8 June 2017
China Set to be World's First Trillion-Dollar E-commerce Market by 2021
Optimism was widespread at this year's eTail Asia event, with China, India and Indonesia singled out as particularly buoyant markets, while the growth of mobile payment services was seen as key to opening up less-developed economies.
Asia-Pacific is the largest region in terms of online retail sales, containing both the largest market (China) and the fastest-growing (India). Such, at least, were the findings of a recent report by Forrester Data, the Massachusetts-headquartered research group.
According to the same study, the region's total online retail sales in 2016 were estimated at about US$861 billion, with that figure set to rise to $1.428 trillion by 2021, at which point it will account for about one-fifth of total retail sales. By 2021, China – with sales estimated at about US$1.089 trillion – will be the first trillion-dollar market, while also accounting for 80% of all e-commerce sales in the Asia-Pacific market.
The value of India's online retail sales market, meanwhile, is expected to reach $64 billion by 2021, following a blistering five-year period of 31.2% average annual growth. This is all the more impressive given that the sector has had to contend with a number of significant obstacles, including legal impediments, a slowdown in venture-capital funding, insufficient logistics resources and the slow growth of the total number of online buyers. Despite this, the Indian market is still growing about three times as fast as South Korea's, the next-most-rapidly expanding market in the region.
Overall, the largest online category is apparel (29% of current sales), followed by consumer electronics (25%) and computers (11%). In terms of the primary drivers of growth in the run-up to 2021, Forrester singled out China and India's second- and third-tier cities as the most likely sources of expansion.
It was against this highly optimistic backdrop, then, that Singapore once again played host to the eTail Asia expo. Billed as the continent's premier e-commerce event, its 2017 iteration attracted representatives from more than 400 of the region's leading digital retailers.
Foremost among these was Elaine Wong, Co-founder of BFMe.com, one of the region's leading cross-border e-commerce players. Particularly enthused as to her company's prospects in India, she said: "We see the market in India as very similar to that of China some 10 years ago, a time before many of the country's current e-commerce giants had really made their mark.
"India's economy is already valued at around $2 trillion and the country is home to a population nearly as large as China's. Currently, it has 460 million e-commerce customers, collectively spending around $16 billion online. It is also the world's second largest market for smartphones.
"Products that sell well elsewhere, though, are not necessarily the best performers in India, with electronics, homeware, apparel, makeup and toys the five most in-demand categories. The market is also dominated by cash or cash-on-delivery transactions, which together account for 62% of all online purchases."
In the run up to this year's eTail Asia event, the show's organisers, in association with Olapic, the New York-headquartered visual marketing platform, commissioned a survey of e-commerce executives across Asia. Summarising the findings of this research, Jose de Cabo, Olapic's Co-founder, said: "The results clearly show that brands need to be able to effectively differentiate themselves from their competition in order to convey their desired message to new and existing customers. Understanding the wants and needs of their audience remains a massive challenge for retailers, with 86% of respondents seeing this as their biggest concern.
"Significantly, social media is now the most widely used form of brand communication, with 87% of respondents active in this sector. In-store communications came in second place (81%), while email was a distant third (64%).
"Perhaps more surprisingly, retailers are now spending less on search-engine optimisation, while investing more heavily on social and banner ads, maintaining they are getting a higher level of response from such eye-catching appearances. Reassuringly, pretty much everyone surveyed had plans to increase their spend on social media, with 48% looking to raise their investment from between 21-30%.
"The survey also indicated that retail remains largely commoditised within the Asia-Pacific region, as well as being primarily dictated by price. In terms of building customer loyalty, discounts and frequent buyer incentives were cited as most effective by 80% of respondents, while 83% favoured loyalty programmes as the most effective form of long-term client retention.
Turning to m-commerce – the fast-growing mobile e-commerce sector – Michael Breen, a Senior Business Leader for MasterCard's Digital Payments and Labs Division, outlined the particular challenges emerging on the horizon. He said: "By 2019, there will be 2.7 billion smartphone users. Between them, they will initiate more than 200 billion mobile commerce transactions. In order to facilitate this, retailers need to make it easy to make purchases via any device, at any time, from anywhere, and on any channel.
"In terms of the particular obstacles that need to be addressed, the attempted number of frauds via digital channels is already three-times higher than those initiated at a physical sales point. This has led online merchants to decline 13 times the number of transactions as there are actual instances of fraud. Inevitably, this has a negative impact on the bottom line of merchants. Overall, 66% of consumers who have a purchase declined in error will reduce their number of future purchases, while 32% will never shop from that particular retailer again."
In terms of addressing individual geographic markets, Danny Baskara, Founder and Chief Executive of Evoucher, a Jakarta-based specialist in online daily deals and flash sales, was keen to underline the largely untapped potential of Indonesia. Outlining its particular peculiarities, he said: "Of its 256 million-strong population, 45% have online access, 67% are aged 35 or under, while 34% own a smartphone. Overall, though, only 7% have credit cards, while only 37% have a bank account. In fact, almost half of the country's SMEs also operate without a bank account.
"Inevitably, cash transactions are the most common. With bank accounts not always easy to secure, e-wallets seem to be the way forward. My advice to anyone looking to enter the Indonesian market is to go mobile first and to leverage on Facebook and Google ads as a means of generating sales. It is also worth bearing in mind that, once outside Java, the logistics involved with making deliveries become somewhat daunting. The country is, after all, made up of 17,500 individual islands."
Offering a somewhat different perspective on the country was Muhamad Fajrin Rasyid, Co-Founder of Bukalapak.com, a Jakarta-based online vendor. Clearly confident as to the potential of his domestic market, he said: "Between 2015 and 2025, Indonesia's e-commerce sector is expected to enjoy 30-fold growth, but even this may be something of an underestimate. Indonesians love social media and love buying and selling via such platforms. I believe this largely unregulated market is far larger than the more formal e-commerce market run by recognised retailers.
"For us, though, the challenge is that only 5% of Indonesians have credit cards. This means the majority of online transactions are settled by bank transfer, cash or cash-on-delivery. As purchasers often have to travel to a physical ATM to complete a transaction, many don't bother or simply forget.
"For us, sales via mobile devices are already more significant than those made via the desktop. In fact, they represent about 70% of our revenue. Just two or three years ago, e-commerce was restricted solely to Jakarta and a number of the big cities. Now it's growing in popularity in many of the smaller villages, including those well away from Java, the main administrative region. This makes the logistics of serving these purchasers something of a challenge. At the moment, consumers have to choose between paying high shipping costs or having to wait a long time for deliveries, both of which tend to be something of a turn off."
Looking at the wider Southeast Asian market, Hanno Stegmann, Chief Executive of the Asia-Pacific Internet Group, a Singapore-headquartered e-commerce marketplace, said: "At present, there are 260 million internet users in this region, with that overall number expanding faster than anywhere else in the world. By 2025, we estimate that the e-commerce market of every country in the region will have annual sales in excess of $5 billion.
"The real growth potential lies in the relatively unexplored markets of Bangladesh, Cambodia, Laos, Myanmar, Nepal, Pakistan, and Sri Lanka. On average, these countries have enjoyed 6.4% GDP growth over the past seven years, while their collective population level has expanded by 76 million. In all of these markets, the majority of customers will solely have online access via mobile devices, a preference that online vendors will have to cater for."
Despite the positive growth indicators in Southeast Asia, the overall size of that market remains dwarfed by China, the region's largest and most singular e-commerce economy. Highlighting the peculiarities of the mainland market, Ann Wang, General Manager of Tencent, the Shenzhen-based internet giant, said: "The online brands that take the lead globally do not necessarily enjoy the same prominence in China. The country's most popular search engine, for example, is Baidu rather than Google. Similarly, Taobao is the leading consumer-to-consumer platform rather than eBay, while JD is a far more popular business-to-consumer platform than Amazon.
"For 90% of mainland online shoppers, mobile is their primary means of access, with 75% of all purchasers ordering via their smartphone. Of late, cross-border e-commerce has become increasingly popular, with the sector growing by 46% in 2016, representing a total sales value of $85.7 billion.
"While the typical Chinese consumer is increasingly willing to pay a premium for high-quality goods and services, it is important to make their offline-to-online experience as seamless as possible. The average smartphone owner already has about 40 apps installed on their handset and, if you ask them to install an addition alone just to buy your products or services, then the chances are they won't bother. Vendors will have far more success by simply leveraging existing apps, with WeChat being the prime example."
eTail Asia 2017 took place from 7-9 March at the Marina Sands Expo and Convention Center in Singapore.
Ronald Hee, Special Correspondent, Singapore