China e-commerce players tap ASEAN market for growth

The demographic dividend and rapidly developing e-commerce ecosystem in Southeast Asia has attracted many Chinese e-commerce companies to make their foray to the region. However, problems from language to payment and logistics persist. To cope with the changing landscape, platforms are also providing merchants with one-stop services to facilitate their cross-border businesses. In the e-commerce world where everything changes rapidly, platforms and merchants must adapt quickly to survive. 
A pedestrian wearing a protective mask walks past an advertisement for China's mid-year shopping festival of JD.com in Beijing, China, 27 May 2021. (Qilai Shen/Bloomberg)
A pedestrian wearing a protective mask walks past an advertisement for China's mid-year shopping festival of JD.com in Beijing, China, 27 May 2021. (Qilai Shen/Bloomberg)

As China's biggest online merchants accelerate their expansion plans to Southeast Asia, they have also discovered that a lack of understanding of Singlish is putting them at a disadvantage when dealing with Singapore customers.

"Singapore consumers use many acronyms when they type, such as 'RU' for 'are you', and they also use Singlish expressions such as paiseh, lah, leh, lor," Mike Hu, co-founder and CEO of Addin.sg told Lianhe Zaobao. "The customer service staff of merchants in China, who are not fluent in English in the first place, can't deal with this, leading to bad experiences for local customers."

Mr Hu's company, Addin.sg, operates an e-commerce platform for home furnishing. An increasing number of e-commerce platforms, like his firm, are trying to grab a slice of the online retail market in Southeast Asia in recent years. Lazada, which is part of Alibaba, Tencent-backed Shopee, as well as other online retail giants have already been in the game for some time, but that has not deterred newcomers who are drawn by the size of the online shopping market.

According to a report released by the United Nations Conference on Trade and Development (UNCTAD) on 3 May, China topped the world in total sales revenue from cross-border e-commerce in 2019 at US$105 billion (S$139.08 billion).

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Source: Ebrun (Graphic: Jace Yip)

And while the US and Europe remain the traditional markets for the majority of China online merchants, Southeast Asia is emerging as a preferred market for 38.5% of online retailers, according to the 2020 Cross-Border Export E-Commerce Industry White Paper published by CBNData, an Alibaba-affiliated data provider.

Three biggest hurdles

But competition is stiff and merchants need to do their homework.

Each of the ten member countries of ASEAN has different languages and cultures, and not all of them understand Chinese. Mr Hu said that many Chinese merchants fail to localise, and still include Chinese captions and labels in their product images on their websites targeting Southeast Asian consumers. Buyers are able to make their purchase choices based only on the images; when they want to clarify any product specifications, they tend to run into communication problems with the Chinese merchants.

the three biggest hurdles faced by Chinese merchants going global are logistics, payment, and language. - Keren Wang, Founder and CEO, AladdinCommerce

For the vendors, not having an after-sales service team based in the region also poses problems. For example, after customers purchase a smart door lock online from a Chinese merchant, there would be no one to install the lock after it has been delivered.

Mr Hu said: "All the Chinese sellers can do is send their customers instruction videos for DIY installations, but professional installation may be required, and repair and maintenance is also problematic, so it's very hard to sell the products."

Keren Wang, founder and CEO of online retail platform AladdinCommerce, said that the three biggest hurdles faced by Chinese merchants going global are logistics, payment, and language. Payment, especially, is particularly difficult.

For one thing, each country in the region uses a different currency, which means transactions may be subject to several currency conversions.

"We've come across a seller in Singapore who wanted to sell goods from China to Malaysia," said Ms Wang, who is from China's Ningbo but came to Singapore to study 15 years ago. "So, the renminbi was used to buy the goods, and the sales were made in ringgit, and then converted into Singapore dollars. The payment part was very complex, and the currency exchange rates weren't favourable either."

Mike Hu and Keren Wang. (Photos provided by interviewee)
Mike Hu (left), co-founder and CEO of Addin.sg, and Keren Wang, founder and CEO of AladdinCommerce. (Photos provided by interviewee)

Secondly, as competition heats up among cross-border merchants and the sector matures, e-commerce platforms such as Shopee and Lazada have started to offer low commission rates, more benefits, and fewer product restrictions and other incentives to attract more merchants to set up local stores (stores that are based in the same location as the platform).

But there remain issues with payment processing and repatriation. The majority of China-based merchants do not have access to local bank accounts or registered business entities for receiving payment in Southeast Asia. Third-party payment agencies are usually used in these instances, but it can be a risky prospect.

The volatility of exchange rates is another aspect to deal with, as currencies such as the Indonesian rupiah can fluctuate widely.

Recognising that online vendors in China face all these challenges, companies such as AladdinCommerce have stepped up to become e-commerce enablers for these merchants.

E-enablers as partners

Also known as e-enablers, these partners offer logistics and payment processing services, and may act as a consultant or be put directly in charge of product positioning and sales. They can be a third-party service provider or an online retail platform that offers similar services and can make or break a merchant's expansion in the regional market.

Southeast Asian e-commerce platform Shopee has a cross-border team that offers merchants one-stop solutions for drawing traffic, language assistance, shipping logistics, payment and other services. The platform also established Shopee University, an online learning and instruction portal where merchants can familiarise themselves with the platform's rules, and access online training courses, setup instructions and other content.

Trainers from Shopee's partner training agencies conducting lessons on how to operate Shopee online shops for sellers using the platform in October 2020.PHOTO: SHOPEE
Trainers from Shopee's partner training agencies conducting lessons on how to operate Shopee online shops for sellers using the platform in October 2020. (Photo: Shopee)

Since 2018, Shopee has embarked on partnerships for training and incubation programmes with educational institutions in Yiwu, Xiamen, Hangzhou and other Chinese cities. It also started working with universities in China to nurture cross-border talent and offer training courses for cross-border vendors through licensed training organisations.

JD.com, another e-commerce bigwig in China, is also providing support to vendors from China trying to break into Southeast Asia.

Soon Sze-Meng, president of JD.com Southeast Asia, said the company's smart warehouse and logistics centre in Thailand offers a suite of supply chain services that include warehouse storage, logistics and distribution. In Indonesia, JD.com helps its merchants with importation of goods, company registration, legal consultation, distribution and logistics, and payment processing services.

E-commerce platforms in general hope to see an uptick in transactions between buyers and sellers that will ramp up traffic, translating into an increase in gross merchandise value (GMV) and the number of monthly active users (MAU) — two key indicators for e-commerce platform operators. This means that on top of satisfying the needs of all sellers, their supporting services also have to cater to buyers, while adhering to all the regulations of the platform. Third-party service providers on the other hand cater exclusively to sellers and try to negotiate more favourable terms on the sellers' behalf.

Joseph Liu, CEO of SCI eCommerce, an e-commerce enabler, said the merchant services offered by e-commerce platforms are standard, basic services, while third-party providers offer more services customised to the needs of individual merchants. "The former is focused on maximising the platform's interest, while the latter works from the perspective of the vendor and tries to maximise the vendor's interest."

Soon Sze-Meng and Joseph Liu.
Soon Sze-Meng (left), president of JD.com Southeast Asia, and Joseph Liu, CEO of SCI eCommerce. (Photos provided by interviewee)

AladdinCommerce's Ms Wang said that product optimisation and keyword advertising require a "made to measure" approach.

"At Aladdin we had a client selling pee pads for pet dogs, Chinese sellers usually use the translation service embedded in the enterprise resource planning (ERP) system for their product description, but the resulting translation was incorrect and not as localised as terms translated by a local."

Logistics woes under the spotlight

E-commerce platforms in Southeast Asia are seeing a boom in business as the pandemic causes more people to stay home. But the surge in online purchases has also amplified problems in logistics and delivery manpower.

The issue is especially pronounced as consumers in Southeast Asia are dispersed across various jurisdictions, and the rising number of packages and warehouses have also added to the complexity of making deliveries.

A report issued last year by e-commerce logistics tracking platform Parcel Monitor and price comparison website iPrice Group showed that delivery time in Malaysia was most affected. In a study of 1.4 million parcel shipments in Singapore, Malaysia, Thailand, and Indonesia, it found that e-commerce delivery speed in Malaysia had decreased from the pre-pandemic average of 2.1 days to 4.6 days during the pandemic as a result of safe distancing measures.

"Whether it's by sea or by air, booking cargo space became more difficult compared to before the pandemic. At the same time, the number of people working in customs was also reduced because of measures to control the spread of Covid-19." - Joseph Liu, CEO, SCI eCommerce

Local consumer Ms Chen, 28, a teacher who frequently buys cosmetics and snacks online, said that shipping usually took three to five days before the pandemic, but this turned into five to seven days during the pandemic. "It's not because of shipping delays, it's because goods are taking longer to clear customs," she said.

Stacks of containers are seen at the Port of Tanjung Priok in Jakarta, Indonesia, on 31 March 2021. (Bay Ismoyo/AFP)
Stacks of containers are seen at the Port of Tanjung Priok in Jakarta, Indonesia on 31 March 2021. (Bay Ismoyo/AFP)

Mr Liu of SCI eCommerce said that delivery costs surged during the pandemic and logistics took longer. "Whether it's by sea or by air, booking cargo space became more difficult compared to before the pandemic. At the same time, the number of people working in customs was also reduced because of measures to control the spread of Covid-19."

Mr Soon of JD.com Southeast Asia said that, at one point, when JD.com saw orders in Indonesia spike, its logistics infrastructure was at peak capacity. To ensure the fulfilment of orders, JD.com started working with Indonesia's biggest taxi company, Blue Bird, using their taxis to deliver parcels.

The report by Parcel Monitor and iPrice Group also noted that the logistics and delivery sector would be driven by smart technologies in the future, citing the example of the increasing number of self-service parcel pick up lockers across Singapore, Malaysia, Indonesia and Thailand in recent years, which gave more flexibility to the timing of pick-ups and delivery while minimising physical contact between couriers and customers.

The evolution of cross-border e-commerce merchants

As e-commerce continues its rapid evolution, industry insiders say the model of setting up an e-shop to sell goods is regarded as traditional. Selling through influencers — well-known Internet personalities — using live streaming is now gaining popularity across Southeast Asia, as the model evolves towards social commerce.

The social element of these platforms increases what is known in the industry as "stickiness" — where users show a higher degree of engagement — while downplaying the transactional aspect of the exchange.

In the social commerce model, the channel for attracting buyers is shifted from e-commerce platforms to social media, where more interactive aspects come into play. Facebook, Instagram, TikTok, Line and other messaging applications are some of the biggest platforms popular among sellers, who can set up their own online shops that are embedded within the apps, or use them as a channel for publicity and promotion.

The social element of these platforms increases what is known in the industry as "stickiness" — where users show a higher degree of engagement — while downplaying the transactional aspect of the exchange. The purchases arising from chatting with friends or while seeking entertainment may also subconsciously be perceived by consumers as a necessary expenditure for maintaining social ties.

A man stands near a giant sign of Chinese company ByteDance's app TikTok, known locally as Douyin, in Beijing, China, 31 March 2021. (Tingshu Wang/File Photo/Reuters)
A man stands near a giant sign of Chinese company ByteDance's app TikTok, known locally as Douyin, in Beijing, China, 31 March 2021. (Tingshu Wang/File Photo/Reuters)

After a consumer's purchase desire has been triggered by social and entertainment interaction, it might lead to impulse buying on the spot. Consumers no longer wait until they decide to buy something to search for the items on e-commerce platforms. Buyers and sellers negotiate prices and discuss product details in an interactive manner.

Sellers may also be ordinary members of the public instead of professionals; there's no requirement for them to be experienced "influencers" or online personalities to set up online shops or promote brands and products. As long as they have accrued adequate views and followers on their personal social media accounts, they might be able to work with brands or companies to sell products directly or indirectly and be paid a commission. All transactions are done through day to day social media interactions.

According to the latest data from management consulting firm Bain & Co, social commerce made up 44% of Southeast Asia's US$109 billion e-commerce sector last year, generating US$48 billion in sales. In Thailand, almost half of all e-commerce transactions are done over Facebook, WhatsApp, Line, or other social media platforms.

King Wu, secretary-general of the Guangdong-Hong Kong-Macao Cross-border e-Commerce Industry Education Integration Association, said that many of the major cross-border vendors are currently employing a dual-channel strategy: simultaneously selling over e-commerce platforms as well as their own company websites or social media accounts.

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