as the members of this ‘club’ all have maturing e-commerce markets that are profiting from this uncertainty as their appetite for cross-border trade grows.
A good example is Vietnam, which has risen from being classified as poor to now a middle-income country. With cheap labor, an educated workforce and a business-friendly environment, Vietnam has managed to attract some major companies such as Intel, LG, Samsung and many others. As a result, the country now has an export sector worth an estimated $19 billion a year, which is enriching the local workforce and in turn is creating the demand for goods and services beyond their borders.
In rapidly industrializing and developing markets, e-commerce is growing at more than 50 percent a year. Another example from the ‘club’ points to the Philippines, where the country is now the 10th fastest-growing economy in the world with a growth rate of seven percent in 2017. Underlying the impressive growth rate is a $180 billion infrastructure program known as “Build Build Build,” which was introduced as an initiative to accelerate infrastructure spending and develop industries that yielded robust growth. This created a variety of new jobs, improved the lives of Filipinos and encouraged growth in e-commerce spending, with the Philippine economy growing by 6.7 percent year-on-year.
Elsewhere in the club, Thailand, the second-largest economy of Southeast Asia, has approximately 57 million internet users who are well-versed in the use of digital technologies, mobile and e-commerce. Thailand is an ideal growth environment for e-commerce businesses and is another example of how a country has transformed to embrace e-commerce transactions, to ultimately become a prosperous market for investors and savvy cross-border e-commerce focused merchants.
Taming the Tigers: attracting local consumers
When focusing on which alternative market in Asia is right for your business, there are many important factors to consider such as existing customer sales, pre-sales and post-sales customer service, logistics and delivery and customer targeting, just to name a few. Another important aspect to consider is the mix of payment methods available at the checkout. It is useless to invest in creating and implementing an APAC e-commerce strategy only to fail at the last hurdle.
Payment cultures vary from country to country, and the same goes for online payments throughout the world. But what is especially true of Asia is that the differences from country to country within the region could not be greater. For example, in Singapore, 74 percent of the population’s favorite payment is card-based payment, whereas, in China, e-wallets are strongly preferred, with 49 percent of online purchases made using this payment method. No other country in the world uses this online payment option as much. This diversity of preferred payment methods emphasizes how crucial it is to understand local preferences when it comes to an online merchant developing its shopping strategy. If consumers can’t pay with their preferred method, they will simply choose to shop elsewhere.
E-commerce markets and payment methods develop at a fast pace. It’s therefore important to consider these aspects and partner with the right organizations when looking to reap the rewards of a region at the inflection point of its e-commerce spending power.
Tristan Chiappini is Head of Account Management at PPRO.