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

Bangkok Post - - BUSINESS -

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

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