by Tim Foster, Managing Director, APAC, Chainalytics
Asia Pacific is the largest e-commerce and m-commerce market in the world. That reality did not hit home for a lot of people until Alibaba’s record breaking $25bn IPO on the New York Stock Exchange in 2014. According to eMarketer, 10.1 per cent of all retail sales in Asia Pacific last year were digital, and it estimates that a full third of retail purchases in China will be made via e-commerce by 2019. The challenges and opportunities from this seismic shift are immense.
As China continues to shift away from exporting the majority of the products it produces to foreign markets and using them to service its domestic and regional demand, infrastructure attention is starting to include local transportation in addition to ports and highways. That is a necessity for a country that faces challenges with last mile delivery, and one that its neighbours also face.
Emerging markets in Asia are seeing their own e-commerce accelerations and face similar challenges with undeveloped networks needed to make good on the promise of product delivery. However, there is more to the picture than what is immediately visible, and Asia will continue to go about business in ways that make the most sense considering capabilities, culture and investment.
Swinging the pendulum back to brick-and-mortar
e-Commerce pure plays like Warby Parker in North America, have started opening physical stores. At the same time, established retailers like Home Depot are seeing huge demand spikes for buy at home, pick-up in-store options. This makes tremendous sense for Asia, where shopping is as much a social exercise as it is utilitarian and densely populated urban areas see large amounts of foot traffic.
Retailers that think about e-commerce within the framework of a larger omnichannel ecosystem have fared well, and that means maintaining an active presence in both the physical and virtual world, leveraging the capabilities of both to service customers. When narrow roads and human powered vehicles make up a portion of the distribution network, decentralised inventories that can be fulfilled from nearby locations are ideal.
Differentiation driving competition
Elements of the value proposition like convenience and in-store experience are absent in e-commerce shopping experiences, and that propels price to the front of the line. Competing on price alone has never been a winning strategy for most retailers, and e-commerce amplifies the problem of price by making so many competitors instantly available to consumers. Instead, differentiation is what has driven success for online retailers in North America and Europe, and the Asia Pacific region — which has less history with brand equity — is beginning to see this.
Once differentiation and branding are established, they can be woven into better price competition through private labels. Because consumers place a higher value on trusted private labels than generic brands, they become the preferred option when priced equally or even slightly higher. This is the type of differentiation that will allow the savviest retailers to emerge above the rest in Asia as e-commerce continues its momentum.
Supply chain’s increasingly prominent seat at the executive table
Managing supply chains has historically been seen as a support system, a necessity for carrying out the will of executive strategy. e-Commerce and omnichannel retail have disrupted the support role of supply chain and only companies that give supply chain leaders executive decision making and planning roles will win. The time and expense of recovery from poor supply chain strategy has simply become too great.
Organisations that embrace this fundamental shift in how supply chain is viewed will enjoy massive competitive advantages out of the gate. More importantly, demand signals should be constantly monitored and only companies that employ supply chain leaders with authority to react and scale to unplanned shifts in the market are nimble enough to thrive. The Asian region is a prime example of the importance of agility as the elements that drive its market behavior are dynamic and unpredictable.
Understanding and planning for the complexity of e-commerce in Asia is core to reaping the fantastic opportunities of the region. The best strategy for continued success is looking to the west and realising what has worked in the mature markets there, but doing so through a lens of Asian sensibilities and culture and making the appropriate alterations to accommodate them.
About the Author
Chainalytics Managing Director (APAC) Tim Foster has more than 20 years of supply chain experience across the APAC region both as a consultant and as an executive with leading multi-national manufacturers.
He understands the entire local, regional and by-country pan-Asian picture—from the macro-economic factors impacting the region to each market’s unique logistics demands and business complexities.