Your Questions Answered – Off the Record: Behind Shopee’s Doors – Part 1

Momentum Academy’s first-ever exclusive briefing Off the Record: Behind Shopee’s Doors was a huge success. We had more than 400 registrations at the event, where we discussed Shopee’s strategy, leadership, organization, people and culture. If you missed it, you can watch the event on our YouTube channel.

Momentum Academy helps improve your organization’s culture and management through workshops, immersive simulations, and mentorship. Leaders can become better decision-makers by understanding innovation and disruption and that’s what Momentum Academy enables you to do. 

We received more than 20 questions during the event, all of which we did not have enough time to answer during the one-hour session. We took the time to go through all the questions and answer them for you.

Markets and competition

1. How do you view the future competition between Shopee and Lazada in Southeast Asia and the competition between Shopee and Mercado in Latin America?

We see many similarities between MercadoLibre now and Lazada in 2017 in terms of how they view the competition from Shopee. 

Shopee’s strategy of using free shipping and low value orders to achieve volume has been dismissed by competitors over the years. While we think that the Shopee strategy still needs to be proven in terms of eventual profitability, it is important for competitors not to overlook the potential threat, even under current circumstances in the public market. 

Lazada still has good people, expertise and good tech/product/operational capabilities. The question is whether they can form a streamlined leadership and organization to act both nimbly and consistently towards competition. Shopee, however, if forced to focus (instead of overstretching itself), could actually be a more formidable competitor. 

2. What could be some reasons for pulling out of France? Is it due to the macro economic situation or the loss of investor confidence?

Shopee adopted their usual tactics of user acquisition and conversion that succeeded in many countries. However, it seems that French consumers are not as responsive to such tactics as compared to consumers in Poland for example. As a result, the effective customer acquisition cost was very high. 

Shopee probably realised that very fast, as they massively reduced active promotions as early as the end of December, barely 6 weeks into the launch. 

Was Shopee very serious about France or, as the management said, just launching a test? It is probably the latter. 

The business in Poland seems to be going well, according to our ground sources. However, the recent conflict in Ukraine has impacted the exchange of Polish Zloty quite a bit, which might in turn impact Shopee’s business in the country.  

The business in Spain is somewhere between Poland and France. 

3. Is Shopee trying to rebrand itself after FreeFire was banned in India?

India is a tricky situation. Let’s see whether the Indian government will respond to the enquiries from the Singapore government on why FreeFire was banned. 

Either way, while India is a good market for users and order volume, the political and regulatory setting will be tricky – and as long as Shopee has that perception of being run by the Chinese, it will always face such risk in India. 

4. What’s your expert view on Alibaba stopping the $1 billion discussion with investors for Lazada?

If Lazada’s management and the entire organization are streamlined and made accountable to investors and stakeholders, they will move faster and more consistently. When too many people from various parts of (the Alibaba) group are trying to help, things get bogged down. 

5. How potent is Lazada’s threat to Shopee in Alibaba’s new pivot to global growth?

Jiang Fan, who leads Alibaba’s global business now, is a proven and capable operator. However, this challenge for him probably requires different skill sets. Besides, Alibaba is facing the stock market challenge as well. 

6. How is Shoppe doing now in South America (Latin America)? We searched online and found that Shopee has become No.1 in Brazil. How about other countries?

It is growing well in Brazil – and compared to Western Europe, users are more receptive to growth campaigns. In both Brazil and Colombia, our ground sources indicate that local sellers’ onboarding has been contributing significantly to the growth (in line with our understanding of Shopee strategy). 

Argentina is newly launched – and we do not know yet why it took so long to launch, as they have had a team in the country for a long time. Can probably find out. 

7. We know there is an e-commerce giant in South America called MercadoLibre. What advantages does Shopee have over them and what do you think of this competitor?

Meli operates more like an online mall, catering to a dense cohort of urban middle class and above customers. Shopee functions more like a marketplace and takes a very different strategy. You can read Momentum Works’ Who is Shopee report (available in English, Spanish, Portuguese and Korean) to find out more. 

8. India is an extremely important market for Shopee. How are they planning to deal with the Indian government and customers since India just banned FreeFire Max?

As we understand, intensive lobbying effort is going on, and it is still too early to say what will exactly happen. Indian government functions very differently from those of Southeast Asia and Latin America – and will require a different skill set and expertise to deal with effectively. Unfortunately, foreign companies in India do not yet have a good track record in tackling this. 

Btw, we thought only FreeFire was banned, not FreeFire Max. 

9. What’s your view on eventual stable e-commerce stages in Southeast Asia? Will SEA still be No.1 and how many players can co-exist? Will Amazon enter?

Amazon is already quite aggressive in Singapore and has been “on the verge of” entering other markets a few times. However, Amazon does not have a good track record operating in non-Western / emerging markets.  

For Shopee perhaps a more immediate threat is TikTok, assuming Facebook and Google still can’t figure out a more aggressive strategy towards ecommerce. 

New models and ecosystem

10. How does Shopee view logistics? Will self-owned logistics become mainstream in the future? Will this drag down profit margins to a greater extent?

Shopee needs to control logistics to make its whole offering stickier and more cost-effective – otherwise, it will see Lazada gain market share every time it reduces its vouchers. In 2021, we have seen Shopee invest aggressively in ShopeeExpress, in both the infrastructure it owns as well as crowdsourced/outsourced fleets. 

As for the profit margins – Amazon has FBL, why can’t Shopee use their logistics as a way to actually increase its take rate to merchants? 

11. How does Shopee view the rise of live streaming commerce and DTC? What will be the future of e-commerce in Southeast Asia?

Shopee is making attempts. TikTok is trying to break into live commerce in Indonesia (and from this month onwards: Vietnam, Malaysia and Thailand). 

However, Southeast Asia is very different from China, where there are highly specialized players – the limited supply in Southeast Asia means many of the live commerce goods sold on TikTok can also be found on Shopee at a cheaper price (because of volume and BNPL). 

Momentum Works is actually working on a Live Commerce report for Southeast Asia, scheduled to be released next month. We will examine the whole emerging industry in more detail and bust some myths surrounding the sector. Stay tuned! 

12. Do you see TikTok e-commerce becoming a threat to Shopee?

Not yet. They might – refer to the answer to the question above. 

You can find the second part of Your Questions Answered here.

 

If you found this interesting, Momentum Academy is hosting its next pubic briefing – Off the Record: What’s Up With Grab? where they analyze the market logic behind Grab’s financial report, the organization, strategy and leadership. You can check out the event here.