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FC Insights | August 2020
Webinar Review - Asia Spotlight: What’s Left of SEA’s E-Commerce Pie?
Speakers:- Mr. Charles Debonneuil, CEO at Intrepid Group (ex-founder & CMO Lazada)- Mr. Adrian Hia, Investment Director at Kairous (Forbes 30 Under 30)- Ms. Esther Bian, Investment-Singapore at BEENEXT (MPA LSE, ex-entrepreneur in e-commerce)- Mr. Sky Tsoi, Investment-Southeast Asia at ZWC Partners
Moderator:- Mr. Eric Fang, Founding Partner at Favour Capital (Finance MBA CEIBS)
Moderator:- Mr. Eric Fang, Founding Partner at Favour Capital (Finance MBA CEIBS)
Backdrop:
E-commerce has led to the acceleration of Southeast Asia’s digital transformation and has contributed to the region in many ways we did not expect. The "Google & Temasek/Bain e-Conomy SEA 2019" report values the SEA internet economy at US$100bn and is expected to grow to US$300bn by 2025.
COVID-19 led to many unprecedented turns of events that sparked the crash of many industries and infrastructure yet boosted the adoption of others. The rise in the e-commerce domain especially in a time where people eat, live and work from home. What room for improvement or innovation is left for SEA’s e-commerce ecosystem players? Will this crisis lead to another boom of innovation in this seemingly maturing industry?
Below: Webinar Highlights
01. An overview of the e-commerce industry amidst the COVID-19 situation. Is it positive or negative?
Esther: I am very optimistic towards this market. More people are becoming more comfortable shopping and paying online. I see this trend will last longer.
Adrian: I'm super optimistic about the future of e-commerce despite COVID-19. We are seeing an increase in non e-commerce users becoming e-commerce users. However,we notice that there are temporary negative impacts on certain niches such as fashion, cosmetics etc.
Charles: COVID-19 helped accelerated customer acquisition for the e-commerce platforms. 02. What kind of consumer behavior shifts or trends has occurred because of the pandemic?
Charles: There's the acceleration of adoption for digital media. During lockdown, people do not have many options for entertainment so they spend more time on their phones and more time consuming stuff like live streaming.
Esther: For the younger generation, use of social media, video streaming and instant message is prevalent. The bulk, however, is the middle age consumers who are trying an array of online services such as e-commerce, food delivery, digital payment, grocery shopping and even logistics for the first time.
Adrian: Screen time usage has definitely increased and a large group contributing to that is the millennials. We see the increase in user acquisition for Netflix during the pandemic and we see a large influx to grocery and hobby-based platforms.
Sky: I think gaming is an interesting area to look at.During the lockdowns, more people are staying home and gaming has increased. I have yet to see startups tapping into online gaming and converting that into e-commerce potential sales. For example, after a game, I can actually get that piece of clothing from the game via an e-commerce platform. 03. How did e-commerce companies address the last-mile issues during COVID-19?
Charles: For example, Redmart, an online grocery platform hired 500 drivers in a month to cope with the surge in deliveries. A challenging response but fortunately these companies have the experiences during year end spikes and are able to manage it.
Esther: There were logistical issues at the onset but it has always been a pain point for this market. I believe there's still room for growth in the logistics sector as it complements the growing e-commerce developments in this region. Entrepreneurs and companies have to seize the opportunity to further enhance this domain as we see continuous growth and the shift to higher consumption via these online platforms.
04. How is the social e-commerce industry affected by the pandemic? Can you name some opportunities?
Adrian: We did observe and did our research on China's models. I refer to the influencer-model. There are companies out there that enable influencers and are working on this trend. We're seeing a lot of very specific academies training influencers across Southeast Asia like Vietnam, Philippines, Indonesia and Malaysia.
Sky: According to our research, people in SEA are very social and spend up to 8 - 10 hours networking and meeting per day. There are still opportunities for social e-commerce or content-focused e-commerce as long as the product selection and supply chain are connected. One such opportunity is group buying for price sensitive consumers in lower-tier cities. For example in China, on wechat, one social referral becomes a chain reaction. S2B2C(Supply chain to business to consumer) models are also large, referencing from China's Pinduoduo and Yunji where they connect both upstream and downstream through a social platform which builds trust via social media to accumulate positive influence. We see many examples in Indonesia such as Super, a social commerce platform or Chilibeli, a group-buying network connecting suppliers directly to consumers.
Charles: The big e-commerce platforms are trying to be more social to capture the type of traffic which social e-commerce platforms are siphoning away. For example we see more live-streaming and more content from influencers but still in the early phase.
Esther: We think that Southeast Asia has the largest social media penetration in the world and most of the users are the younger generation. Firstly, they actively follow social influencers. Secondly, these social influencers look for platforms where they can do business online. There is a good balance in the supply and demand side where influencers(supply) see the opportunity for monetization and those social e-commerce platforms provide the tools to do that. On the demand side, it makes great business sense as consumer shave more interactions on social media and naturally are more willing to shop online too. 05. What are the main strategy and considerations for the cross-border e-commerce industry?
Adrian: Now we have to understand that SEA has this geographical fragmentation, cultural& language differences and even a huge income disparity. And how we are going to tackle those issues is part of Kairous's thesis on how we choose our investments. We invested in Intrepid Group as they are fulfilling this market gap. They are solving the branding and marketing on how to sell in different markets where consumers have different behaviors for example. Also what is important is if there are any platforms that can provide access to all the 6 key countries in SEA.
06. What's the main difference between India and Southeast Asia's e-commerce markets?
Esther: They are quite similar in many areas but the main difference is India is one single market and SEA is made up of many different economies. Shopping habits are very similar, developmental stages are in parallel, and there are similar models in India and SEA. In terms of consumption power, we observe that SEA is slightly stronger despite the larger consumer market in India. 07. Which stage is Southeast Asia as compared to China in e-commerce?
Sky: I think probably 5 years. SEA is a large fragmented market with millions of retailers and suppliers and we can see it is up and coming fast as most models of e-commerce we see in China are taking place here at the same time. China's bred social e-commerce platform Pinduoduo is taking the spotlight globally now and we are noticing the next Pinduoduo brewing in SEA.
08. When talking about Taobao and Amazon business model,which is more suitable in Southeast Asia?
Adrian: I think e-commerce in SEA will evolve towards the Taobao model with more vibrancy and experiences as compared to Amazon. There are special promotions,vouchers and even live streaming which may be chaotic for US or Europeans but it's the trend we are moving towards in Asia. An example would be comparing Amazon to a departmental store and Taobao to be an Asian mall with a more personalized feel for the online store designs and shopping experience despite the fact that we are still shopping on the same platform. It can also be attributed to the acquisition of Lazada by Alibaba and the strong competitionin the region forcing the platforms to be more interactive and innovative.
Charles: In my opinion, I'm thinking that this model may also be happening in the US or Europe in the next 10 years due to its use case for consumers. However, it might not happen due to various factors. I think the Taobao model is very powerful and even the social model of Pinduoduo which solves a different pain point might strike a different chord with consumers as well. 09. There are many e-commerce startups in Southeast Asia.How do you pick the one to invest in?
Sky: We are looking at models that can aggregate demands, consolidate supply chain.With those models, we typically see a sensible composition of skills which falls into consumables like (1)FMCGs such as fresh produce;(2)lifestyle products like apparel, footwear, accessories and (3)electronic accessories,home improvement and automotive parts.
Esther: Beenext is an early stage investment and founder-friendly VC. Firstly we have to believe in the sector and secondly, the founder. Even if the founders have previous failed attempts, we will still consider working together if we believe the founding team is worth it. Lastly, we will consider if we have the capability to support the founding team not just in terms of capital but in other areas such as network and market expansion. If all 3 are yes, it's a go.
Adrian: I personally think it is difficult to build another e-commerce giant here. It's a question mark if we are ever going to have a Pinduoduo in our region because it is different from China. In SEA, we already have a sneak peak when looking at how China's e-commerce space developed. We're always looking for aggregators in SEA that can improve on efficiency and close a gap. There are a few key issues here mainly, fragmentation and logistics. We also think there is still opportunity for vertical-based e-commerce such as audio, gaming gears where followers are very sticky, but that's to be seen. We are focusing on aggregators and startups that are supporting the ecosystem now.
Esther: I am very optimistic towards this market. More people are becoming more comfortable shopping and paying online. I see this trend will last longer.
Adrian: I'm super optimistic about the future of e-commerce despite COVID-19. We are seeing an increase in non e-commerce users becoming e-commerce users. However,we notice that there are temporary negative impacts on certain niches such as fashion, cosmetics etc.
Charles: COVID-19 helped accelerated customer acquisition for the e-commerce platforms. 02. What kind of consumer behavior shifts or trends has occurred because of the pandemic?
Charles: There's the acceleration of adoption for digital media. During lockdown, people do not have many options for entertainment so they spend more time on their phones and more time consuming stuff like live streaming.
Esther: For the younger generation, use of social media, video streaming and instant message is prevalent. The bulk, however, is the middle age consumers who are trying an array of online services such as e-commerce, food delivery, digital payment, grocery shopping and even logistics for the first time.
Adrian: Screen time usage has definitely increased and a large group contributing to that is the millennials. We see the increase in user acquisition for Netflix during the pandemic and we see a large influx to grocery and hobby-based platforms.
Sky: I think gaming is an interesting area to look at.During the lockdowns, more people are staying home and gaming has increased. I have yet to see startups tapping into online gaming and converting that into e-commerce potential sales. For example, after a game, I can actually get that piece of clothing from the game via an e-commerce platform. 03. How did e-commerce companies address the last-mile issues during COVID-19?
Charles: For example, Redmart, an online grocery platform hired 500 drivers in a month to cope with the surge in deliveries. A challenging response but fortunately these companies have the experiences during year end spikes and are able to manage it.
Esther: There were logistical issues at the onset but it has always been a pain point for this market. I believe there's still room for growth in the logistics sector as it complements the growing e-commerce developments in this region. Entrepreneurs and companies have to seize the opportunity to further enhance this domain as we see continuous growth and the shift to higher consumption via these online platforms.
04. How is the social e-commerce industry affected by the pandemic? Can you name some opportunities?
Adrian: We did observe and did our research on China's models. I refer to the influencer-model. There are companies out there that enable influencers and are working on this trend. We're seeing a lot of very specific academies training influencers across Southeast Asia like Vietnam, Philippines, Indonesia and Malaysia.
Sky: According to our research, people in SEA are very social and spend up to 8 - 10 hours networking and meeting per day. There are still opportunities for social e-commerce or content-focused e-commerce as long as the product selection and supply chain are connected. One such opportunity is group buying for price sensitive consumers in lower-tier cities. For example in China, on wechat, one social referral becomes a chain reaction. S2B2C(Supply chain to business to consumer) models are also large, referencing from China's Pinduoduo and Yunji where they connect both upstream and downstream through a social platform which builds trust via social media to accumulate positive influence. We see many examples in Indonesia such as Super, a social commerce platform or Chilibeli, a group-buying network connecting suppliers directly to consumers.
Charles: The big e-commerce platforms are trying to be more social to capture the type of traffic which social e-commerce platforms are siphoning away. For example we see more live-streaming and more content from influencers but still in the early phase.
Esther: We think that Southeast Asia has the largest social media penetration in the world and most of the users are the younger generation. Firstly, they actively follow social influencers. Secondly, these social influencers look for platforms where they can do business online. There is a good balance in the supply and demand side where influencers(supply) see the opportunity for monetization and those social e-commerce platforms provide the tools to do that. On the demand side, it makes great business sense as consumer shave more interactions on social media and naturally are more willing to shop online too. 05. What are the main strategy and considerations for the cross-border e-commerce industry?
Adrian: Now we have to understand that SEA has this geographical fragmentation, cultural& language differences and even a huge income disparity. And how we are going to tackle those issues is part of Kairous's thesis on how we choose our investments. We invested in Intrepid Group as they are fulfilling this market gap. They are solving the branding and marketing on how to sell in different markets where consumers have different behaviors for example. Also what is important is if there are any platforms that can provide access to all the 6 key countries in SEA.
06. What's the main difference between India and Southeast Asia's e-commerce markets?
Esther: They are quite similar in many areas but the main difference is India is one single market and SEA is made up of many different economies. Shopping habits are very similar, developmental stages are in parallel, and there are similar models in India and SEA. In terms of consumption power, we observe that SEA is slightly stronger despite the larger consumer market in India. 07. Which stage is Southeast Asia as compared to China in e-commerce?
Sky: I think probably 5 years. SEA is a large fragmented market with millions of retailers and suppliers and we can see it is up and coming fast as most models of e-commerce we see in China are taking place here at the same time. China's bred social e-commerce platform Pinduoduo is taking the spotlight globally now and we are noticing the next Pinduoduo brewing in SEA.
08. When talking about Taobao and Amazon business model,which is more suitable in Southeast Asia?
Adrian: I think e-commerce in SEA will evolve towards the Taobao model with more vibrancy and experiences as compared to Amazon. There are special promotions,vouchers and even live streaming which may be chaotic for US or Europeans but it's the trend we are moving towards in Asia. An example would be comparing Amazon to a departmental store and Taobao to be an Asian mall with a more personalized feel for the online store designs and shopping experience despite the fact that we are still shopping on the same platform. It can also be attributed to the acquisition of Lazada by Alibaba and the strong competitionin the region forcing the platforms to be more interactive and innovative.
Charles: In my opinion, I'm thinking that this model may also be happening in the US or Europe in the next 10 years due to its use case for consumers. However, it might not happen due to various factors. I think the Taobao model is very powerful and even the social model of Pinduoduo which solves a different pain point might strike a different chord with consumers as well. 09. There are many e-commerce startups in Southeast Asia.How do you pick the one to invest in?
Sky: We are looking at models that can aggregate demands, consolidate supply chain.With those models, we typically see a sensible composition of skills which falls into consumables like (1)FMCGs such as fresh produce;(2)lifestyle products like apparel, footwear, accessories and (3)electronic accessories,home improvement and automotive parts.
Esther: Beenext is an early stage investment and founder-friendly VC. Firstly we have to believe in the sector and secondly, the founder. Even if the founders have previous failed attempts, we will still consider working together if we believe the founding team is worth it. Lastly, we will consider if we have the capability to support the founding team not just in terms of capital but in other areas such as network and market expansion. If all 3 are yes, it's a go.
Adrian: I personally think it is difficult to build another e-commerce giant here. It's a question mark if we are ever going to have a Pinduoduo in our region because it is different from China. In SEA, we already have a sneak peak when looking at how China's e-commerce space developed. We're always looking for aggregators in SEA that can improve on efficiency and close a gap. There are a few key issues here mainly, fragmentation and logistics. We also think there is still opportunity for vertical-based e-commerce such as audio, gaming gears where followers are very sticky, but that's to be seen. We are focusing on aggregators and startups that are supporting the ecosystem now.
Disclaimer:This report only expresses the views of Favour Capital, which does not offer any investment advice. If you would like to further discuss any of the information mentioned above, please feel free to contact us via admin.sea@favour-capital.com