In the shadow of Chinese e-commerce giants
With the likes of JD.com and Alibaba looming large over the Thai online retail sector, local firms must adapt at home or look abroad for survival, writes Suchit Leesa-nguansuk
As Chinese e-commerce giants JD.com and Alibaba brace for a prolonged war for market share, local firms must find a market niche or face impending decline. The deal between JD.com and Central Group was announced on Sept 15 after almost two months of speculation. Both sides of the aisle had been reluctant to comment on the rumour until last Friday.
In a statement released by Nasdaq GlobeNewswire, a global PR distribution system, Richard Liu, JD.com’s chairman and chief executive said: “Working with Thailand’s strongest retail conglomerate, with a massive shopping mall and department store network, gives [JD.com] a huge competitive advantage as we expand further into Southeast Asia.”
In that same statement, Tos Chirathivat, chief executive of Central Group, said JD was the obvious choice to be Central’s e-commerce partner, and that the partnership “marks a key step in Central Group’s goal to become Thailand’s online retail leader.”
Pawoot Pongvitayapanu, president of the Thai e-commerce association, said: “Local e-market players would find it hard to compete directly with the Chinese titans, and will have to find a niche to remain competitive.
“The deal will not only disrupt Thailand’s e-commerce market, but also nearly every consumer product company in the country.”
Small and medium-sized enterprises (SMEs) that depend on the import of Chinese products need to prepare for the inundation of such goods, particularly in the fashion and electronics sectors which are wellsuited for channels like Alibaba and JD.com.
Mr Pawoot said Thai manufacturers need to start deriving a larger share of their revenue from abroad in order to survive, as Chinese products will represent an important competitive threat in Thailand.
He said that Alibaba and JD.com will wage a war for market share in both the online retail and e-payment markets.
But Thailand is just the first step, as the e-commerce giants will possibly seek to use the country as a base to expand throughout the region.
“Central Retail and JD.com can expand into Southeast Asia’s online and offline markets together as Central has a physical store in Vietnam,” said Mr Pawoot, who is also the founder of Tarad.com, a Bangkokbased e-market.
“It would be interesting to see if this becomes a regional deal that allows Thai firms to expand their footprint to other countries in Southeast Asia,” he said.
The joint venture will serve as a platform for JD.com’s expansion into financial services in the region. Mr Jarit said e-commerce companies may have some advantages over banks, since they have a nuanced insight into consumers and suppliers, which translates into low loan risk.
The partnership will also allow Central to exploit its vast catalogue of consumer data through JD.com’s big data expertise.
Jarit Sidhu, head of Thailand operations for market research provider International Data Corporation, said this is the first time JD.Com has joined in a venture with an offline retail entity like Central.
The deal will allow JD.com to leverage Central’s extensive physical store network, which will serve as payment locations and a “key omni-channel.” It will also benefit from Central’s long-standing relationships with businesses in the region and from Central’s data on consumer behaviour.
While the deal will have important effects on retail, its impact on the financial services sector should not be understated. The joint venture will serve as a platform for JD.com’s expansion into financial services in the region.
Paul Srivorakul, group chief executive of aCommerce, Southeast Asia’s leading e-commerce solution provider, said the joint venture is not a big surprise, given the developments in the region over the past several years.
“The e-commerce market in the region is growing quickly and is untapped, which is why global and regional players like Amazon, Alibaba and JD are all coming in here,” he said.
“Thailand and Southeast Asian markets in general are quite local, which is why international players like Alibaba and now JD need to acquire a local player or partner up with local companies,” said Mr Paul.
Going to market with local companies allows firms to benefit from local market knowledge, existing supplier relationships and a customer database. Teaming up with a local player accelerates market entry for international e-commerce companies as the former brings local market knowledge, existing supplier relationships and a customer database, he said.
Matteo Sutto, senior vice-president for growth at iPrice Group, a Malaysianbased price comparison website, said: “Consumers and e-commerce players can benefit from the sizeable investment in the market if it helps to further accelerate the fundamental shift from brick-and-mortar retail to e-commerce.”
Mr Sutto said the market is increasingly fragmented and competitive, which will benefit local consumers.
But Alibaba and JD.com’s competition for e-commerce market share might lead to greater market consolidation, as smaller e-commerce firms merge with the giants or are driven out of the market, he said.
Pi ya chart Rat tan apr as art porn, chief executive of 2c2p Thailand, a Southeast Asia-focused e-payment service provider, said the arrival of Chinese titans will threaten local SMEs as they come to rely on these high commission fee platforms more.
While social commerce may be good way for them to have their own store front, they will need to spend on advertising to promote their pages too.
Tiwa York, chief executive and head coach of DF Marketplace, the operator of online classified marketplace kaidee. com, said the partnership between JD and Central will enhance the country’s e-commerce ecosystem and benefit Thai consumers.
“Currently, only 2-3% of retail is happening online, but the e-commerce market is poised for significant growth,” he said.
A retail industry source, who asked not to be named, said the competitive principles behind the retail sector remain the same, whether it is conducted online or offline. The provider who operates through the right business model, offers the deepest inventory of right products and provides seamless experiences to consumers on and or off a screen will capture consumers’ money.
Winners in the e-commerce sector need to leverage data analytics and artificial intelligence to better understand customers and tailor their products and pricing strategies to their preferences. Smart logistics and efficient, reliable delivery are other essential ingredients.
For Central, JD.com’s deal is an opportunity, but for other retail operators it is a warning. As the Thai e-commerce market reaches the level of maturity observed in China, Europe and the US (where 10-20% of purchases happen online), traditional operators must jump on the online retail bandwagon before it is too late.
JD.com is among global players tapping the region’s fast-growing e-commerce market.
Tos: Key step for Central to become online retail leader
Liu: Deal provides JD with huge competitive advantage