By Tristan Chiappini, VP, Head Of Partnerships, Asia at PPRO
As one of the biggest success stories of the last decade, e-commerce has energised Asia’s economy, creating jobs and access to goods previously out of reach. With 993 million people currently shopping online and an additional 454 million set to start using online platforms by 2021, it is fair to say e-commerce is already booming within the region.
The Asian market, driven by an emerging middle class as well as improvements in technology and movements towards deregulation of cross-border trade, represents a vast opportunity for businesses keen to play a part in 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 power of the dragon
China has traditionally been the natural starting point for many retailers looking to break into the Asian market. However, this trend is starting to change. The Chinese Dragon once monopolised and dominated the Asian e-commerce market, but Asia now has an array of lucrative markets to offer. One particular incentive for merchants to look beyond China is due to the current trade negotiations with the US that have put the future of the country’s trade at stake. On September 17th, 2018, the United States announced tariffs of 10% on Chinese imports worth $200 billion a year. Unless China and the US reach an agreement, these tariffs are set to rise to 25% by the end of this year along with another round of protectionist tit-for-tat. This uncertainty presents an opportunity for the rest of the Asian markets to flex their e-commerce muscles.
China has traditionally been the natural starting point for many retailers looking to break into the Asian market. However, this trend is starting to change.
The growth of the tiger club
Over the next five years, 88% 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. This has benefited countries in Asia. The Tiger Club economies collectively refer to the economies of what we would traditionally call the developing countries of South-East Asia (Indonesia, Malaysia, the Philippines, Thailand and Vietnam). But this is changing – 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 labour, an educated workforce, and a business-friendly environment, Vietnam has managed to attract some major companies such as Intel, LG and Samsung and many others. As a result, the country now has an export sector worth an estimated $19 billion a year, enriching the local workforce which in turn is creating the demand for goods and services beyond their borders.
Over the next five years, 88% of the growth in the global middle class will come from Asia.
In rapidly industrialising and developing markets, e-commerce is growing at more than 50% a year. Another example from the ‘Club’, is the Philippines. It is now the 10th fastest-growing economy in the world, with a growth rate in 2017 of 7%. Underlying the impressive growth rate is a $180 billion infrastructure programme 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% year-on-year.
Elsewhere in the club, Thailand, the second-largest economy of Southeast Asia has approximately 57 million internet users that 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.
Just as payment cultures differ from country to country, online payment methods vary throughout the world.
Targeting the tigers
There are several crucial factors to consider when deciding which alternative market in Asia is best suited for your e-commerce business. These include existing customer sales, pre-sales and post-sales customer service, logistics and delivery, as well as customer targeting. On top of this, businesses must consider the mix of payments available at the checkout. The process of investing and implementing an effective APAC e-commerce strategy will be deemed pointless if companies fall at the final hurdle.
Just as payment cultures differ from country to country, online payment methods vary throughout the world. However, in Asia, the differences between countries in the region are more evident than most. For example, 74% of Singapore’s population prefer to use card-based payments, whereas in China 49% of online purchases are made using E-wallet methods, making it the strongly preferred option. This diversity of preferred payment methods highlights just how important it is for merchants to recognise local preferences when developing their online shopping strategy. Consumers will simply shop elsewhere if their preferred method is not available to them.
The rapid development of e-commerce and payment methods means it is vital for companies to consider these aspects and partner with the most suitable organisations when looking to reap the rewards of a region’s e-commerce spending capability.