Global cross-border ecommerce trends: Off the record with Momentum Works and 01VC: Part 2

Momentum Academy hosted Momentum Works’ CEO Jianggan Li and Ian Goh, Managing Partner of 01VC, a Shanghai-based VC fund which has been looking at cross border investments for many years, to share hare their insights about SHEIN and Chinese cross border trends last Friday (2 September). 

They spoke with close to 300 participants covering SHEIN, the reasons behind its success, how cross-border ecommerce has evolved over the years and what’s next for the space. We ran out of time for Q&A – and we will answer these in an upcoming article. Interestingly 

In Part 1 of this series, we shared the speakers’ insights on SHEIN, the differentiating factor between SHEIN and other competitors and how it became successful. Here in Part 2, we’ll be sharing interesting tidbits about cross-border ecommerce from China, how it has evolved, the Middle East market and competition in cross-border.

Here are a few snippets :

1. Cross-border ecommerce from China has been booming, even before SHEIN came on the scene. How big is it exactly? 

Out of the third-party sellers on Amazon, 40-50% are Chinese by origin. 

Jianggan and Ian discussed a few factors that contributed to the surge in cross-border ecommerce:

• The surge in cross-border ecommerce happened after China joined the WTO. It helped China build a massive and robust supply chain. 
• Over the years, there have been significant logistics and payment improvements, making it easier for cross-border ecommerce. In recent years, Chinese companies can do door-to-door delivery from Shenzhen to Latin America in 10 days (used to take more than 2 months), and it is reliable. 
• The ease of access and increase in ecommerce and marketing platforms also spurred this, which was further accelerated by the pandemic. 
• Moreover, the manufacturing capacity in China has reached a tipping point. Manufacturing is still growing while domestic consumption has hit a plateau in recent quarters, so it naturally spills over to other parts of the world.

 

2. How do Chinese cross border companies decide where to expand to? 

Cross-border companies evaluate the population density of each country. However, logistics and other factors vary across different regions. After they identify markets with high population density, they send someone to get in-depth knowledge of the market. This is how JollyChic found Saudi Arabia. And from on-the-ground research, JollyChic also discovered that Saudi Arabia has a high basket size.

Interestingly, JollyChic wanted to enter Indonesia after Saudi Arabia due to Indonesia’s population size and density, but then they discovered that the basket size in Indonesia was much smaller – and required a different operating model to be profitable.

3. Middle East was an important first market for many Chinese cross border companies 

Souq was a dominant ecommerce player in the Middle East before 2016, reaching  a valuation of $1 billion in 2016. PIF along with Emaar, one of the largest property developers in the Middle East launched a $1 billion ecommerce platform called Noon which disrupted the whole market because of the sheer size of investment. 

However, when Jollychic entered the market, it grew rapidly, doing more orders than Souq which caught many investors in the region by surprise. As a result, Souq was sold to Amazon at a steep discount, 45-50% lower than the original valuation.

Jollychic was so successful that a famous talk show host in China mentioned the company in his new year address in 2018. This caused many other Chinese ecommerce companies to enter the Middle East. Most of the top ecommerce apps in the Middle East were Chinese back then. 

Now, players such as Jollychic are no longer in the scene. SHEIN is one of the few Chinese companies doing well in the Middle East.

There is no denying that cross-border ecommerce is quite demanding across regions. The shifting landscape of players affirms that it is indeed challenging to build a sustained advantage.

4. The growth of cross-border ecommerce has resulted in innovation across all product categories – not just fast fashion…

The growth in cross-border ecommerce has resulted in innovation across all product categories, not just fast fashion. There are several giants across different product categories, such as robot vacuum cleaners, air purifiers, etc. Just take a look at Amazon US, top 30 vacuum cleaners (picture above). Many brands (circled in red) are Chinese brands. 

5. Competition is fierce

There has been a large number of Chinese robot vacuum companies in the market such as Roborock, Anker, etc. In the table above, out of the list of 30 Chinese appliance companies going global, more than ten are in the vacuum cleaner space. 

 

6. Just take a look at iRobot 

Established companies are feeling the heat from the competition. Following the trend above, iRobot Roomba – one of the pioneers of the “Robotic Vacuum cleaner” has been losing market shares in the space for the past 10 years, largely due to the increased competition from Chinese companies.

It was recently bought by Amazon… and hopefully its fortune can be revived. 

7. Finally – it’s not an easy game… 

This is a snapshot of the results of publicly listed cross-border ecommerce companies as at Q1 2022. Whilst Q1 is usually a slow quarter for ecommerce companies (sales usually pick up in Q3/4) and the growth during Covid period had been very high – it does give an indication of how challenging the market is. You need a lot of grit to survive and thrive in this space.

 

So what does the future hold? We uncover the future for cross-border ecommerce in Part 3 of the series. We also deep-dived into how SHEIN was able to succeed in the cross-border e-commerce space in Part 1 of the series.

You can also read in-depth about SHEIN in our “Who is SHEIN?” report here and about the cross border space in our “MW-01VC Cross border ecommerce from China” report here.