#July2023 #Asia Pacific #Strategy

Changing Channels in Asia: E-Commerce Transitions

One of the main barriers to profitable growth in Asia has always been market fragmentation. The rise of e-commerce has promised a solution and three years of Covid-19 provided a powerful boost to online sales for B2B and B2C firms. Yet, the e-commerce transition isn’t easy. Costs and complexity can add to a maze of e-commerce platforms and companies must develop or outsource an array of new skills.

We explored the evolving landscape at a recent Asia Management Forum briefing, with discussion led by Asia CEO Forum member Mahesh Iyer of Accenture, formerly CEO of Growth Markets at Signify. This Insight is informed by that discussion and captures some of the solutions that have proven effective for corporate teams in the region.

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Key Takeaways

+ Post-Covid, companies are seeing their offline business pick up again, but a significant amount is still being transacted online. Companies need to create an omni-channel marketing strategy.
+ E-commerce markets in Asia are fragmented, consumers are open to switching brands, and consumer acquisition costs are sky high. As a result, companies are using data and technology to become more targeted and reduce their online costs.
+ Three e-commerce issues need to be front-of-mind in developing an e-commerce strategy:
1. Transitioning IT legacy systems to incorporate e-commerce.
2. Reducing e-commerce costs as online sales grow.
3. Using data and technology to improve e-commerce margins.
+ Online marketplaces can provide businesses with a low-cost entry into e-commerce, but a successful e-commerce strategy must focus on building a holistic ecosystem. That ecosystem should integrate online marketplaces, brand websites, and offline sales and delivery systems.
+ Due to their critical role in B2B sales, distributors should be part of e-commerce initiatives. In some cases, this may entail giving distributors a certain level of talent support, indoctrination, and e-commerce capability.

Reimagine Commerce

Pre-Covid, online marketplaces, such as Amazon, started to force B2B companies to look at the e-commerce space. However, customer acquisition and supply chain costs were high, technology platforms were suboptimal, and the cost of the last mile was prohibitive.

Post-Covid, e-commerce is a key marketing channel going forward. Almost half of the marketing money that most multinationals spend, including consumer businesses, will go towards digital media.

Post-Covid many companies are seeing their offline business pick up again, but a significant amount is still being transacted online. Ecommerce is making it more complex for companies to do business.

There are 12 to 14 million e-commerce platforms worldwide and every country has its own nuances. In Southeast Asia, Shopee, Lazada and Amazon are the key e-commerce platforms in Singapore, but in Indonesia, Tokopedia, Blee Blee and others dominate.

Markets are fragmented, consumers are open to switching brands, and consumer acquisition costs are sky high. As a result, companies are using data and technology to become more targeted and reduce their online costs.

While the e-commerce space in Asia (except China) lags other regions, e-commerce adoption is rising. India and most Southeast Asia countries are beginning to catch up, while Australia, Singapore, and China are front runners in e-commerce adoption.

Asia will have close to one billion new digital consumers, mostly from India, Bangladesh, the Philippines, Thailand, and Indonesia. Funding of new e-commerce platforms is strong, so e-commerce itself will become even more complicated with many new players.

In India, global e-commerce players have a big role. Social commerce is already big in China, and it is likely to extend its reach across Asia. In ANZ, e-commerce sales have grown fivefold in five years, and the share of e-commerce sales to all retail sales will rise from 5% to 20%.

Three e-commerce issues need to be top of mind at the C-Level.
1. Legacy IT systems must be transitioned to become e-commerce enabled. Hyperscalers provide solutions, which can be applied to corporate systems, making reinvention unnecessary.
2. E-commerce operations can incur up to 8-9% of revenue costs, and often have suboptimal outcomes. E-commerce operation costs are negligible when e-commerce is a small proportion of total sales. Once e-commerce grows to 25-30 % of revenue, then reducing e-commerce costs will become a priority.
3. E-commerce is currently margin dilutive. While e-commerce often reduces margins, it still must be done. But data or technology can help – counteract the margin dilution.

The e-commerce journey

When the Covid pandemic hit, many companies quickly turned to online marketplaces to fill the gaps they had in e-commerce capability. The e-commerce platforms helped reduce the ‘last mile’ cost of delivery, broaden market reach, streamline payments, and offer improvements in customer experience, and marketing tools.

‘In Southeast Asia, Shopee, Lazada, and others are growing at a fast pace with aggressive consumer-acquisition strategies. They offer good yields through pricing and promotions; that's their business model.’

Embarking on an e-commerce initiative on one’s own can be expensive, especially the costs related to logistics. Marketplaces can fill that gap in the supply chain and make e-commerce a viable option.

‘Marketplaces do well by bundling pieces together and optimizing the cost of the Last Mile. To do e-commerce successfully, the supply chain piece is critical.’

Going beyond marketplaces

Many companies find that an e-commerce strategy that focused on marketplaces alone can damage brand reputation in the long run.

‘Marketplaces are good platforms for brands to make quick sales, but sizable volumes of marketplace sales damage brand equity. Customers don't belong to the brand; they belong to the platform. Customers have no issue switching brands if the price is right.’

Despite the risks, marketplaces offer an advantage that is hard for most companies to duplicate. Thus, they are usually part of a wider ecommerce strategy.

‘If you want to deliver the product yourself, unless your product is extremely expensive, it never works out. You need to look at supply chain, the order management system, the warehouse, and the automation system. For the last mile, use a third-party logistics firm. If you deal with the marketplace smartly, you can get good treatment.’

As companies develop a sustainable online presence, they inevitably go beyond simply offering their products through online marketplaces.

‘A lot of brands go to marketplaces to test the market. They start building an online critical mass that will justify the creation of branded websites. They then acquire the resources to move to the next level: to have their own online ecosystem.’

An online ecosystem helps expand the role of e-commerce far beyond offering online transactions. E-commerce becomes a vital part of the sellers overall marketing strategy.

‘We are working towards more experiential online experiences, such as live consultations, live shows, and workshops. Experiential online experiences show consumers that the branded.com website can be something more than just transactional. Growing a sustainable online presence requires us to continuously reinvent our online proposition.’

Adding distributors to the mix

Distributors play an essential role in reaching B2B end-customers in the Asian market. Keeping them on-side is important in e-commerce efforts, but they often lack the ability to create an online presence.

‘Some distributors struggle to get online, but most accept the fact that digital commerce is here to stay. If you want your distributors to be digitally savvy and successful versus your competitors, then you need to give them a certain level of talent, indoctrination, or capability.’

The first step is to reach out to distributors and keep them informed of e-commerce initiatives.

‘Try to get your traditional partner into the e-commerce loop and let them participate in the online process. In the supply chain, for example, they are the ones that are stocking the equipment or parts.’

Some distributors may not be interested in e-commerce efforts, but companies must still take a cautious approach.

‘If the dealer has no interest or capability to go in e-commerce, then there's little conflict. Of course, you need to be cautious about making your existing distribution partners upset with an experiment. You must balance this out, for sure.’

Sometimes, neither marketplaces nor distributors can reach Asia’s dispersed markets. In this case, some firms are creating economies of scale by collaborating to create new marketplace platforms.

‘In places like Vietnam, India, and Indonesia, even distributors find it expensive to cover a cluster of customers. Companies are collaborating to see how digital marketplaces can extend their reach. With e-commerce, you can coordinate purchases, reduce the cost of delivery, and track credit. These are ways many companies have started to successfully work in some marketplaces; but this requires collaboration among companies.’

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