A version of this article was first published in Tradegood Viewpoints, July 22, 2014.
Asia’s e-commerce market is forecast to overtake the US this year. While China is still the big prize, don’t overlook the rest of the region with its tech-savvy urban consumers and growing middle class. Challenges, however, can be daunting, but a good localization strategy can help lead the way.
When it comes to online shopping, the US and Europe are so yesterday. Sure, those markets are big, but they have essentially peaked. Move over developed economies and make room for the new kid on the block – the emerging markets, especially those in Asia.
The world’s most populous continent is now set for an explosion of e-commerce, expected to top half a trillion US dollars by the end of this year, overtaking North America. By 2016, 40% of all global online sales will be in Asia, according to Tech in Asia.
The numbers coming out of China alone are staggering. China’s B2C e-commerce market, for example, will see spending double that of Japan’s, hitting roughly US$274.5 billion in 2014. For every US$10 spent online in Asia, US$6 comes from China, says eMarketer, who is also forecasting that by 2016 China will overtake the US as the biggest online country market in the world. And KPMG noted in its January 2014 China 360 Report that by 2020 China’s e-commerce market will be larger than those of the US, UK, Japan, Germany, and France combined.
But there is more to Asia than just China. In Southeast Asia, e-commerce has emerged as one of the hottest sectors, with investors pouring over half a billion dollars into e-commerce startups in 2013. This is because the region’s e-commerce markets remain relatively undeveloped. For example, while travel booking sites and C2C marketplaces are well established, B2C online retail, by contrast, is only just taking off.
One B2C player stepping up to meet the region’s growing demand is Rocket Internet, a German startup incubator that operates a large portfolio of e-commerce and other Internet companies and has raised hundreds of millions of dollars to expand its foothold in Southeast Asia. Much of its money has gone toward two of its flagship companies: Lazada, an online department store that resembles Amazon, and Zalora, which focuses on online clothing sales. Both have a big presence in multiple countries across the region.
Other players, such as Japan’s Rakuten and China’s Alibaba, are also making an effort to localize to other parts of Asia. In 2013, Rakuten launched its new Rakuten Adventures based in Singapore to invest in regional startups, adding to its current investments in mobile commerce (Carousell), e-payments (CodaPayments), and a Rakuten Online Shopping Platform in Malaysia, which features 40 local merchants selling over 11,000 products. It also has ventures in Thailand and Indonesia.
While Alibaba has been slower off the mark, it’s making up for it with big investments in a Southeast Asia site last year through its Taobao business, an Alipay e-payment site, and a new US$312 million or 10.35% stake in Singapore Post, through which it hopes to expand its international logistics capabilities, infrastructure, and delivery networks.
For other, more specialized retailers, fashion sites have seen the highest percentage of investment. E-commerce services and support companies have also been capitalizing on the rapid rise of new market entrants.
All of this is supported by the region’s strong economic growth, rising disposable incomes, and burgeoning middle class, which should keep the current boom going for the foreseeable future. Asia is also home to young, rapidly urbanizing populations that have embraced digital hardware and social media. With some of the highest social media usage rates in the world, e-commerce companies should be able to exploit these powerful channels to connect with customers. Indonesia, in particular, shows huge potential. Considered the most e-commerce ready in the region in 2013 by Vela Asia, its population of 240 million and 55 million Internet users make it one of the best markets for e-commerce.
While future prospects are generally bright, e-commerce entrepreneurs entering the region also face an array of unique challenges. For starters, Asia is a large, fragmented market, with each country requiring e-commerce firms to deal with a different set of laws, consumer preferences, and other country-specific factors. Also, in many parts of the region, Internet penetration remains low, although mobile commerce has taken off and has reached 100% penetration in most major markets, while overall Internet use is growing fast.
Other challenges include lack of consumer awareness about how e-commerce works, undeveloped and overloaded transportation networks, and poorly developed financial sectors that make online payments challenging.
These same factors, however, can favor those willing to get in at the ground level, particularly for large players like Rocket and Amazon who can achieve economies of scale quickly. Niche players should also be able to capture key segments, for example, by focusing on high-margin areas like branded fashion and beauty products.
But regardless of market size or segment, some basic approaches should be part of any e-commerce business’ toolbox. According to Sajan, a marketing localization company, these include:
- a solid localization strategy that incorporates e-commerce websites in multiple languages;
- a way for customers to rate and review products in their own language as a way to increase buyer confidence in your products and e-commerce platform. According to the infographic Review of Reviews, 70% of customers said they consulted reviews and ratings before purchasing;
- mobile apps: with the growing use of mobile devices as primary Internet sources, firms should strongly consider adding mobile apps to their localization plans; and
- a strategy for taking advantage of important shopping days around the world. In 2013, China’s “Singles Day” (its version of Cyber Monday) generated US$5.7 billion in online sales.
Not all retailers, however, are banking on the e-commerce boom. Companies like Fairton International Group in Hong Kong believe that e-commerce still can’t replicate the full shopping experience. They see the future of their business in connecting people with products they have to physically interact with. That physical experience is vital, they say. And therein lies one of the biggest challenges facing many industries – how to find that right mix between online and traditional platforms.