E43 – The Impulso Podcast – What’s next for e-commerce in SEA?

Welcome to another episode of the Impulso Podcast. Today we are bringing to you a recording of a Q&A section of a recent Bank of America event. In this section we cover the most burning question on the state of e-commerce in SEA, more specifically,  about competition & regulatory dynamics.

Tune in to find out more about:

• What happens now to TikTok Shop after the ban, how do they get back into the market? What happened to the order volumes, were they lost or did they move to the competitor platforms? Is it possible that other countries in SEA would take similar measures like Indonesia?
• Many Chinese players want to go global. When expanding, do they prefer to do M&A or handle everything by themselves? What strategies can e-commerce platforms employ to defend themselves against new players?
• Temu and Meituan are some examples of successful platforms. But can they succefulyl bring the value that made them leaders in their respective regions to SEA?

Hope you enjoy the episode!

[AI-generated transcript]

 

Dalia  0:00  

Hello, everyone. And welcome back to the Impulso Podcast. In this episode, we are bringing to you the Q&A section of the recent Bank of America event that our CEO attended. The event was dedicated to the state of E commerce in Southeast Asia, more specifically about understanding competition and regulatory dynamics. Without further ado, let’s start with the first question which was dedicated to the state of Tiktok shop after the ban in Indonesia? How do they get back into the market?

Jianggan  0:29  

I do think that, that bytedance itself, and of course, people talk about the organization being like, you know, agile and fast, but it’s still a very professional organization. So they do have different functions or people working on different things. We do know that there are discussions going on with relevant stakeholders like the one you mentioned, but exactly how that’s going to play out. So I mean, in addition to the form of potential to how this deal will be structured, but how operationally things will be taking place, right, because eventually becomes a format of you are providing links, and he has to jump out of the TikTok app to a separate app or separate page or whatever, and that the conversion will suffer. so So exactly how that’s going to take shape. We don’t know yet. And I am not even sure whether it’s a good idea to rush into a deal before the elections, because we don’t know who will be the new president, we don’t know who will be the new ministers for this. And for that, so things are subject to change. So I’m not sure whether it’s actually a good idea to to get into a deal, which might satisfy certain stakeholders, but the certain stakeholders might have different power and before and after the election. So this is something we don’t know. And another factor, which I briefly mentioned, I think Tito is growing very, very healthily. Now, actually, very fast. I’m not I’m not sure whether it’s healthy, in the US, and is that trajectory continues. And I think in terms of in organization, how much effort they should naturally put into Indonesia, or how much leadership attention they should naturally put into Indonesia will probably shift as well.

Dalia  2:22  

Okay, now to the second question. So if we take a look at the state of TikTok, we can see that it’s doing really well in the US, and it’s also doing well in China as well. So from ByteDance’s perspective, how important is TikTok Shop in Indonesia?

Jianggan  2:39  

This question is probably best, best asked to the executives at ByteDance all the key decision maker, so ByteDance because, because they will have access to the information. And they will have access to a lot of internal information that outsiders like us do not have access to. So they were made, make their judgment. And sometimes I mean, they have internal discussions. And people might have different different opinions. But from what I see that, that I think things are not static, right? I mean, people make assessments at this. These are organizations which are agile, that take information and they make assessments, sometimes they change their course. So for instance, I would think that Tiktok Indonesia, probably be less important at the point of the band, if they had figured out how to do US market. And earlier, I think now they have that formula in the US, which is working pretty well. So but then if you trace it back, if Temu didn’t actually go into us that aggressively in September last year, and it also might take more time to actually find a final decision of how to do to to do the US so. So I think I think there are multifactorial cofactors that, that people are taking in to make the assessment. But what I would say is that after Black Friday, I think I think the importance of Indonesia market for TikTok Shop was probably less than it was at the time of the band.

Dalia  4:13  

Okay, now let’s move to another player. So if we look at the case of Temu, we would see that they are very successful. So the question arises as to whether they can bring this value successfully to Asia? What are your thoughts about it?

Jianggan  4:29  

I think I’ve interacted with with a lot of people who are ex-Pinduoduo  and and even some of the people like to who stayed there since the early days and and I’ve had lots of downloads about how this organization had grown to where it is today and the culture, the way it does things. So I would think that I mean, compared to all the platforms that you see in Southeast Asia, they are definitely more efficient. I think even now in China. I think Alibaba is trying to find ways to respond to the level of efficiency that that periodo team has been, has been able to demonstrate. So, so but but the question here is that I mean, from their point of view, I mean, how important in Southeast Asia, I would think that eventually they want to be a global player. I would think that, in the short term Southeast Asia for them, I mean, in terms of ROI is probably not as significant as, as Europe, for example, they will still see, I think they will still be able to inflict lots of growth in Europe, if they managed to figure out the bottleneck, which is logistics. I think I think in the context of that, whatever they’re doing in Southeast Asia will probably be less significant. So they already have a beachfront. In, in the Philippines and Malaysia, which they had not been that not been actually promoting that aggressively. I mean, just look at me how much they’re spending on advertising, and then their pricing strategy. So So I do think that that I mean, in August and September, they they played around with this market for a few weeks, they have an assessment of the market, and they will, they will make a decision where to focus. So I would think that unless the investment into Europe, for example, is showing declining ROI, or otherwise, it’s hard to see that how Southeast Asia will become a focus, bearing in mind that they’re doing the full consignment model now. So they knew they knew. And they probably know that if they’re going to go into Indonesia, which doesn’t like cross border, they need a different model. And at this time, it doesn’t make sense for them to email it a different model. And for for other markets. I think the sellers send the goods to their warehouse, and then they dispatch from their warehouse. And if they have limited warehouse capacity, I would think that in the short term, they will prioritize the markets which are of higher value.

Dalia  6:55  

Okay, so many Chinese players want to go global, when they’re looking into Southeast Asian region? Do they prefer to do M&A? Or do they prefer to do themselves?

Jianggan  7:08  

I think if the organization is still founder driven, that pretty much will depend on the style of the founder. And that’s actually something that I have spent quite a bit of time together with Professor Chen to analyze the styles, the founder and how they impact the decisions in organization. And of course, people also get influenced by what has happened, right, so. So any company looking at acquisition will probably study very carefully about how the Alibaba acquisition or Lazada has panned out over the last few years. And then look at look at okay, what are the mistakes learned? What are the things that the Alibaba analysts could could have done should have done? They probably look at what JD has done with the joint ventures in Indonesia and, and Thailand, and why why it ended up in failure. So, so I think all these factors will impact people’s decision.

I think, I think also what Temu has demonstrated is something that, that people see that okay, you can actually go into the market yourself and be aggressive, but then people will assess that, okay, my people their style, and, and my organization, their coherence, does that match the level denodo? And am I in a similar business as spinodal? So I think all these factors will impact their decision making. So I will not say that there’s a one size fit all solution here.

Dalia  8:35  

Okay, next question. What are your general thoughts on Meituan potentially entering the market?

Jianggan  8:42  

I don’t know. I think some of you probably have been following some some some rumors saying that the meeting was was already given up on acquisition. I think I think so analysts were talking about that yesterday. In our opinion, I think a few factors. I mean, first firstly, Meituan is a very careful and, and very rational organization, probably to the point of even being a bit boring, even though you see them with the kangaroo has everywhere. But but they make the assessments very carefully. So for their global strategy, they have been, I think, I think before they IPO, they had attempted to assess different markets and then decided not to do it. And after IPO, they sent teams to assess global markets and in COVID hit and they have different ideas being thrown out. But I mean, look at what they eventually decided, which is to launch in Hong Kong. That was that was a very cautious approach. Because this is a market where you can actually easily three resources and people to it almost feels to me that they were gearing towards the shore when coming back to Southeast Asia per se. I think. I think obviously my My perspective is that if you want to enter the market for many types of business, acquiring would probably be less risky than starting from everything yourself. Because because there’s just so many factors you need to, you need to get right. And besides the different markets, even though even what if what you have acquired, eventually turned out to be worth less than what you have acquired for is probably worth it. But but but the calculation is, I mean, first, would they be able to around in this market, bear in mind that, that Grab has been leading in almost all markets, and still expanding is late so, so obviously, you can argue that, okay, Meituan is more, more efficient compared to Grab if they enter direct competition, but Grab is the regional player, they know how the fabric of this market, this set of markets work. And if you if they were forcing me in a position that they had to defend, they will probably defend in a very vigorous way. So, I think these are the factors that may turn would potentially calculate. And I think one difference between my parents potential sort of expansion versus that Pinduoduo is that Pinduoduo now has a strong lever of, of the supply chain in China. I mean, we can argue that electric car shop has a strong lever with this consumer base in the US. But I think maybe I would have to build everything from scratch. And that would be quite, quite demanding for his organization. So a quote somebody from I spoke to, I think about a few years ago, she mentioned that, okay, if Meituan is going to expand overseas, I think it’s very good for the organization. But don’t send me there because I know, whatever I will be able to achieve, will be much less compared to what I will be able to achieve as a business unit leader in China.

Dalia  12:02  

If we move to Lazada, we could see that its market share is mainly changed. So what are your general thoughts on Lazada? What they are doing and their strategy?

Jianggan  12:11  

Let me quickly address this. I think whatever that’s that Lazada is going to do will fall for into the big picture of what’s happening with Alibaba and how to assess their global priorities. So if you have been observing the change, Alibaba are happening at the moment. And, sometimes is not that easy and straightforward. So you have we have seen that a few. Few decisions been reversed. So for instance, before they were they wanted to spin off the cloud division. But now they decided not to. I would think that part of that decision of not to spin off the cloud decision will probably have something to do with what happened on the 12th of November, when Ali  cloud went offline for about two hours that’s impacted Taobao and everything. So it was kind of fortunate that it didn’t happen on the web itself. So so a lot of a lot of these things are happening, which will probably impact on how Alibaba prioritize Lazada so and of course, you can argue that I mean, if Alibaba spends less time and, and energy on Lazada, it will probably be better for us. So but Lazada is it’s as a whole is actually very, very complex set up in so many different markets with so many different divisions. So, I think how you will evolve would be will be a combination of many different factors. Also, what we have noticed is that in multiple markets, they have been pushing Lazada Choice, which is the the food consignment and cross border model that that they copied from, not necessarily copied there. They got inspiration from Pinduoduo’s Temo. AliExpress is pushing Choice aggressively as well. And, and that also fits into the overall strategy of Taobao or Alibaba as a whole of going back to, to the mass consumers and with lower price items, and how that will play out. We don’t know yet. So I do think I do think there are multiple factors here. And whether John Fang would continue to run international businesses for Alibaba, or would he, in the current time of crisis, be someone back to actually help with with a domestic person’s topple and to defend against spinodal? So I think these are all the factors which will impact us as far as live commerce about shopping and we do see that certain sellers and MCs are getting some volume, but Overall, I don’t think it’s changing the the overall GMV of Shopee significantly since the ban of digital shopping Indonesia, 

Dalia  15:08  

Your learnings on Chinese ecommerce platforms? Are there any strategies that companies can take to defend themselves against new players?

Jianggan  15:17  

The question I think, is when when the market shifts, and as we have seen in the case of of China, the market can shift quite quickly. And large organizations, are they able to move themselves fast enough to respond to this shift? So, for instance, you probably know that during the terms of Daniel, the previous CEO of Alibaba, I mean, the whole focus was was on T mobile’s own brands was on how to move up the value chain. And, and of course, how to how to grow the group into different businesses, the maps, the the entertainment, the food delivery, etc, etc. So strategically, they all made sense. But when you saw the the threat of Pinduoduo, targeting a market segment that you believe are, do not have much value. And they have ways of acquiring and retaining traffic differently compared to what you do. So so as a large organization, How seriously do you take this potential threat? And how do you deal with it? So So I do think that I think most people are like Alibaba failed that I mean, actually, some decision makers will probably feel that I mean, back in 2016 2016, and 2017, they should have probably taken more seriously, they should probably have launched harbor light or leverage 168. More back then so that Pinduoduo will not become such a threat as they are today. So but of course, we cannot reverse history. I do think when it comes to shopping per se, Shopee is still funded late. Sorry, C group is still funded late. And and I think the founders are quite aware of the macro dynamics and what’s happening. And I think they’re very accurately aware. I mean, they might not tell you masters, but I think they’re very acutely aware of the weaknesses they have. And they’re actually trying to find solutions to address that. Obviously, obviously, I think the question is not whether the founders are sort of determined, focused. The question is that when you face a player, like TikTok Shop, which really is a different generation player, I mean, there’s, I mean, when the commercial happens, and TikTok, TikTok app, there’s no way I can stop them. So So I think I think that’s a headache that will take lots of lots of thinking, to figure it out. And, and I don’t think that anybody has a good solution to that. So what I do know is that they keep trying. So the question is that eventually, when push comes to the shelf? Today, they are they able to find a solution to defend effectively? Or, or where things turn out as what we had expected? I mean, Southeast Asia becomes the insignificant protector shop they just happy with, with whatever they are achieving, and focus their attentions in us and potentially other more affluent markets. So we don’t know, the

Dalia  18:18  

About the ban of TikTok Shop in Indonesia. What are your thoughts? What could other countries in Southeast Asian region do?

Jianggan  18:26  

I think? I think after what happened in Indonesia, there will be forces political or non political in different country, saying that, hey, I think we should do the same. Or at least I’m going to lobby for the same. I do think that, that that if Tasha was probably briefly worried about this, and many sellers on Tiktok shop, they’re worried because they need to stop the goods into the country before the before the q4, like festive seasons. So many of them actually had this this concern. But from what I’ve seen, with the different countries over the over the last few weeks, I think it’s kind of unlikely for for other countries to take drastic actions. So so so I do think that I think identity is probably going to remain in those countries. And also bear in mind, even for Indonesia, nobody expected Indonesia to be so determined, and nobody expected presidential COVID to be so determined. I don’t see that in other countries. yet. I think maybe one exception would potentially be Vietnam, because Vietnam would have the ability to enact drastic actions and implement that quickly. But I don’t see that happening. Like as as of now.

Dalia  19:52  

And before that Tiktok shop managed to secure around 3 million orders per day. How the situations changed after the ban. What happened to those volumes? Were they lost or did they move to a competitors?

Jianggan  20:06  

The vast majority of that was lost. So we have I think we have good sources on the ground tracking from from different logistics sources. We do not see significant uptake of passwords being sent for other platforms.

Dalia  20:21  

Okay, that concludes this episode. I hope you enjoyed it a lot. And see you next week. Bye.