Clash of the titans in Thailand’s ecommerce scene

 

Last year, Thailand witnessed the entry and subsequent overhype of 11street – a company owned and invested by South Korean telecommunications giant SK Telecom. 11street Thailand spared no expense splashing on celebrities, television ads, metro station wraps and so on. It was everywhere – and all my friends in ecommerce (i.e. competitors of 11street) were taking this competitive threat seriously.

However, almost a year into its operations now, it seems that things at 11street are slowing down. The sale of Elevenia (11street in Indonesia) to Salim Group does not help SK Telecom project confidence for 11street Thailand.

On the other hand, many expected a great sweeping (i.e. showering of vouchers, discounts, ads, celebrity shows) by Lazada after the Alibaba acquisition. Well, it did not happen. In fact, most people did not even notice any drastic change at Lazada from outside. At least for now, it seems that by doing (or not doing) that, Lazada is prevailing in this market. What did Alibaba/Lazada do right? Staying power and a long-term view?

 

Forging partnerships instead of being omnipotent

Well, there is one thing that the Chinese players are quite savvy about but 11street did not do: having a strong local (Thai) partner. While Lazada has the (theoretically) bottomless war chest from Alibaba, a lot of effort went into building partnerships, alliances, and joint ventures. That includes official interactions with the Thai government: Deputy Prime Minister of Thailand visited Alibaba last year to sign a joint agreement to help Thai SMEs on ecommerce.

More than that, Alibaba also forged powerful partnerships with CP Group – one of the biggest conglomerates in Thailand – sealed with the investment from Alibaba into Ascend Money, leveraging technology and expertise from Ant Financial to build the top e-wallet in the country. Even the purchase of Lazada itself demonstrated Alibaba’s strategy of leverages – building their own operations from ground up would have taken them much longer time (and very likely much more money).

On the other hand, JD.com – China’s second biggest e-commerce player – has found an ally in Central Group, one of CP’s major rivals. Although CP has a more balanced portfolio of digital ventures and ancillary services through Ascend, Central Group is not completely new in e-commerce: they operate Central Online, and bought Zalora Thailand last year.

The purchase of Zalora Thailand (since rebranded as Looksi) was not sufficient to realise Central’s ecommerce dreams. On the other hand, JD.com is often refered to as Amazon of China, since it runs its own fulfilment services as opposed to Alibaba’s marketplace plus ecosystem model.

We could say that the skills and strengths of these two partners are highly complementary. Whether the partnership will work out really depends on how well they can synchronise, and work together. There are also rumours that JD.com might invest in aCommerce, an ecommerce enabler based out of Bangkok. The synergies are not really well understood yet, but combining aCommerce’s infrastructure and brand relationships with JD’s technology, processes and knowhow seem to make a lot of sense.

 

Future is O2O (Online-to-Offline)

In addition, Central Group has a rich portfolio of offline presence: mega malls, restaurants, retail shops and convenient stores, among others. “Why would this matter?” one might ask. “It is supposed to be an ecommerce business.” In fact, combining online and offline is recognised as the way to go by major players. Alibaba recently began venturing into offline retail in China by building its first mall. And Amazon’s purchase of Whole Foods and experiment with offline stores (Amazon Go) are also along the same lines.

In a way, integration of online capabilities and offline shopping experience could prove the key to success in ecommerce in Thailand, especially when offline transactions still account for more than 90% of retail sales. Wouldn’t it always be easier to allow consumers to do the same thing in a better way, rather than educating them to do something very different? JD might have a real chance in O2O, seeing that Lazada was slow in growing their O2O presence in the past few years.

 

How about Amazon?

While Amazon’s entry in Southeast Asia has so far been quite limited, there is no way that they will stop at operating in just Singapore. On the contrary, we believe Singapore is simply a test case (and a regional base) for greater ambitions in Southeast Asia. Ultimately, talent is still lacking in the region’s ecommerce sector, and training troops in Singapore makes more sense than in Seattle.

The choice of Prime in Singapore is interesting as well – it is essentially an attack on Lazada’s weakest link: groceries. Lazada only obtained its groceries business last year through acquiring Redmart, a local start-up that built impressive infrastructure from ground up but failed to scale up. On the other hand, Amazon has accumulated years of knowhow and economies of scale.

 

The big picture

While Lazada is doing a good job thus far, it is far from dominating the ecommerce market in Thailand. Its major challengers are from giant international players such as JD and Amazon. Big local retail/real estate conglomerates will sooner or later realise, after a few high profile failures, that it makes more sense to leverage the capabilities and knowhow of these international giants. With Central and CP already joining the fray, we will not be surprised if TCC and others follow suit.

It is very likely that three groups will dominate ecommerce in the country: Alibaba/Softbank, Tencent/JD and Amazon, together with their respective partners. Shopee (which is owned by SEA, previously called Garena) and JD.com remain competitors now, although they share a (mighty) common shareholder – Tencent.

There will be very little room for smaller ecommerce platforms to survive let along thrive. For them, the smart move is either to go niche (a tough choice, given that niches in emerging markets tend to be small and not defendable), or join one of the camps (a wiser choice). Or maybe both – either way it is better than being forced to throw in the towel.