Last month, our own Jianggan Li was invited to the Credit Suisse Speaker’s Corner. It’s a regular event that Credit Suisse hosts for their institutional clients in Asia and USA. The fireside chat topic was “ ASEAN Internet experts insights sharings – A deep dive into the digital economy”
Varun Ahuja, VP of Credit Suisse Asia technology research team, hosted Jianggan at the event. Varun asked some pretty sharp questions over one hour, and Jianggan gave a lot of details. The questions and answers were so interesting and compact that we’ve decided to split the Q&A into 2 blogs.
We published part 1 of the Momentum Works -Credit Suisse fireside chat last week here.
In part 2 of the fireside chat, we cover questions on logistics, fintech, strategic priorities for top players, the SuperApp ecosystem and learnings from China. Quite a number of references were made to our Momentum Works Blooming Ecommerce in Indonesia reports – Ecommerce marketplace, payment & logistics. You can get a copy of the reports here.
Questions and answers have been tweaked for the ease of reading.
On ecommerce logistics
- What are the strategy that various players are adopting on logistics? All of them are investing in last mile logistics. Do you see logistics investment as a means to build a competitive edge (or prevent competition in the future)?
To take China as an example, the last mile is a purple ocean – redder than red. Indonesia players do not have problems buying assets – especially fleet assets such as vans, which are very cheap and almost always come with financing. But I do foresee large players like Shopee trying to occupy the more lucrative areas of mega cities, controlling the service as well as most of the margins. Will build up their own logistics when platforms become dominant and capture profit.
10.What role do you see third party logistics players playing in the sector? Do you see a regional logistic player emerging or will it remain a local market?
I do see regional players emerging – Ninja Van is in a few countries, DHL Express is in a few countries. Kerry Logistics (now controlled by SF) is trying to expand; and Flash will expand after the current fundraising. The question is whether it will be regional of all six markets or regional with TH/VN/MY for example.
Another question to consider is how can logistic companies sustain their margins if one or two ecommerce players become dominant. Logistics players need to think about and avoid fighting in a highly commoditised business. How would they be able to differentiate is another question.
On Fintech/Payment
- What is your view on the payment landscape in ASEAN especially Indonesia? Shopee has increased spending on this segment. How do you see the landscape evolving?
There’s lots of potential to change, as it is not common for online companies to widely use e wallets as payment options yet. All in all, a successful business will need use cases and customer stickiness.
Shopee is learning from Ant Group on its successes and missteps.
One thing I think they did quite smart was they only started ramping up when others had educated the market. OVO has the flexibility/advantage to build more things compared to Shopee – you can trade stocks on the OVO app but it would be quite awkward to trade on the Shopee app. An interesting question to think about is: What will the final MDRs in SEA be, that will enable the ecosystem to grow? Where’s the sweet spot?
- How do you see the Fintech business model evolving in Indonesia? What is the lending opportunity in the sector? What role does digital banking play in the same?
Digital banks – will young people use it consistently? I think investing would be interesting – frequent, people put money etc. Key question is again, how to keep customers sticky/engaged?
On strategy
13.How does the GoTo merger impact the e-commerce market in Indonesia? Do you see Tokopedia gaining strength after the merger? What is your view on Bukalapak?
Personally I do not see any material impact from a pure market and operations point of view. But investors are excited, and if GoTo manages to raise significant money at a good valuation, it might change the dynamics a bit. If that’s the case, Shopee will take a longer term to win the war.
All in all, merging two companies with not much overlap in business can be difficult, and whether GoTo will deliver the synergies is still a question mark.
I think Bukalapak found a niche in non-first tiered cities in Indonesia. But bigger players like Shopee and Tokopedia are also expanding and trying to get a market share in those regions, and are eating into Bukalapak’s share. So Bukalapak’s room is likely to be squeezed. What can they do to prevent that would be interesting to watch.
- What do you think are the reasons for Shopee gaining market share in the last 5 years? Also, what is your view on Lazada? How does Alibaba see Lazada strategically?
Shopee is brilliant at using free shipping to spin the flywheel, and now it grows into a bigger flywheel with Sea money. I do not think there is much secret source here – it is just figuring out a strategy, and consistently executing it, despite all the investor pressure, especially in the early days. I think the Shopee team is shielded from that by SEA group management.
Similarly from management point of view, I think Alibaba needs Lazada to succeed, in order to prove that Alibaba can internationalise in core ecommerce, beyond cross border activities by AliExpress.
But Alibaba is a large organisation, and management across the region have to juggle through a variety of different priorities, which makes things complicated. On the contrary, Shopee has a much more streamlined command and control structure, though whether that can extend to Latam remains to be seen.
- What do you think are the top strategic priorities of SEA Group and GoTo management team respectively?
For SEA, we observe that talents are very important in driving the growth. It would be important for them to mark out what to do and not do, and constantly iterate different business possibilities, with the bigger question of what will be the pathways to build the company to be a US$2 trillion company in 10 years time.
For GoTo, the top priority is definitely to go public and raise the capital. It would also need to think about how to allocate the capital well and build the supposed synergies between the two entities. Considering GoJek is now in a defensive position against Grab in Indonesia – it will also need to figure out a strategic focus to turnaround the situation in 2 years time.
16.What’s the best strategy to penetrate ecommerce in Indonesia’s 1st-tier city? What’re the strategies for rural areas?
Big players will eventually tap into second-tiered cities and eat into Bukalapak’s share. Interesting to see Bukalapak’s coping strategies. Unlike Tokopedia, Bukalapak is not run by founders, and so the (operational) dynamic will be different.
17.Can you shed some light on the strategy of Alibaba and Ant in SEA? Why do they have investments under diff names, Alibaba in some occasions and Ant in others?
Alibaba is a big organisation with many priorities, different objectives, and KPIs in China. It also has different execution teams on the ground, so the top management is not entirely aware of all the details.
With their size, maybe they’re doing spray and pray sometimes. As big players emerge, a more coherent strategy is probably needed. But what they’re now is not entirely a bad thing – business might take off when different functionalities chase their own agenda and not top line alignment is there. Let’s see.
- What is your view on the SuperApp ecosystem in ASEAN or in Indonesia more specifically? Do you think it will succeed in ASEAN? Which platform do you think is progressing well?
I think the giants will do well overall. I personally think the regional ones, SEA and Grab, have an advantage, because they’re inherently bigger companies ; and they are winning in more lucrative markets, which allows longer term investment in Indonesia. That said, it will be interesting to see whether GoTo can pull off after the IPO.
