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
Recap: Cross-border e-commerce is a hard industry with hot competition – but SHEIN managed to win by writing their own playbook. Now, companies across industries are trying to “be the next SHEIN.”
Here, in Part 3 , Jianggan and Ian shed light on the most important factors shaping the future of cross-border e-commerce.
People talk about common factors such as interest rates, geopolitics, US-China tensions that will affect the future of cross border e-commerce. In our point of view, this is only partly the reasons. Some of these factors are short-term and others e.g. the US-China geopolitical tension will probably last for a few decades – and companies will adapt.
So what are the key macro trends in cross border ecommerce? In the off the record sharing, Jianggan and Ian highlighted a few that they are seeing:
1. Intense competition is driving Chinese cross border ecommerce companies to go offline as well and entering stores like Costco and Walmart.
Some online sellers have learned from traditional labels that having physical products in stores can help build their brand. The use of offline channels by cross border players is not just happening in the US, but also in regions like Australia, Germany, and even the Middle East.
Why? We are seeing the power that large platforms (e.g. Amazon, Paypal) have in shutting or restricting sales from certain sellers. Be it legitimate or not – the fact that a platform can suspend you overnight has led to many trying to diversify their channels. That is why we are seeing China-based sellers increase on places such as Walmart marketplace.
2. Ancillary industries that are servicing the cross border ecommerce players – e.g. – logistics, warehousing, payments, advertisement, and software (and more) – are growing as well.
Investors are looking not just at the cross border players, but also at the macro landscape and players in the ancillary industries. Ian explained: “It’s not just selling products or building a brand or building a platform like the next Alibaba, TikTok, or Wish… When we are looking at investing today, there are also giants that support that.”
And as we are seeing, there are many Chinese companies that are also growing in this space and also competing with established players.
3. There will be an abundance of logistics capacity
Logistics companies earned significant gains during the pandemic. And some of these players are reinvesting into expanding their own cargo capacity – by air or marine. In a way, it is to guarantee future cross border trade. In fact, Jianggan mentioned that Singapore was opening the first phase the Tuas Port – which will eventually be the world’s biggest fully automated port to serve as an international maritime centre.
As there will be abundance of capacity has been being built for international trade, this could keep the prices for cross-border transport low in the coming years – which can further grow cross border commerce (and for that matter – ecommerce).
4. The manufacturing oversupply in China
Whilst there is a lot of talk on geopolitics, one key fact is that Chinese manufacturing capacity has been growing significantly- and it will continue to do so. On the other hand, Jianggan and Ian believe that the domestic consumption will not be able to absorb all of these capacity – so where will the goods go? Cross border.
These goods will need to seek markets overseas – and as a result, we believe that the cross-border trade will continue to grow.
5. So the consensus is that… cross border ecommerce will continue to grow.
Albeit with tougher conditions. And not all the companies that are in this space have what it takes to be the next SHEIN. As we’ve mentioned in Off the record: Momentum Works and 01VC talk Part 1 and Part 2 – intense competition and rapidly-changing trends make it a tough market. Companies that want to thrive in this space and/ or become the “Next SHEIN in the XX space” requires strong leadership and people, as well as agile organisation and products that can adapt to this space. Perhaps that is what Pinduoduo is thinking of when expanding into the US. Investors that are looking into this space will also need to have patience, a strong gut and able to play the long game.