- 08/01/2018
- Category: Commentaries
2017 has been an incredible year for e-commerce worldwide. In September 2017, it was predicted that e-commerce sales could reach US$ 2.3 trillion worldwide by the end of the year.[i] It continues the progress of 2016 with some dynamics worth to mention. In this article, we unravel the dynamic competition between Amazon and Alibaba in 2017 regarding their market expansion strategies in foreign markets, along with several future predictions on this issue. A discussion on the domestic e-commerce competition in Indonesia will also be provided.
Amazon and Alibaba’s Foreign Market Expansion Strategies
Amazon and Alibaba have been successful in their home markets. In 2016, Amazon’s market share in the United States (US) was approximately 44% (US$ 196.8 billion), and Alibaba recorded a revenue of around US$ 17.4 billion (119.8 million yuan).[ii] Following accomplishments in their domestic markets, Amazon and Alibaba have tried to maximize their profits by expanding to other sectors and countries/regions, whether directly or indirectly. For more than two decades, Amazon has gobbled up or invested in at least 128 companies worldwide, with sectors ranging from food and beverage, news, to artificial intelligence.[iii]
One particular milestone for Amazon in 2017 was when Amazon crossed the US$ 2 billion mark in investments towards India, through its Amazon India expansion. This proves Amazon as a serious competitor to its domestic rival, Flipkart. However, Flipkart’s sales in India still outnumbered Amazon because Flipkart also targeted the markets of secondary cities in India and focused on high-demand products such as smartphones, while Amazon offered a more diverse range of products, including groceries and books.[iv] Amazon India chief Amit Agarwal in October 2017 said that Amazon was planning to increase its investments in India, especially in key areas such as digital payments and the Prime membership program.[v] This Indian expansion shows that Amazon has the intention to grab the potential of foreign markets by becoming a competitor to the existing marketplace. Amazon tries to snatch the opportunity in which the competitor(s) are unable to respond, especially due to funding, product diversity, and technology issues; three aspects which are already a leverage for Amazon to compete in a new market.
Contrary to Amazon, Alibaba has a different approach regarding entering a new market. Let’s take a look at the example of Alibaba’s involvement in Indonesia, the largest e-commerce market in South East Asia. Instead of establishing a new marketplace for Indonesian consumers like Amazon in India or Alibaba’s Chinese rival Jing Dong (JD), Alibaba chose to invest in existing e-commerce companies operating in Indonesia. Uniquely, the companies Alibaba is currently investing on, are competitors in Indonesian market. In July 2017, Alibaba announced its plan to invest another US$ 1 billion into Lazada, currently the leading e-commerce platform in Indonesia. This investment will bring total investments from Alibaba into Lazada to over US$ 2 billion, enlarging Alibaba’s ownership portion of Lazada. Beside Lazada, Alibaba has also set its foot on the local Indonesian e-commerce company, Tokopedia. In August 2017, the founder and CEO of Tokopedia, William Tanuwijaya announced that Alibaba invested US$ 1.1 billion (Rp 14 trillion) into the company. However, the investment only accounts Alibaba as the minority share holder of Tokopedia,[vi] unlike Alibaba’s status in Lazada.
Responding to the enormous growth in foreign markets, 2018 could be the year where Alibaba, Amazon, and other big e-commerce companies start pumping more investments in these markets. Investments that are placed strategically will bring improvement for local and domestic e-commerce players, in terms of service, product manufactures, incentives for customers, as well as economic growth at a certain degree.
The Local Market as an E-Commerce Battleground
The presence of foreign investment in some local markets triggered a question: are emerging markets prone to foreign domination? The answer to the question(s) is not black and white. The competition between companies in e-commerce cannot always be seen as a ‘local vs foreign’. The threat of Amazon to the India’s local player, Flipkart, may be a confirmation signal of foreign domination. Nevertheless, the fact that Alibaba has invested in companies operating in Indonesia instead of challenging it offered another perspective. Sometimes, foreign support towards local players exists to contend the influence of other foreign competitors in the local market. Such strategy was taken because the cost of establishing a new platform in a new market in a short period of time is higher than investing on an existing e-commerce player. Even if it is possible for a reputable company like Alibaba to build its own marketplace in Indonesia, it does not guarantee instant success while the threat of Amazon making its debut in the market is always open. Not to mention that other marketplace competitors were currently grasping its influence over Indonesian market, such as Shopee, and JD.ID as well as promising local players such as MatahariMall, Buka Lapak, and Blibli.
An interesting player in the local market is Shopee, an e-commerce company from Sea Group. Sea Group, the parent company of Shopee, in 2017, received a new round of funding led by GDP Venture and JG Summit Holdings of US$ 550 million, where the majority of the new funds will be used to expand Shopee in Indonesia.[vii] GDP Venture is led by Martin Hartono (the son of Indonesia’s richest man) and Sea Group is a startup company based in Singapore. It means that Indonesian capital was invested in a Singaporean company to compete in the Indonesian market against Indonesian companies (such as Tokopedia), and funded by foreign e-commerce giant (Alibaba).
These stories depict that behind the simplicity the consumers enjoy by using e-commerce, lies a complicated and tight competition between international behemoths and domestic actors—especially in new emerging markets. This existing scheme of investment, expansion, and operation, in fact, works to exploit the potential of e-commerce in various emerging markets. The competition between local and international “brands” is barely relevant in this matter since they don’t compete under specific flags of a nation.
In the future, we could see further competition arise in how these digital e-commerce companies will boost the use of technology to maximize production and increase people’s welfare in the emerging markets. This is important since markets like Indonesia has tons of potential producers and middle-class buyers. Marketplace business model has to bring incentive for people to become producers/buyers to make them active—and loyal—“clients”. It does not matter under which flag, as long as a broader opportunity for local producers to fairly compete locally and globally with increasing volume and improved quality is available; then it is okay. So far, 2017 has provided a continuous healthy environment for the business to grow and compete, therefore 2018 seems promising.
Domestic E-commerce Competition within Indonesia
Having more than 250 millions of population and approximately 105 millions of internet users, Indonesia is South East Asia’s biggest e-commerce market.[viii] Its potential lures not only domestic e-commerce players but also international ones. This makes Indonesian markets crowded with multiple companies striving for profits. The ongoing (and growing) investments in the companies might give interesting dynamics at current landscape.
Overall, today’s marketplace competition in Indonesia is filled by dominant and moderate actors. In B2C (business-to-consumer) sector, the race heated up among some numerous dominant actors, such as Lazada, Blibli, Elevenia, Shopee, Blanja, and JD.id. These companies, consecutively, holds the biggest web visits during 2017 and had fluctuative performances in terms of number of visits.[ix] Lazada still holds the highest position with most visit and highest Gross Merchandise Value (GMV) throughout the year. During the Online Revolution (Lazada’s online shopping event) alone, it generated more than US$ 251 million in South East Asia, with Indonesia as the biggest market.
However, Lazada’s future in Indonesia is seriously challenged by other e-commerce competitors, such as Blibli and Shopee. Shopee, for example, generated more than US$ 3 billion in GMV in the first half of 2017[x] with 40-50% of its transaction value coming from Indonesia.[xi] This accomplishment was achieved by Shopee in around 2,5 years of operation, relatively a newcomer compared to Lazada’s 5-6 years of experience. At the same time, other “small” players like MatahariMall, Zalora, Alfacart showed insignificant and steady performance (in terms of numbers of visits) compared to the big players in the past 12 months.
It is worth to mention as well that during 2017, C2C (consumer-to-consumer) e-commerce is dominated by two major local players, which are Tokopedia and Bukalapak. There is a projection that these C2C companies will soon join the B2C competition as this might provide a bright prospect to earn more profits in the future.[xii] Investment on Tokopedia will certainly open up opportunites for the business to grow and provoke its competitors to do more to survive. For local e-commerce companies which stands without adequate funding, 2018 will be a hard and long year.
The competition in Indonesian e-commerce market is interesting to witness in 2018 as some players got new extra fundings from various sources. As Internet penetration keeps increasing day by day, the volume of transactions through the online marketplace will grow again in 2018. Companies like Lazada, Tokopedia, and Shopee will utilize the new funds through tempting promotions to lure new consumers, or broaden its capital investment through technology development. However, there are also monetization policies from the companies that needs to be considered once they are to subsidize or give incentives to customers. This step was already taken by the biggest online transportation start-up in Indonesia, GoJek, and has proved to be undesirable to a huge portion of its customers.
As one side of the house is growing, it is not impossible that 2018 will be the year where some small or even big e-commerce businesses fall due to harsher competition. Cipika—an online marketplace—is an example of a failed business in 2017. Its parent company, Indosat Ooredo, decided to close Cipika’s operation in June 2017 due to its unpromising business model.[xiii]
Expanding the business by going public is the next step for some established companies, including those who operate in the e-commerce sector. We predict that some e-commerce companies operating in Indonesia will start its Initial Public Offering (IPO) in 2018, following the step of PT Kioson Komersial Indonesia in 2017. The decision might increase the company’s money flow. However, there is still competition that must be faced in order to survive the online marketplace.
[i] Orendorff, A. (2017). Global Ecommerce Statistics [Infographic] and 10 International Growth Trends You Need to Know. Shopify [online]. https://www.shopify.com/enterprise/global-ecommerce-statistics#GlobalInfographic [Accessed 20 December 2017].
[ii] Molla, R. (2017). Amazon could be responsible for nearly half of U.S. e-commerce sales in 2017. Recode [online]. https://www.recode.net/2017/10/24/16534100/amazon-market-share-ebay-walmart-apple-ecommerce-sales-2017 [Accessed 20 December 2017].
[iii] Henry, Z. (2017). Amazon Has Acquired or Invested in More Companies Than You Think–at Least 128 of Them. Inc [online]. Available at: https://www.inc.com/magazine/201705/zoe-henry/will-amazon-buy-you.html [Accessed 20 December 2017].
[iv] Chauhan, H. (2017). Amazon Is on Its Way to Dominate This E-Commerce Market. Fool [online]. https://www.fool.com/investing/2017/09/12/amazon-is-on-its-way-to-dominate-this-e-commerce-m.aspx [Accessed 20 December 2017].
[v] Sen, A. (2017). Amazon to double down on India investments. Live Mint [online]. http://www.livemint.com/Companies/ZzubKfZbPixxQ5hacW3bsJ/Amazon-to-double-down-on-India-investments.html [Accessed 20 December 2017].
[vi] Haryanto, A.T., (2017). Disuntik Alibaba Rp 14 Triliun, Tokopedia: Mereka Saham Minoritas. Detikinet [online]. Available at: https://inet.detik.com/business/d-3604341/disuntik-alibaba-rp-14-triliun-tokopedia-mereka-saham-minoritas [Accessed 20 December 2017].
[vii] Freischland, N., (2017). Brief: Garena now calls itself Sea, picks up $550m in new round. Tech in Asia [online]. Available at: https://www.techinasia.com/garena-sea-picks-550m [Accessed 20 December 2017].
[viii] Statista, (2017). Number of internet users in Indonesia from 2015 to 2022 (in millions) [online]. Available at: https://www.statista.com/statistics/254456/number-of-internet-users-in-indonesia/ [Accessed 20 December 2017].
[ix] Kinasih, R. (2017). ECOMScape 2017: Indonesia’s Ever Changing Ecommerce Landscape. ecommerce IQ [online]. Available at: https://ecommerceiq.asia/indonesia-ecommerce-landscape-2017/ [Accessed 20 December 2017].
[x] Malay Mail (2017). Shopee’s gross merchandise value hits US$3b in H1 2017 [online]. Available at: http://www.themalaymailonline.com/money/article/shopees-annual-gross-merchandise-value-hits-us3b#KkFfiDAlz4rceopQ.99 [Accessed 20 December 2017].
[xi] Freischland, N., (2017). Shopee claims to have entered Indonesian ecommerce’s top league in less than 3 years. Tech in Asia [online]. Available at: https://www.techinasia.com/shopee-winning-indonesia [Accessed 20 December 2017].
[xii] Kinasih, R. (2017). ECOMScape 2017: Indonesia’s Ever Changing Ecommerce Landscape. ecommerce IQ [online]. Available at: https://ecommerceiq.asia/indonesia-ecommerce-landscape-2017/ [Accessed 20 December 2017].
[xiii] Anestia, C., (2017). Situs e-Commerce Cipika Ditutup, Ini Penjelasan Bos Indosat. Liputan 6 [online]. Available at: http://tekno.liputan6.com/read/2964687/situs-e-commerce-cipika-ditutup-ini-penjelasan-bos-indosat [Accessed 20 December 2017].
