Asian E-Commerce: the Last Frontier, Part I
Mark Brohan, Internet Retailer Research Director, published a comprehensive write-up of the goals and opportunities for e-tailers looking to break into the world’s largest e-commerce market—none other than our largest continent, Asia. Even a cursory glance at the figures yields a knockout $377B in 2012 online sales, over $151B more than U.S. figures in the same period. China alone estimated about $179B in 2012. But the situation is not without its roadblocks. Read on for our coverage of this great reservoir of potential, comprising a three-post series on our blog.
A Case Study
Perhaps the best place to start is with an example: Newegg, a U.S.-based web-only electronics retailer with which you’re probably already familiar, began its mission to break into China more than ten years ago. Way back in 2001, at the dawn of the online shopping craze, the company began planning the initiative—and as native Taiwanese with cultivated relationships in the Chinese business world, they weren’t exactly debutantes. It still took a year for Beijing to approve a certified web merchant license. And that was just the start!
Consider logistics: $25M to finance a headquarters building, regional fulfillment hubs, and a bespoke delivery network incorporating area carriers. Oh, is that it? How about this: next they had to file and win a slew of lawsuits to snag their desired domain name (Newegg.com.cn), followed by the mind-bogglingly complicated process of devising an effective Chinese-centric e-commerce strategy. It’s truly a different animal, and the only way to proceed in such an unfamiliar environment was by trial and error.
But it paid off! Now #28 in Internet Retailer’s 2013 Asia 500, Newegg scored Chinese web sales around $400M in 2012, with business growth topping 50% year-over-year. Big investment, big risk, big rewards.
The Plot Thickens
It’s clear that a substantial up-front investment and oodles of product and market research are the basic requirements for success in Asian e-commerce. The problem compounds exponentially, though, once you consider the abundance of languages, currencies, and commercial codes across the Asia-Pacific region. And those who achieve even paltry market penetration find themselves facing entrenched competitors with strong national customer bases. It quickly becomes apparent that U.S. retailers hoping to succeed must scale back their ambitions to just a few markets, then follow up with plenty of market research.
One solution works around these obstacles by making local acquisitions or forming joint ventures with Asian e-commerce stalwarts (Walmart et al.). Other merchants—Amazon, Zazzle—study up with due diligence for the slow and steady route. A lucky few (Gap) can leverage global brand recognition to expand their store base into Asian e-commerce. All for good reason: collectively, the nine largest regional Asian markets (Australia, China, India, Indonesia, Japan, New Zealand, South Korea, Taiwan, and Vietnam) outpace both U.S. and European web sales. You can’t really blame them for trying.
To India!
Let’s focus on India for more site-specific examples. Ranked fourth in the world economy, India nevertheless lags behind in e-commerce. Recognizing encouraging recent growth trends, quite a few non-Indian companies are keen to stake out that virgin territory. And standing right in their way is the Indian government, whose policies restrict e-commerce companies with foreign backing from selling directly to consumers or owning more than 51% of an Indian retail organization. In effect, limiting companies like Amazon to B2B web sales cripples their chances at securing substantial market share. This holds true for most of Asian e-commerce: compliance can be a huge wrench in the gears, or at least an extended time sink. To be fair, some Indian regulations mandate contributions to the e-commerce ecosystem as a whole: any e-commerce investments must be accompanied by investments in infrastructure and agreements to include local businesses in supplier networks.
Coupled with an infant market and a lack of widespread credit card ownership, this engenders a frustrating Indian marketscape, to say the least. Think tens of thousands of small-scale enterprises, unsecure payment processing—not to mention the headaches when arranging fulfillment and delivery to the 60% of the population living outside major urban areas. According to Avnish Bajaj, Matrix Partners India co-founder and director, the weak infrastructure holds off many, but it won’t be long before a projected customer base of 300M shoppers within the decade attracts serious investors.
Mark Inkster, SVP of Vistaprint (a retailer of custom printing products), agrees, noting that India’s 800K+ small businesses constitute an ideal customer base. Vistaprint broke in by acquiring Printbell, a Mumbai printing products and B2B e-commerce services company, in 2011. The acquisition and concurrent $5M investment outfitted Vistaprint with existing facilities, affordable overhead, and established Indian e-commerce expertise, ultimately enabling relaunch in about a year. The results? Rapid organic growth reflected in Vistaprint’s impressive Asian e-commerce metrics for 2012: $61.2M and 44% growth.
The Top 10 Asian E-Commerce Retailers
Format: Retailer (Country) — 2012 Web Sales — 2011 Web Sales — Growth
NOTE: many of these figures are based on Internet Retailer estimates
- Alibaba Group (China) — $170B — $101.549B — 67.41%
- Rakuten Inc. (Japan) — $9.758B — $8.34B — 17%
- 360Buy.com Jingdong Mall (China) — $9.63B — $4.962B — 94.06%
- Amazon.com Inc. (USA) — $8.8B — $7.32B — 20.22%
- Suning Commerce Group Co. Ltd. (China) — $4.76B — $945M — 403.67%
- Jia.com (China) — $3.208B — $1.762B — 82.07%
- eBay Inc. (USA) — $2.893B — $2.436B –18.79%
- 51Buy.com (China) — $1.606B — $380M –322.96%
- HappiGo Ltd. (China) — $1.605B — $800M — 100.63%
- Vancl.com (China) — $1.4B — $561M — 149.72%
That’s it for now! Read more at Asian E-Commerce Part II.
