After securing dominance in its home market, China’s Alibaba Group Holding is racing to conquer the still nascent e-commerce market in Southeast Asia. Although the size of the market in Southeast Asia pales in comparison with China’s, it is expected to grow 32 percent on average each year through 2025, according to one industry executive.
US-based Amazon.com Inc also has its sights set on the region, making a face-off with Alibaba all but certain. Alibaba got to the Southeast Asian market first, but its victory is far from assured. Experts said there is no silver bullet for success, especially in an evolving e-commerce market facing difficulties of its own.
Among the glossy, green trees in Phuket, the largest island in Thailand, the landscape is dotted by many 7-Eleven convenience stores that accept Alibaba Group Holding’s mobile payment application Alipay.
“Alipay is available in almost all 7-Eleven convenience stores here, and people are encouraged to use it with random discounts,” an employee at a 7-Eleven store on Thanon Patak Road in Phuket, who declined to be identified, told the Global Times on Saturday.
7-Eleven has added Alipay to its payment options at more than 9,000 outlets across Thailand since April.
Alibaba’s move to get Alipay into Thailand is widely perceived as a way to attract Thai smartphone users and technology-savvy consumers as it expands into Southeast Asia in 2016.
In April, the Chinese e-commerce giant acquired a controlling stake in Lazada, considered the Amazon of Southeast Asia, for $1 billion.
In November, Alibaba furthered its expansion by taking over the Singaporean online grocer RedMart via Lazada.
Alibaba’s CEO Zhang Yong said several times at press conferences in 2016 that the company’s next major goal is to help merchants on its platform enter the Southeast Asian e-commerce market.
However, expanding into Southeast Asia might be easier said than done. In the region, many people are familiar with the concept of e-commerce by name only and don’t have much of an inclination to try it.
A new frontier
A 20-something resident in Phuket surnamed Kung was surprised when she heard that Chinese shoppers spent 120.7 billion yuan ($17.4 billion) on online purchases via Alibaba’s bazaars on November 11 alone.
“My friends and I seldom shop online and do not really intend to do so because we can get whatever we need in the market or at nearby convenience stores,” Kung told the Global Times on Friday.
The woman’s biggest concern is quality. She dislikes that she can’t feel the texture of clothing sold online and worries about unwittingly buying knockoffs.
The poor reception for online shopping is reflected on the streets of Phuket, where few express deliverymen can been seen – unlike in China, where they are commonplace.
Lazada Thailand CEO Alessandro Piscini acknowledged on Thursday that Southeast Asia has a small e-commerce industry.
At a press conference with about 200 Chinese reporters in Phuket on Thursday, Piscini cited the region’s 3 percent online retail penetration rate (as of November 2015), which represented about $6 billion in sales. By comparison, China had an online retail penetration rate of 14 percent and online sales totaling $293 billion during the same period.
Still, Piscini was optimistic, saying that the small penetration rate shows that Southeast Asia has a large untapped market for e-commerce. He predicted that the region’s e-commerce market will grow by 32 percent annually to more than $200 billion by 2025, thanks to local government encouragement for the digital economy and urbanization, as well as the region’s rapidly growing middle class.
By 2020, Southeast Asia’s GDP is expected to grow by an average rate of 5.5 percent a year, Piscini said. Middle-class consumers around 35 years old will account for 60 percent of the region’s overall population, which will grow to 668 million from the current 644 million, according to latest estimates by the global statistical information provider Worldometers.
Looming rivalry
Amazon.com reportedly plans to launch in Southeast Asia in the first quarter of 2017, meaning that Alibaba and its US-based competitor will soon clash in the region.
Amazon’s entry into Southeast Asia will be done via Singapore, where “the level of customer spending and consumer culture is more closely aligned with Western markets,” TechCrunch reported in November, citing unnamed sources.
The grocery store business is shaping up to be the first battleground in the region between Amazon and Alibaba, according to the report. The rivalry between the two tech mammoths in the Southeast Asian market seems unavoidable as both have stepped up their international expansion.
“The two account for a huge amount of their home e-commerce markets, with Alibaba holding about 80 percent of online sales in China and Amazon controlling about 60 percent of the US market, so competing for new territory is a logical move,” Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting, told the Global Times on Sunday.
Alibaba should not be fazed by the potential threat of Amazon, experts said.
The Chinese company has an edge on the shopping side, but also got an early start with logistics and payments via acquisitions, experts noted.
In November, Alibaba’s financial arm Ant Financial signed an investment deal with Ascend Money, a leading online payment firm in Thailand, which also operates in Indonesia, the Philippines, Vietnam, Myanmar and Cambodia. It also snapped up a stake in Singapore’s Singpost, which is experienced at delivering parcels across Asia.
Dearth of development
Alibaba may have got to Southeast Asia ahead of Amazon, but being first doesn’t guarantee victory.
“Southeast Asia is a varied e-commerce market and full of challenges that need to be overcome,” said Liu Dingding, a Beijing-based independent analyst.
In addition to weak market reception, delivery is also perceived to be a tough issue.
Lazada Thailand CEO highlighted the complexity of delivery in Southeast Asia during Thursday press conference, citing the region’s underdeveloped infrastructure.
Liu agreed, noting that the underdeveloped infrastructure hindered the inter-city cargo or parcels delivery, which harmed users’ experiences.
According to Kung, residents in Phuket usually need to wait for one to two weeks to get their online purchases. In China, this usually takes about three days.
Against this backdrop, the e-commerce ecosystem in the region is still evolving, giving anyone a possibility to lead the market as long as it can find the right local partners, Liu said.
“Amazon, though a latecomer to Southeast Asia, still has the chance to win because it has more experience than Alibaba in expanding its business in the international marketplace,” Liu told the Global Times on Sunday.