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E-commerce retailers prepare to take on challenges of expansion into Asia

July 17, 2014

Despite notable projected growth in the Asian e-commerce market many retailers still see challenges to overcome before expanding into the financially fertile online retail market, according to a study by NTT Communications and market research firm Vanson Bourne.

Despite notable projected growth in the Asian e-commerce market many retailers still see challenges to overcome before expanding into the financially fertile online retail market, according to a study by NTT Communications and market research firm Vanson Bourne.

Of the 200 decision makers interviewed – chosen from e-commerce businesses dealing in retail, travel and hospitality and gaming – 80 percent noted that they had plans to expand their online presence into the region in the coming year. However, almost all of the respondents included the caveat that expansion would be difficult to achieve – especially in China.

Southeast Asia and China have each been making their rounds in online retail circles as of late following reports of projected exponential growth and the public offering of e-commerce giant Alibaba respectively.

The projected e-commerce boom in Southeast Asia
According to The Wall Street Journal the combined e-commerce sectors of Indonesia, Singapore, Thailand, Malaysia, Vietnam and the Philippines are set too boom. Low-cost smartphones and increasingly available mobile web connections in the region have primed the nation’s respective companies for massive surges in e-commerce revenue.

For every single visit to a traditional retail platform, consumers in Southeast Asia visit online retailers 41 times.

“The power balance has already tipped to the online platforms, the traditional retailers really have to get their act together,” said Raymond Maguire, who authored a UBS report cited by the publication.

Maguire compared the market in Southeast Asia to that of China between 2006 and 2006 when internet usage was rapidly expanding and consumers began purchasing computers en masse. Right now an estimated 199 million consumers in the region are currently online.

Maguire predicted that the number of Southeast Asians connected to the internet will surge 48 percent over the next three years to 294 million. Currently internet penetration in the area stands at 33 percent.

Right now the online share of Southeast Asian retail is 0.2 percent. By comparison that of China is 8 percent.

Expansion into China and the inherent obstacles
According to the research by NTT Communications China is the top destination for businesses looking to expand their e-commerce reach into the Asian market. A list of the three most popular destination markets compiled by researchers had China beating out Hong Kong and Taiwan with a 79 percent share of the vote. However, many of those surveyed noted China above others as the most difficult market to penetrate.

The New York Times has compiled several reasons as to why this expansion is set to be so difficult. E-commerce market penetration in China will prove to be difficult because of significant differences between the online retail environments in the United States and China, including:

  1. Quality and return guarantees – While retailers in the U.S. almost always guarantee products against faults and allow for returns, in China these practices are much less common. The buyer-beware attitude in China is known among consumers who often purchase midrange-priced items as those at lower price points are generally known to be knock-offs. In China buyers must be much more aware of what they are purchasing due to the lack of product counterfeit and defect oversight in the country. 
  2. Delivery methods – In the U.S. consumers often have to pay a price for long-distance deliveries that can take days or even weeks to arrive. However, in China “kuai di” delivery services charge often less than one dollar for same-day delivery services. For some, this can mean that shopping online will yield faster results than the local corner store.
  3. Communications and reviews – The methods by which consumers receive information on the products they plan to purchase differ between the two countries as well. While in the U.S. customers gather information through a series of ratings, product reviews and research in China it is much more often to discuss even small products in online chats or by phone. 

“Asia holds a lot of potential for global e-Commerce merchants,” said Tyrone Lynch, vice president of eBusiness at NTT Communications Asia.

“And yet their success is being hindered by a lack of local knowledge necessary in overcoming operational challenges, such as currency restrictions, tax regulations, licensing requirements and local payment methods. A payment solution provider with strong local acquiring capabilities is needed to help them navigate the complex and dynamic e-Commerce market of Asia.”

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