The Asian eCommerce Explosion
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eCommerce in Asia
The Asian eCommerce Explosion
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What is required for other Asian markets to mimic the explosive eCommerce growth experienced by China in the last five years? And is that growth likely to happen anytime soon? These are becoming two of the most important questions for marketers across the region, especially given the hugely disruptive impact that online shopping has had on the brand landscape in China. They need to know if they face the same rapid shift to online shopping – and they need to know when that shift is likely to happen. With hindsight, we can see how the rise of China’s eCommerce depended on five triggers that came together to precipitate a dramatic shift in consumer behaviour. These five triggers appear to be essential conditions for explosive eCommerce growth. However, they do not guarantee it. Ultimately, passing the inflexion point for eCommerce depends on how markets address the one barrier that can hold online shopping back even after all five conditions are in place. That barrier is the question of trust. It’s a question that takes different forms in different markets, and requires different answers from brands if they are to succeed in the eCommerce space.
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Introducing the five triggers for explosive eCommerce growth The China experience has reshaped our understanding of the requirements for eCommerce to thrive. Prior to 2010, conditions such as ready access to banking services and credit cards, a well-established logistical infrastructure, and giant warehousing operations were all considered indispensible parts of the eCommerce model. Yet none of these are essential conditions for explosive eCommerce growth in Asia. The example of China proves that online shopping can take off without them, provided the following five triggers are in place.
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Triggers for explosive eCommerce growth
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Innovative and entrepreneurial eCommerce and payment solutions
It goes without saying that eCommerce cannot take off without eCommerce providers able to deliver the experiences that shoppers want. Equally important though, are payment models that fit the financial infrastructure of each particular market – and fit with consumers’ attitudes to online spending. Generally speaking, there are three compelling reasons for people to shop online: value, convenience, and the ability to access a broader range of products than would normally be the case. This last potential driver of eCommerce is a particularly significant one in Asia, where many markets are still dominated by traditional trade, and where seeking out specialist or unusual products can be frustrating and time-consuming. The great success of Alibaba’s marketplace model has come through meeting all three of these requirements: a broad range of brands and products (helped by the encouragement for businesses to set up autonomous online stores within the platform), low prices resulting from reduced overheads, and user reviews reassuring shoppers on quality. Similar models are already being developed in other Asian markets: Shopify in Singapore (which acts as a go-between for shoppers and third-party suppliers), and Lazada and
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Bhinneka across several countries. Any eCommerce model that combines low barriers to entry for brands and retailers, with competitive pricing and transparency through user reviews has the potential to take off in Asia. This first trigger is only truly in place when the right eCommerce solution meets the right model for payment. This has seemed the most likely factor holding eCommerce back in Asia, especially given the lack of access to credit cards and banking services for large portions of the population. However, things are changing fast. Launched only in 2014, paytm is already India’s largest mobile wallet service, with more than 40 million customers, up 17-fold in just one year. With a solution enabling customers to pay for goods using mobile phone bills and the flexibility to accommodate either pre-pay or post-pay, it’s precisely the type of accessible payment service that could push the country past the tipping point as far as eCommerce growth is concerned. And India isn’t alone in seeing the development of payment services to support innovative eCommerce providers. In Indonesia, KasPay, an extension of the country’s largest online community KasKus, provides e-wallet services that are growing in popularity.
How eCommerce providers and payment solutions come together matters too. A viable payment platform might be in place, but if eCommerce businesses insist on payment terms that most consumers won’t accept, then its potential will remain unfulfilled. The option to pay on delivery was a key component of Alibaba’s explosive growth in China – and it is likely to be equally important elsewhere. Indian retailers typically allow customers to wait until goods arrive on their doorstep before making a final decision to accept and pay for them. In Singapore, the online grocer Redmart has sought to overcome supply chain issues by only requiring customers to pay once they have received their items.
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Triggers for explosive eCommerce growth
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Cheap labour for low-cost distribution
eCommerce can’t succeed without the right providers and payment platforms – but it also requires a delivery infrastructure that can cope with rapidly increasing numbers of parcels travelling to any potential destination within a country. The established postal services and reliable road and rail networks of markets like the US and UK meant that eCommerce at scale was always feasible. Many Asian markets lack these advantages. The example of China though, proves that they may not need them.
What Asia lacks in terms of established logistics infrastructure, it makes up for in the potential of three powerful distribution assets: the motorcycle, the mobile phone, and a vast pool of cheap labour willing to take orders and handle deliveries. Freelance motorcycle couriers have provided the distribution backbone for Alibaba’s rapid expansion in China so far, and are currently playing a key role in the drive to bring online shopping to rural regions. With the same resources readily available across most Asian markets (even in Myanmar, with one of the region’s lowest GDPs, a motorcycle is considered an essential possession for many families), the ability to scale distribution through entrepreneurial couriers could provide the trigger that eCommerce growth requires.
However, to realise the potential of freelance couriers fully, markets require overarching organisations that can pull them together into far-reaching distribution networks. This is the role that Alibaba itself is playing in the expansion of eCommerce to rural areas of China, harnessing the energy of local entrepreneurs through Alibaba representatives in a network of small, rural distribution offices. It’s also the likely outcome of partnerships such as that between Singapore Post and Post Indonesia, which will make a huge difference to the speed and coverage of distribution in the two markets.
An army of motorcycle couriers has one significant potential advantage over a wholly centralised distribution system: it enables eCommerce propositions to launch and grow without the need for extensive warehousing capabilities. This played a key role in China, where independent retailers arrange delivery of their Alibaba orders with couriers themselves, enabling the platform to expand rapidly.
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Triggers for explosive eCommerce growth
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Increasing smartphone penetration and mobile data infrastructure
The rise of the smartphone has a dual role to play in eCommerce growth. It is the key driver in rapidly increasing internet access for Asian markets, with most consumers able to access the web for the first time through a handset. At the same time, it mobilises the entrepreneurial freelancers capable of providing the logistical backbone for eCommerce. And the nature of mobile lends itself to a form of eCommerce that is particularly suited to Asian markets: more spontaneous, more focused on single-item purchases when required, less built around bulk-buying through a regular weekly shop, and hence a natural extension of traditional trade.
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Triggers for explosive eCommerce growth
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Increasing population density
It’s no coincidence that China’s eCommerce explosion coincided with large-scale migration to Tier 1 cities. Not only did this urbanisation accompany the adoption of smartphones through which people could shop online; it also provided them with a myriad of reasons for doing so. Moving from rural to urban environments disrupts many of the traditional trade habits and routines that shoppers have, providing an opportunity for new online shopping habits to form. The young people clustering in urban centres tend not to follow traditional gender roles. Instead, both members of couples head out to work. With less time available to shop, ordering goods online and having them delivered to the office during working hours has obvious benefits. Will increasing urbanisation have a similar impact in other Asian markets?
The Asian eCommerce Explosion
It depends of course, on whether smartphone penetration advances alongside it – and also on whether the embryonic distribution networks of those countries are able to cope with the particular demands of densely populated cities. These are something of a logistical double-edged sword. On the one hand, more concentrated populations provide a smaller target for distribution networks; on the other, the traffic congestion of many Asian cities makes getting deliveries through just as tricky as in more rural locations. Alibaba’s extension to rural China has conjured plenty of images of dedicated couriers abandoning bikes or vans to carry parcels across freezing rivers and other natural boundaries. A similar energy and commitment might be required if eCommerce is to cope with some of Asia’s cities.
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Triggers for explosive eCommerce growth
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Lack of entrenched modern trade shopping habits
Traditional trade continues to dominate the shopping experiences of most Asians, revolving around daily trips to local markets to pick up the one or two items needed there and then. The lack of firmly established modern trade channels means that eCommerce doesn’t have to compete with habits and routines such as the weekly or monthly bulk-buying shopping mission. And just as significantly, it doesn’t have to compete with established and trusted modern trade brands. In China, this lack of an established modern trade infrastructure had a huge influence on the nature of eCommerce development. Rather than offering incremental benefits over bricks and mortar retailers (a bit more convenient, potentially a bit cheaper), it offered a completely different experience to that available through traditional trade. If you wanted something in any way out of the ordinary, then it made far more sense to buy it online than to attempt to seek it out in the market. Online shopping had a
The Asian eCommerce Explosion
broad range of unmet shopping needs to fill – and it was this that powered its explosive growth. Across other Asian markets we tend to see the same lack of entrenched modern trade shopping behaviour. And the same opportunity therefore exists for online platforms to recreate shopping around their own business models. In combination with the other triggers, this makes explosive eCommerce growth a distinct possibility across Asian markets – provided eCommerce takes off before modern trade channels and habits become established. If it does, the implications for established brands are likely to be huge. The shift to online shopping in China has enabled brands born on eCommerce platforms to take large chunks out of the sales and revenues of established, and higher-priced competitors. Whether this takes place elsewhere depends upon the one barrier that can hold eCommerce back when all the triggers are in place: the question of trust.
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Tackling the trust barrier, market-by-market
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Tackling the trust barrier, market-by-market
If the presence of the five triggers guaranteed explosive eCommerce growth, then Singapore would have an online shopping market to rival China’s. It doesn’t. In fact, online’s share of total retail spend in Singapore stands at less than 1% - and this despite the fact that its population has ready access to the internet, to credit cards for making online payments, and to well-established delivery networks for moving goods around. eCommerce has failed to take off in Singapore because of a lack of trust. The future of eCommerce in Asia depends on how that barrier can be overcome. In the case of Singapore, the trust issue concerns making payments over the internet – and it applies across a broad range of different transactions (just ask Uber drivers in the country – who will tell you that the vast majority of their business comes from
The Asian eCommerce Explosion
Australian, US and European exports, while locals insist on taxi services that deal in cash). Payment for online shopping is one of the most important points at which trust comes into the eCommerce equation, and that is why payment-on-delivery options are so important to the potential growth of online shopping in markets like India and Indonesia. But this is not the only area where eCommerce players must build trust amongst their potential customers. For consumers accessing the internet through smartphones, an experience that fits naturally with their mobile operating system can be essential for building trust. It’s for this reason that KasPay and Lazada, for instance, have invested in working with app developers to deliver a seamless online shopping experience. They know that smartphones are
inherently personal devices, and when the experience of shopping on them feels wrong, trust can break down. It’s not just the shopping experience that needs to be trustworthy. The brands and products that shoppers choose from must build up similar levels of trust – and this can be a challenge for those seeking to compete in new markets. Multinational brands have often struggled for share on China’s eCommerce platforms because the equity that they have built up elsewhere doesn’t apply for consumers encountering them for the first time online. One of the reasons that Amazon has so far struggled to compete in China is that the brands it sells are predominantly western and unfamiliar – and as eCommerce in the country extends out into rural areas, this challenge is likely to intensify.
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Investing in trust The trust question ensures that, when eCommerce does arrive in Asian markets, it will not be a rising tide that lifts all boats. It is brands that invest in building up the right forms of trust for potential online shoppers that will reap the benefits, and gain share from their rivals. This could take the form of launching localised brands, it could involve embracing new payment models, such as payment-on-delivery options. And it could involve investing in channels such as social media and instant messaging, which can provide reassurance during the online shopping experience itself. With the five triggers in place for most markets, the starting gun is waiting to be fired on the eCommerce race. It is the brands that can generate trust amongst a new generation of online shoppers that will get a vital head-start.
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About the authors
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Simon Elsby Director of Consulting, Kantar Retail
Stuart Barron Managing Director, TNS Shopper, Asia Pacific
Simon Elsby joined Kantar Retail in 2012 in Singapore as a Director of Consulting where he has applied his 20 years of consumers goods experience with Coca-Cola, Heinz and SC Johnson, as well as a stint in Shopping Centre Marketing with Westfield, into helping build clients’ shopper, category, channel and customer management strategies.
Stuart heads up the Shopper practice in Asia Pacific, creating solutions in the retail and shopper space that deliver greater client impact. Based initially in Europe and then in Singapore for Kantar Retail, Stuart has worked across the full spectrum of retail projects, including Sales and Shopper Strategy, Route to Market Optimisation and the development of global capability programmes. He has also been responsible for growing accounts into some of the business’s largest global clients.
About TNS TNS advises clients on specific growth strategies around new market entry, innovation, brand switching and customer and employee relationships, based on long-established expertise and market-leading solutions. With a presence in over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands individual human
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behaviours and attitudes across every cultural, economic and political region of the world. TNS is part of Kantar, the data investment management division of WPP and one of the world’s largest insight, information and consultancy groups. Please visit www.tnsglobal.com for more information.
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