As two of the largest and fastest-growing ecommerce markets on the planet, China and India are naturally on every expanding global business’ ‘to do’ list. However, although both markets boast thriving economies, there are numerous restrictions which prevent foreign businesses from taking a share of the market. So what if it was therefore better for your business if you in fact avoided these monoliths entirely, and instead focussed your time and money on breaking into smaller, more emergent Asian markets?
[The 2015 Growing Global conference for cross-border selling will be held July 21-22 at the Loews Hollywood Hotel. Click here for more information, and to register.]
Although market size is undeniably important when deciding on your next expansion, it’s also worth remembering that this is only one factor in market potential. What’s the size of a market really worth if only a tiny fraction of it is active? Rather than struggling in a vast ‘high potential’ market such as India – with its lack of infrastructure and constant setbacks in terms of market maturation – why not consider excelling in smaller, low-risk Asian markets with high e-commerce and digital adoption rates?
The Rise of the Association of Southeast Asian Nations
When expanding our ecommerce business to Asia, we launched in some smaller ASEAN (Association of Southeast Asian Nations) markets at the same time as attempting to break India. The results were surprising, as we found that markets such as Singapore, Indonesia and Malaysia quickly overtook India in terms of ROI, and Southeast Asia has since become one of our main focus regions.
The potential of India’s ecommerce market is undeniable, but progress is slow and attempting to enter at this stage just isn’t fruitful. India has yet to even rank in the Global Retail E-commerce Index, as still only 19 percent of the population have internet access, and only a tiny 3 per cent are making purchases online, indicating that the market will prove challenging for some time yet.
So while many wait patiently for India to start fulfilling this great e-commerce market potential that everyone is talking about, why not try focussing your attention on the ASEAN in the interim. Not only are Southeast Asian markets currently profitable, but starting here will also prepare you for an easier transition into larger Asian markets in the near future. While India may be the ideal market of tomorrow, here’s why the ASEAN is the perfect e-commerce market to invest in today.
An m-commerce market that will make your mouth water (and your thumbs sweat)
India is a very mobile-centric country, with a mobile phone penetration of around 78 percent. However, only a meagre 18 percent are using smartphones (lower than any ASEAN) which are an essential requirement for the development of most ecommerce businesses. In stark contrast with these figures, Singapore boasts the highest smartphone penetration in the world (85 per cent) and mobile e-commerce or ‘m-commerce’ is already at a very advanced stage of development.
Whilst India is still in the process of (slowly!) entering the smartphone scene, many users in Malaysia, Indonesia and Singapore are already mobile-first internet consumers: That is, internet users who have never owned a desktop computer, and have instead skipped straight to shopping from their smartphones. As mobile-first consumers are a very new concept in the ecommerce world, these markets can therefore act as a fantastic hotbed for testing what works best for this type of consumer. Businesses that operate predominantly with Western markets can learn a lot from the shopping behaviour of mobile-first consumers, as this contrasts vastly with the desktop-first environment typical of these markets. Learning more about mobile-first consumer behaviour will prove invaluable to your business, as evidence suggests that this will soon be the norm for future generations worldwide.
A thriving shopping culture that puts Singapore ahead of digital shopping trends
Once described as ‘one big shopping mall’, Singapore’s love for shopping both in-store and online make it an ideal location for testing the water in Asian markets. Here, shopping is considered not merely a necessity but rather as part of Singapore’s culture, and e-commerce figures have been rising at an unprecedented rate over the last few years.
This thriving consumer culture partnered with a very tech-savvy population puts Singapore ahead of the ecommerce game, as shoppers are keen to be on top of digital shopping trends. Singaporeans crave cross-channel options which integrate the online and offline shopping worlds, inadvertently placing them at the forefront of omnichannel developments. Therefore, this is a perfect market for those businesses looking to experiment with new and innovative e-commerce business ideas, as Singaporeans have proven themselves to be very open-minded digital consumers.
Relaxed foreign investment laws that welcome international business with open arms
In contrast with the more insular market giants such as China and India, the ASEANs boast relaxed foreign investment laws which make doing business in this region relatively straight forward for non-domestic ecommerce enterprises. Singapore leads the way in this respect, with favourable tax regulations and procedures (any cross-border transactions of US$320 or less are shipped duty free) and a global record low level of customs corruption.
The successful of such an accommodating system is reflected in the fact that Southeast Asian countries have high percentages of cross border e-commerce (Malaysia 40%; Singapore 55%), and figures are set to rise with the launch of a newly-formed ASEAN Economic Community (AEC) by the end of 2015, which aims to enhance cross-border trade in Southeast Asia by creating a more coherent trade tax system across the region.
Mature online payment infrastructure and delivery options abound
One of the biggest obstacles preventing India’s e-commerce market from reaching its full potential is that less than 12% of the Indian population have credit cards. To accommodate this, businesses have begun offering cash on delivery options to online shoppers. Although this has been well received, and is now the most-used form of online payment in India (between 50 to 80 percent of all online transactions are paid for with COD), it’s expensive, risky, and return rates are reported to average at around 40 percent. In contrast, Singapore has very mature digital payment infrastructure with one of the highest levels of credit card penetration globally (average of around 3.3 credit cards per person).
Another infrastructural issue related to e-commerce development is the difficulties online retailers have in delivering goods to online buyers. India has no standardised address system, meaning brands must work closely with local courier companies who better understand the overwhelming, unstructured nature of overpopulated areas. Currently even the wealthiest of companies such as Amazon and Flipkart are battling with this issue, but recent innovations from startups such as what3words – a company which aims to provide any 3m³ location on the planet with a three-word co-ordinate – suggest this is slowly becoming an issue of the past. However, solutions such as these are still in the early stages of development, and the idea that e-commerce giants such as these are struggling here is testament to the fact that setting your company’s digital foot here is not worth the financial risk at this time.
Expanding to the ASEAN can therefore prove fruitful for your business not only for the reason that ecommerce is currently taking off in the region, therefore guaranteeing great results, but also the fact that this thriving, dynamic mobile-first consumer market can teach businesses a lot about what the future might look like for ecommerce more globally. Taking the risk with market giants like China and India currently just isn’t lucrative, but this is set to change over time, and when it does – you’ll be ready.
Arthur Goldman is Head of International Operations at Flipit.com.