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Rakuten’s Shutdown: A Domino Effect in the Making?

Unless you have been living under a rock, you must have read about Rakuten’s exit from Southeast Asia. At the end of March 2016, the Japanese-based e-commerce platform has closed its marketplaces in Singapore, Malaysia and Indonesia. Rakuten is also in the process of selling off its Thailand-based platform Tarad.

In tandem with the official Rakuten Vision 2020 announcement, the company revealed that the exit is due to changes in its e-commerce model.

“Transformation of the business model for e-commerce will include a greater focus on customer satisfaction and a quality experience in Japan, where Rakuten is the market leader, and development of the ecosystem model in Taiwan,” the statement read.

This came as a shock to many in the industry, but perhaps not to the experts. While e-commerce continues to grow in the region, consumers today are flooded with options as to which online marketplace service to use. Most of these players offer similar deals with very little areas of differentiations from their competitors. Those who cannot generate enough profits (and there are many) must be prepared to step out of the race sooner or later.

e-Commerce still going strong

But does Rakuten’s departure hints at more exits for e-commerce companies in Southeast Asia? Many believe that the strong e-retail industry and healthy growth of middle-class market in the region still provides a sturdy platform for a number of e-commerce players.

In a recent article by AsiaOne, HipVan, an online start-up for designer furniture, said: “Commerce is moving online and not heading back to brick-and-mortar any time soon, so I don’t think we need to be too concerned over Rakuten’s exit.”

Known formerly as Gmarket, Qoo10,which reported to have 2.2 million users and 500,000 daily unique visitors, making it one of Singapore’s top 10 most-visited sites, commented: “With the exit, there will certainly be a spillover effect benefiting the other e-marketplaces.”

In fact, what the e-commerce sector can take away from this is the importance to understand each individual market and not replicate the same business everywhere. Not every country is ready for a B2B2C platform like Rakuten, which was the base of its success in Japan. Southeast Asia is not a one-size-fits-all region. It consists of a highly complicated ecosystem with various maturity levels.

In addition, the e-commerce platform is no longer the new gold rush. What may work for one pioneer company may not work for another company that joined the race much later on.

So what does it take to be top in e-commerce?

There is no quick and easy route to the top, but most experts, as well as online customers, can attest that companies who provide the best online shopping experience wins. This means:

1) Critical Fulfilment Infrastructure

Perfect deliveries, as defined by Accenture to be on time or early, damage free and with correct product and paperwork, should be the aspiration of each e-commerce company. This is the expectation of every online shopper. To achieve this, companies require a competent fulfilment infrastructure.

2) Superior End-to-End Product Experience

In addition to hassle-free shopping experience, shoppers want free shipping, free returns and even free gifts. Also, bear in mind that no complaints does not equate to customer satisfaction. They may easily simply hop to another online store if they are unhappy with the services. While it is almost impossible to achieve perfect fulfilment everytime, the industry needs to at least get it near perfect.

3) Mobile and Social Friendly

With mobile now accounting for 50.3 per cent of all e-commerce traffic, it is imperative that the industry focuses on mobile e-commerce to continue to stay relevant in the game.

e-Commerce in Southeast Asia is still generally underdeveloped, accounting for less than one per cent of total retail sales, compared to rates of six to eight per cent in places like Europe, China and the US. But while opportunities ride high in Southeast Asia, e-commerce players need to know how to leverage on this advantage.

“For instance, we need to ensure that our third-party logistics providers understand our delivery needs – which is prompt, reliable and efficient last mile deliveries – and work closely with them to develop capabilities to meet these needs,” said Mr Pierre Poignant, Chief Operating Officer, Lazada Group, a popular e-commerce company founded by Rocket Internet in 2011. In addition, Lazada Group also takes the opportunity to educate consumers about the convenience and value of e-commerce, and train sellers who are new to the platform on the best way to grow their businesses online. This is the company’s strategy to look for ways to better the shopping and selling experience.

The end of Rakuten in Southeast Asia? Perhaps not

Despite closing the marketplace, the company will still maintain its regional Asian headquarters in Singapore. Rakuten, which competes with Rocket Internet SE’s Lazada and others in Southeast Asia, will continue its businesses in the region, such as Rakuten Travel, Viber, Kobo, Rakuten Institute of Technology and Rakuten Ventures, even as the Japanese firm scouts for new opportunities for growth in Southeast Asia. In a related development, Rakuten said it will debut its consumer-to-consumer marketplace app, Rakuma, to service markets in the region. This app will compete against other services currently available in the market, such as Singapore-based Carousell, in which the Japanese company is already an investor through Rakuten Ventures.

While no one is expecting an exodus of e-commerce companies from the region, Rakuten’s strategy realignment should be a sign for the e-commerce industry to examine its foundation and adapt to the changing environment. This milestone is an indication that a market correction is in the midst, and fringe players can expect to follow Rakuten’s fate if they make no efforts to be more relevant in the industry.

So who is next on the chopping board?

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