[MW Special Report] Ecommerce in Thailand – Part 2

As with every other emerging market, growth is sometimes hindered by structural deficiencies. In this article, we will analyse if the e-commerce industry in Thailand is all that rosy.

Thailand 4.0

In light with Thailand’s 4.0 economic model to push Thailand into an innovative and high-income country, the government aims to focus on developing its innovation, technology and creativity. Following which, ETDA organised Thailand E-Commerce Week 2017- sharing of experiences by E-Commerce specialist from public and private sectors locally and internationally.[1] This was to further strengthen international cooperation in WTO members and was an important step to push Thailand’s e-commerce for economic expansion and effective growth at the forefront of the Asean region.[2]

Legal & Political (Governmental Support of a Digital Era)

The Electronic Transactions Development Agency (Public Organization), or ETDA, was established on 25 November, 2010.[1] ETDA functions as the main agency responsible for developing, promoting and supporting electronic transactions in order to create trust, opportunity and equity for all.[2] It also aims to develop, promote and support laws, guidelines, and measures related to electronic transaction security.[3] In addition to master plans and policies which contribute to Thailand’s infrastructure, there are numerous laws in Thailand’s e-commerce to protect consumers and promote e-commerce. They are namely: 1. The Electronic Transactions Act of B.E. 2544 (2001), 2. The Computer Crime Act of B.E. 2550 (2007, 3. Other provisions indirectly related to e-commerce: i. Penal Code, ii. Consumer Protection Laws, iii. Data Protection Laws

1. New Government Initiative: National Digital ID Project

On 19^th Feb 2018, representatives of ETDA signed a Memorandum of Understanding (MoU) with, Omise, a strong player in the online identification and e-payment service field to initiate the National Digital ID project. After the MoU signing ceremony, ETDA is ready to collaborate with experienced companies in the private sector to facilitate the development of trusted digital identities and digital ID ecosystem in Thailand.[4]

2. Alibaba Group and Thailand Collaboration

In 2016, Ministry of Commerce of Thailand and Alibaba Group signed an agreement to help Thai SMEs succeed in online commerce.[5]

Source: Businesswire, 2016

3. Eastern Economic Corridor – Thailand’s magnet to attract Chinese investors

With the Economic Corridor (EEC), Thailand hopes to develop its eastern provinces into a leading ASEAN economic zone. The EEC straddles three eastern provinces of Thailand – Chonburi, Rayong, and Chachoengsao – off the coast of the Gulf of Thailand and spans a total of 13,285 square kilometers. The government hopes to complete the EEC by 2021, turning these provinces into a hub for technological manufacturing and services with strong connectivity to its ASEAN neighbours by land, sea, and air.

The government plans to expand urban centers within the EEC and is working to develop advanced training programs to improve its skilled workforce. Lazada (subsidiary of Alibaba Group) has also recently released its plan to invest in Thailand’s Eastern Economic Corridor, where the company will set up its e-commerce park and logistics hub, making Thailand its door to CLMV (Cambodia, Laos, Myanmar and Vietnam).

Easter Economic Corridor Bill – Spur businesses with tax cuts and incentives

In addition, The Eastern Economic Corridor Bill – approved in principle in mid-April 2017 – will amend or suspend more than 100 Thai laws and regulations within the EEC which restrict foreign investment and generally curb the ease of doing business. While the government has yet to finalize a comprehensive list of incentives, the government has announced a major cut in personal income tax to 17 percent for investors in the EEC, land leases of up to 50 years, and a free flow of foreign currencies in the three eastern provinces. Furthermore, a 50% reduction in corporate income tax over a period of five years is now on offer for investors in the three provinces which comprise the EEC.

Maturity of the market

Payment

The key payment gateway providers include Paypal, Adyen, Omise, Siampay and 2C2P. In addition, there are various mobile wallets offered by banks, telecom companies and independent players like Rabbit and Line Pay. Other small but rising players include Mobiamo (SMS payments), Prompt Pay (P2P service) and NFC (Samsung Pay).[6] WeChat Pay (one of the most popular payment methods in China) is also available in convenience stores in Thailand but it currently only caters to Chinese tourists and it might eventually be a new provider.[7]

 Source: EIQ, 2017

Mobile Payments

Mobile technology pays a large role in Thailand’s e-commerce landscape as physical POS and ecommerce retail channels are converging, like other developed countries. With the booming adoption of smartphones, shoppers are using smartphones to research products, compare prices and make purchases. Thailand market is embracing multiple technologies for mobile payments such as QR codes, near field communication and in-app solutions.

Though there are several mobile wallets providers, there is still plenty of opportunities for new entrants due to 1) low user penetration rate and 2) no existing players provide an easy digital payment solution for consumers without a bank account or credit and debit card. For example, Line Pay accounts have to be linked with a credit card in Thailand and other mobile wallets and banks require consumers to top up through ATMs or special kiosks.

Uber launched its mobile app for taxi and rideshare service in Bangkok in early 2014 while Starbucks implemented its QR code mobile payment app at all 215 locations across Thailand in March 2015.[8] Based on Deloitte’s 2014 Global Mobile Consumer Survey, 57% of respondents said they would use an in-store mobile payment solution if available.[9] Of the 57%, 77.4% of them indicated they would be “somewhat” or “definitely” likely to use digital wallets (77.4%) and mobile NFC payments (76.4%) if the technologies were available, even though less than 7% of respondents currently use either method.[10]

Cross-border Payments

It is estimated that close to 348 billion Baht ($10B5) flow into and out of Thailand each year, making it a top 20 recipient of funds from the United States. There is also a clear difference between millennials and non-millennials and their use of cross-border payments- millennials are more connected globally. 32% of millennials taking our survey made a cross-border payment within the last month, while less than 25% of Gen Xers did so.[11] There is an opportunity to leverage new alternative payment networks to help facilitate the movement of funds across the world at a lower cost (currently 7% of total value, according to Aite Group).

Logistics

Source: EIQ, 2017

The logistics industry in Thailand is developed with high interconnectivity with numerous 3PL service providers as well as developed roads and infrastructure. Thailand has a $50 billion infrastructure budget as the country plans to improve roads, highways and railways in the upcoming years.[12] Deliveries are also efficient in Thailand, with 95% of existing logistic services accounting for next-day deliveries and the remaining 5% being on-demand delivery services.[13]

Competition is stiff in the logistics industry as 3PL companies engage in price wars and suffer lower margins. This is beneficial for marketplaces and merchants which are spoilt for choices and have a high bargaining power to negotiate lower prices.

Key international players which provide international shipping include Thai Post, Kerry Express, DHL, TNT and NIM express.

A major player to watch out for is Cainiao Smart Logistics Network, a subsidiary of Alibaba. Alibaba announced in Sep 2017 that it will invest S$20.4 billion over five years to build a global logistics network.[14] This signals its intention to boost control over the domestic warehousing and delivery market, which has become increasingly competitive as firms seek to capitalise on logistics data assets. This is an opportunity for Cainiao’s operations as it has enabled Alibaba to maintain an asset-light model that eschewed expensive warehouse construction.

E-commerce Enablers – enhancing efficiency of logistics market

E-commerce enablers provide end-to-end services, specifically for ecommerce clients, including storage and delivery, technology, marketing, customer support and offering an online shopping platform to browse various merchants. One such enabler is aCommerce which was created due to the poor infrastructure of Thailand’s logistics market: slow logistics, manual payments and lack of the integration of processes with IT systems. To date, aCommerce is successful with 10 over international clients and operates in Thailand, Singapore, Indonesia and the Philippines. E-commerce enablers bridge the gap of complex logistics markets by offering e-commerce startups a ready-made system to work with.

Conclusion

We believe that Thailand’s e-commerce market is well-positioned for growth given its supportive political and legal environment, fast-pace technology adoption and high interconnectivity in its roads and logistics market. The challenges discussed such as Thai consumers preference in cash can also be seen as opportunities as Thai consumers are receptive to new mobile payment methods and that Thai authorities and financial institutions have been working together to strengthen payment security measures and to regularly inform customers about fraud prevention.

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[1] https://www.etda.or.th/background-and-mission.html

[2] Ibid.

[3] Ibid.

[4] https://www.etda.or.th/content/etda-signs-mou-with-omise-for-driving-national-digital-id.html

[5] https://www.businesswire.com/news/home/20161208005584/en/Thailand-Alibaba-Group-Sign-Agreement-Thai-SMEs

[6] http://fintechnews.sg/5993/mobilepayments/5-mobile-payment-methods-thailand-must-know/

[7] http://www.chinadaily.com.cn/business/tech/2017-04/22/content_29039680.htm

[8] https://www.bostonfed.org/-/media/Documents/PaymentStrategies/everyday-mobile/Mobile-Payments-in-Thailand.pdf

[9] Ibid.

[10] Ibid.

[11] https://www.aciworldwide.com/-/media/files/collateral/trends/ecommerce-is-appealing-to-thai-tech-workers-tl-us.pdf

[12] https://ecommerceiq.asia/logistics-light-model/

[13] Ibid.

[14] http://www.straitstimes.com/business/companies-markets/alibaba-takes-control-of-logistics-business