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Friday, July 11, 2014, 09:35

Asian e-commerce sector hots up

By KRISTINE YANG in Hong Kong / Asia Weekly
Asian e-commerce sector hots up
Sina Weibo employees attend a meeting at the company’s headquarters in Beijing. Chinese e-commerce giant Alibaba invested $586 million in the micro-messaging service company last year, in a bid to expand its online presence. (AFP)
The tremendous growth in size and scope of Chinese e-commerce giant Alibaba continues to draw attention to the huge potential of online commerce in Asia.

On June 10, Alibaba bought the remaining shares of UCweb, the most popular mobile browser in China, in a deal worth an estimated $1.9 billion. Before the merger, Alibaba already held a 66 percent stake.

The deal could boost the valuation of Alibaba’s estimated $15 billion initial public offering on Aug 8 in New York.

On May 28, Alibaba Group also announced a strategic partnership with Singapore Post (SingPost) to build an international e-commerce logistics business. Alibaba Investment, a subsidiary of Alibaba Group, will acquire a 10.35 percent stake in SingPost by spending S$312.5 million ($252 million).

These two acquisitions have given Alibaba a further edge over Tencent, its largest Chinese rival in the e-commerce field.

The war between Alibaba and Tencent is emerging as a major theme. In the past, Alibaba, with its major e-commerce platform Taobao, did not really compete directly with Tencent, which was still best known for its social networks and its instant message tool QQ.

But last year, the two companies started encroaching on one another’s territory. Alibaba invested $586 million in micro-messaging service Sina Weibo, while Tencent bought 80 percent of Jindong, a popular online shopping website.

And following up on the success of its messaging apps Weixin and WeChat (the international version of Weixin), which have 300 million users in China, Tencent launched Tenpay, an e-wallet that allows users to pay for goods such as McDonald’s meals.

“The war between Alibaba and Tencent is sucking all of Tencent’s resources,” says Vincent Digonnet, executive chairman for Asia Pacific at Razorfish, an international digital marketing company.

“Both Alibaba and Tencent want to secure their major position in their home market first before they go to the rest of the world. If you are not strong enough in China, forget about the US,” he says.

Alibaba is not the only giant moving into the space that now exists between e-commerce and social media.

Facebook acquired WhatsApp and Instagram. The largest e-commerce platform in Japan, Rakuten, acquired Viber, a chat app, for $900 million in February. Another Japanese messaging app, Line, now also has Line Mall, a shopping site.

In South Korea, messaging app Kakao Talk has partnered with retailers such as Groupon, Pizza Hut and Zalora.

The common thread in all these deals is a determination to win a larger share of the e-commerce pie.

Global business-to-consumer e-commerce sales will increase by 20 percent to $1.5 trillion this year, says Chew Kherk Ying, a partner at law practice Baker & McKenzie Malaysian member firm, Wong & Partners.

This will be supported by rapidly expanding online and mobile user bases in emerging markets and advanced shipping and payment options, she explains.

And this year, Asia Pacific will become the world’s largest regional e-commerce market.

“The success of social media platforms actually enhances and increases the expectations of e-commerce as well,” says Chew.

China is still the largest market in Asia and its influence is huge. Its e-commerce market is forecast to grow larger than the United States, the United Kingdom, Germany, Japan and France combined by 2020, according to a report by KPMG released this month.

Digonnet from Razorfish explains why Chinese companies in particular have been so successful in this sphere.

“India lacks the infrastructure and the GDP growth is low,” he says. “People don’t have access to smartphones. On top of that, India has been looking to the West. But China is the only creator of its own eco-system that specifically suits Chinese consumers. China is not just copying (others).”

Meanwhile, countries like Japan and South Korea are very advanced in terms of technology, but have backward companies that rely on traditional marketing — what Digonnet calls a mix of 19th century and 21st century.

An important feature of social media is the user-generated reviews of brands, products and service. According to Bazaarvoice, an Internet marketing consultancy, after seeing a positive review, 71 percent of consumers changed their perception of a brand.

And the role of customer reviews is particularly important in China, as Digonnet explains.

In Europe and the US, out of 100 people, one person typically creates content, nine people review and comment on it, and 90 consume based on it. But in China, 30 create content, 50 review it and only 20 buy. So it makes it a very dynamic platform, he says.

“In the West, social media begins with Facebook. But in China, Chinese social media is a means to pull together the authorities, the media, the grassroots and the retail (sector),” he says. “Before they buy things, they go to social media to check with people who have an experience with it.”

He says that the likes of Tmall — a Chinese-language website for business-to-consumer online retail — give more power and input to consumers on their platforms, therefore customers will trust them more. This is a method that Chinese consumers now are expecting from other sites.

Digonnet firmly believes that the Chinese platforms are the best available. “eBay is not as good as Taobao. Amazon is not as good as Tmall. I think Western brands should learn from them and go further. A lot of them still think all the developments come from the US and the Chinese are just copying them — they are so wrong,” says Digonnet.

On June 5, NTT Communications, a Japan-based global communications provider, launched a new e-commerce payment solution.

Backed by Fortune 500 companies, NTT consolidated different payment solutions into one platform and allows customers to conduct e-commerce in over 140 currencies.

By 2015, e-commerce transactions in China are projected to reach $540 billion, or three quarters of the value of retail transactions.

“Implementing and managing an effective payment strategy can be a very complicated process for merchants,” says Tyrone Lynch, vice-president for e-business at NTT Communications Asia.

He explains that, in a survey of 200 US and European global merchants, his company found that 99 percent of organizations reported challenges when delivering e-commerce in Asia.

“The main issues were dealing with different domestic payment methods, currency restrictions, tax regulations, and high transaction costs.”

Now, customers don’t have to choose platforms. They can choose payment methods, adds Lynch.

“What we are doing is to integrate all these payment methods, including Alipay and e-wallets.”

Visa and MasterCard dominate e-commerce elsewhere in the world, but not in China where Alipay, Tenpay, UnionPay and 99Bill share 86 percent of the payment market.

Although 74 percent of customers rely on social networks to research their purchases, 55 percent are still reluctant to give credit card details online, according to Gartner, a market research firm.

But 55 percent of China’s Internet users have made a mobile payment, compared with 19 percent in the US, according to KPMG.

So a one-stop online shopping experience that redirects to a secure payment gateway is extremely useful.

Currently, 8 in 10 smartphone users are smartphone shoppers. By 2016, 85 percent of all digital shoppers will be mobile shoppers, according to Bazaarvoice. The Chinese government expects there will be 1.2 billion 3G and 4G mobile phone users by 2020.

The market is large not only in terms of the number of users but also the amounts they spend.

The average purchase online has jumped to 1,515 yuan ($245), according to the KPMG survey, and 17 percent of users spent at least 2,000 yuan in their last purchase.

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