By Lily Wang

Driven by geographical and encouraging policy factors， Chinese e-commerce enterprises have always regarded Southeast Asia as the first stop of taking their business overseas. Although the Indonesian subsidiary of JD.com announced that it would stop services on March 31， and JD.com Thailand had announced that it would be closed， the Chinese e-commerce platform Alibaba， and cross-border e-commerce operation platform TikTok Shop， said they would continue to expand businesses in Southeast Asia.

The macro environment allows for the rapid development of e-commerce

Southeast Asia has a large population and a young population； its per capita GDP has been increasing year by year， and the middle class brings the main demand for shopping. At the beginning of 2022， the number of Internet users in Southeast Asia reached 442 million， and the Internet penetration rate was higher than the global average. On top of that， its internet users spend more time on the internet than the global average. This macro environment provides good conditions for the sustained and rapid development of e-commerce. However， the current e-commerce penetration rate is still at a low level， with a large growth space. According to Bain Consulting， the regional e-commerce market size will reach USD 234 billion in 2025， maintaining a compound growth rate of 18%.

Besides， the penetration rate of digital advertising in Southeast Asia is low， about half of that in China， and it is in the phase of rapid development， with social media having become the main marketing channel， and video marketing being a popular tool. The overall business scale of video marketing in Southeast Asia in 2022 reached USD 2.252 billion， with a large space for growth， as the convenience of the payment market needs to be improved. At the moment， cash on delivery （COD） is still prevalent. Multiple payment methods are being used and electronic wallet payment is becoming the new trend. The logistics infrastructure is backward and the competition is not sufficient， but in recent years this has been improving rapidly. E-commerce platforms have built their own logistics systems to shorten the transportation time and reduce the logistics costs.

In addition， Southeast Asia has strong social attributes， and livestream shopping and traditional e-commerce developed side by side. On January 1， 2022， the Regional Comprehensive Economic Partnership Agreement （RCEP） entered into force， and more than 90% of the traded goods among RCEP members could enjoy zero tariff.

Southeast Asia has a similar culture with China， and local people are more open to Chinese products， short video marketing and livestream shopping. In the realm of livestream shopping， e-commerce platform like Shopee and social platforms like TikTok have strong advantages.

Chinas E-commerce Players Flock into the Market

In response to the latest changes of JD in the Indonesian and Thai markets， JD recently said that this move was made in order “to further focus on the construction of JDs global supply chain infrastructure and digital capabilities， and to concentrate its resources on crossborder supply chain infrastructure， including Southeast Asia”.

As JD adjusted its business layout， Alibaba continued to inject USD 342.5 million into Lazada， an e-commerce platform Southeast Asia， as of last December. Alibaba said that since 2016， Lazada has become the flagship ecommerce platform of the Alibaba Group in Southeast Asia. The current digital ecosystem of Lazada links 160 million active consumers in Southeast Asia with more than 1 million active sellers each month. They can trade through Lazada Wallet and other reliable payment channels.

In addition to this， the TikTok Shop of Bytedance entered the markets of five Southeast Asian countries， including Malaysia， Thailand， Vietnam， the Philippines and Singapore last year. On top of that， the cross-border e-commerce giant SHEIN has launched pop-up shops in Thailand， the Philippines and Singapore， and Vipshop and the Joy Spreader Group also expanded their business in Southeast Asia.

Lan Qingxin， Director of the BRICS National Research Center of the University of International Business and Economics， said that Chinese e-commerce has many advantages in entering the Southeast Asian market： first， the consumption demand in the region is diversified， and Chinese goods can adapt to the segmented demands of Southeast Asian Markets from high-end to low-end； secondly， the e-commerce market in Southeast Asia is still in early phase of development， while Chinese ecommerce has been relatively mature.

Nevertheless， with the recovery of Southeast Asia from the pandemic， the restoring of the offline markets and the entry of more ecommerce platforms， the e-commerce market layout of Southeast Asia will undergo new changes in the coming year.

In Singapore， 48% of the population has experienced online consumption in the past year， and 62% of them chose e-commerce consumption frequently. According to the report of OOSGA， a market research agency of Singapore， the Alibaba-controlled Lazada， Singapores local e-commerce platform Shopee and Amazon have become leading online ecommerce players in Singapore in the past two years. It is expected that they will continue to dominate Singapores online retail market in the next few years.

At present， the e-commerce market in Southeast Asia has entered its second stage of development. McKinsey said that although traditional e-commerce players like Shopee still lead the market， there are signs that social network platforms are gradually becoming a new development trend.

Secondly， it said that for Chinese merchants who have settled in the platform， they also face the challenge brought by the shift from the outbound transfer of supply chain to the brand. As the supply chain model has limited space for development， the brand will become increasingly important.

Adjust to local conditions

Although the overall e-commerce market in Southeast Asia has developed rapidly in the past few years， the e-commerce penetration rate is relatively low in terms of absolute scale. McKinsey pointed out in an article published in December 2022 that the e-commerce penetration rates of Southeast Asian countries vary， with Indonesia and Singapore having a high ecommerce penetration rate of about 30%， while the Philippines， Thailand and Vietnam have an e-commerce penetration rate of about 15%. In general， the average e-commerce penetration rate in Southeast Asia （excluding food and beverage） is 20%， which still has huge growth space compared with Chinas 47% penetration rate.

Having been developing in Southeast Asia for many years， people from Alibaba said that the weak infrastructure of cross-border ecommerce and lack of e-commerce talents in Southeast Asia had brought difficulties to business development. However， these conditions have improved in the past two years with the development of local e-commerce economy and the arrival of more Chinese e-commerce enterprises.

Some experts believe that Chinese e-commerce companies have established a complete infrastructure in Southeast Asia， especially Thailand， which has rich experience in warehousing logistics， platform operation and other aspects of e-commerce. In addition， the development model of e-commerce in Southeast Asia has copied that of China e-commerce industry. For Chinese e-commerce players， there are models to follow.

Chinese e-commerce business has faced many challenges brought by the changes of ecommerce market in Southeast Asia. In the long run， the development trend of e-commerce in Southeast Asia will not change. Thailand is rapidly approaching the Chinese model in terms of payment， logistics， local life and other aspects. What is happening in Thailand has been what happened in China in the past few years. Chinese e-commerce players should pay attention to localized development， not only building local teams and cooperating with local agents， but also fully understanding and respecting local culture.

Wirun Phichaiwongphakdee， Director of the Thailand-China Research Center of the Belt and Road Initiative， said that the development of Chinas e-commerce industry is mature， and relevant Chinese enterprises have brought mature and advanced operation models and concepts into Thailand. However， it should also be noted that Thailand differs from China in terms of consumption levels， consumer preferences and habits. If Chinese e-commerce enterprises want to replicate their success in Thailand， it is important for them to adapt to local conditions and culture.

Guo Xinhua， VP of Giikin， said that many countries in Southeast Asia are still in an early stage of development， regardless of logistics maturity， payment maturity or online ecommerce penetration. In addition， Southeast Asia has a relatively young population， with more than 50% people under the age of 35. These young people are enthusiastic about using e-commerce shopping， which leaves huge development space for e-commerce independent stations.

However， Guo Xinhua said that due to the diversified language environment and different religious beliefs in Southeast Asia， localization is the most important factor for winning the e-commerce market in Southeast Asia. If you copy your business experiences back in China， you will encounter many developmental issues.

At present， the growth of e-commerce in Southeast Asia is still limited by the decentralized logistics distribution system， which actually signals new opportunities for warehousing and logistics business. Although JD has decided to cut its e-commerce business in Southeast Asia， if it turns to supply chain business， it may still be able to make new profits in the “blue ocean” of e-commerce in Southeast Asia.