The war between Chinese internet companies spreads to Southeast Asia: The big battle is imminent

More and more Chinese Internet companies are beginning to realize the development potential of Southeast Asia.

Before 2012, Southeast Asia had not been taken seriously overseas. Even if Internet companies were willing to explore overseas markets, they usually preferred to focus on more practical markets. This is because the Southeast Asian market has a population of about 600 million, but the Internet and mobile Internet are not as popular as in the United States or Europe. Compared with the Southeast Asian market, the development potential and target users of other markets are more obvious.

However, thanks to the development of cheap smartphones and mobile networks in recent years, the Internet penetration rate in Southeast Asia has exceeded the expectations of industry insiders and is still growing rapidly. Compared with many mature markets, there are obviously more opportunities to be explored here.

The e-commerce sector is particularly valued. With the rapid increase in mobile phone usage in Southeast Asia in recent years - data shows that 27% of online sales in the first half of 2015 were completed by mobile phones - compared with the global figure of 35%, this development is very rapid. As a result, mobile e-commerce has emerged, and the Southeast Asian market has begun to become an important market for Chinese e-commerce companies to expand overseas.

Of course, opportunities and challenges coexist. Despite huge development potential, Internet companies trying to enter Southeast Asia also face problems in talent, technology, payment, etc.

The battle between BAT and mobile phone manufacturers is imminent

In recent years, the e-commerce market in Southeast Asia has developed rapidly. Data shows that in the six major countries in Southeast Asia (Indonesia, Malaysia, Singapore, Vietnam, Thailand and the Philippines), e-commerce retail sales only account for 2% of total retail sales; UBS believes that this figure should be even lower, only 0.2%.

This means that e-commerce has great development potential in Southeast Asia. According to the forecast of Frost & Sullivan, a global enterprise growth consulting company, the annual growth rate of e-commerce in Southeast Asia will reach 37.6%, and Internet sales will increase from US$700 million in 2013 to US$3.45 billion in 2018. Of course, compared with China, this is still a negligible number.

Chinese e-commerce companies that continue to expand overseas markets will certainly not ignore Southeast Asia, a virgin land that has not yet been fully explored.

In May 2014, Alibaba made a big move in the Southeast Asian market by investing US$250 million in Singapore Post to jointly build a cross-border e-commerce logistics platform. There are also reports that JD.com has established its Indonesian subdomain website, quietly developing its Indonesian e-commerce business, and has also launched a localized Android client.

Local e-commerce companies in Southeast Asia have also begun to attract special attention from the outside world. Tokopedia, founded in 2009, is an Indonesian C2C e-commerce website (similar to China's Taobao). In October 2014, the website received a $100 million E-round financing from two investment institutions, SoftBank and Sequoia.

Some analysts pointed out that Tokopedia is likely to be acquired by companies like Flipkart, Amazon or Alibaba to expand their market share in online retail in Southeast Asia.

Bukalapak is an Indonesian local e-commerce company similar to Tokopedia. The company's CEO Achmad Zaky revealed in an interview with Tencent Technology that he has had some contact with Alibaba.

In addition to the e-commerce sector, some Chinese Internet giants also regard the Southeast Asian market as an important strategic base for expanding overseas markets.

For example, Tencent WeChat has focused its attention on the Southeast Asian market, hoping to develop its user base here; Baidu has released many new products to explore the market potential in Thailand and Vietnam. Baidu insiders have said that they will provide a series of tool applications such as Hao123, Tieba, Zhidao, and Antivirus in Vietnam, Thailand, Indonesia, Malaysia and other countries. At the same time, Baidu has also opened a Singapore research center for language development to develop local services in the Southeast Asian market; in September 2015, UC Browser, a subsidiary of Alibaba, also established its Southeast Asian headquarters in Jakarta, and plans to further increase investment and layout in the Southeast Asian market in the future.

Zhong Wei, general manager of Alibaba Mobile Business Group's Indonesian branch, told Tencent Technology that UC began developing and releasing its first overseas version in early 2010, when its first overseas office was located in India. It then expanded to the entire South Asian region with India as the core, entering the Indonesian market and the entire Southeast Asian market.

For Chinese mobile phone manufacturers, the Southeast Asian market is undergoing a process of transition from 2G to 3G, and mobile Internet is developing very rapidly. Therefore, Southeast Asia has naturally become a "hot spot" that Chinese smartphone manufacturers are scrambling to grab.

Vivo President and CEO Shen Wei said at the end of 2013 that in the next five years, the international market will focus on four countries: India, Indonesia, Thailand and Malaysia. The reason why Vivo chose to enter the Southeast Asian market first is related to Chinese culture, because the Southeast Asian market is also a market influenced by the Confucian cultural circle.

Xiaomi Southeast Asia General Manager Steve Weeks also believes that Southeast Asia will play an important role in the global smartphone war. Weeks said, "Southeast Asia is a huge market for us, with a population of more than 600 million. So far, our market in the region has developed to Singapore, Malaysia, Indonesia and the Philippines. We strive to expand our business to other countries in the near future."

In addition, some Chinese Internet companies have also chosen to indirectly penetrate the Southeast Asian market through investment.

As we all know, Southeast Asia was one of the earliest tourist destinations when China first started to "travel abroad". Its rich and colorful exotic customs, not too high costs and its geographical proximity to China attracted a large number of tourists who wanted to travel abroad. For a time, Southeast Asia travel became a popular route for travel agencies, and "Singapore, Malaysia and Thailand" was even known as the golden triangle of the Southeast Asian tourism market.

However, communication difficulties caused by language barriers are an obstacle, and there is a lot of room for improvement in business travel convenience. In May 2014, Qunar.com announced that it had invested in Grabtaxi, a mobile taxi application company in Southeast Asia. This taxi application, which was launched in Malaysia in 2012, has been operating in 26 cities in 6 Southeast Asian countries and regions, and the company also stated that it will continue to expand in the Southeast Asian market.

The sharing economy has begun to blossom in the Southeast Asian market, which has also attracted the attention of Chinese Internet companies. In August 2015, Grabtaxi announced that it had completed a new round of financing of US$350 million, with Cotu Capital, China Investment Corporation and Didi Kuaidi as investors in this round.

Didi appears as an investor. As Didi President Jean Liu said, Didi is willing to share its own accumulation of big data algorithms and diversified business operation experience with them. More importantly, Grabtaxi will help Didi enhance its understanding of the Southeast Asian Chinese market, and also indicate its ambition for global expansion.

The exploration of Chinese entrepreneurs

While large domestic Internet companies are targeting emerging markets in Southeast Asia, some entrepreneurs from China are also beginning to look for new opportunities here.

B2B e-commerce platform WOOK is a mobile Internet product incubated internally by Indonesian Viva Telecom Co., Ltd. The company has been working in the Indonesian market for four years. WOOK founder Xu Longhua once worked at TCL for seven years. By chance, he traveled to Indonesia and discovered local business opportunities.

Xu Longhua told Tencent Technology that Indonesia has a large population, advanced consumption concepts, and strong demand for products, but due to the underdeveloped manufacturing industry in Indonesia, there are a lot of opportunities to be tapped. So he chose to start with smartphones and accessories, connect with the domestic supply chain, connect China's huge manufacturing resources with the Indonesian market, and do e-commerce in the circulation field.

In Indonesia, the traditional flow of products is from manufacturers to distributors, and then to scattered retailers. This flow link is one-way. WOOK integrates a large number of retailers, and can go to upstream manufacturers for large-scale group purchases, customized products, and gain a certain bargaining power. Xu Longhua believes that this can only be achieved through mobile e-commerce. It is necessary to use mobile methods to connect Chinese products and Indonesian retailers, but not simply to connect information. "Only by shortening the original chain and subtracting the price difference, providing retailers with higher value, and integrating the supply chain can we truly create value."

The reason for adopting the B2B model is determined by the local logistics conditions in Indonesia.

Indonesia is an island country with poor logistics infrastructure and high delivery costs. If you do B2C, more scattered and uncertain orders will further increase delivery costs. In addition, the penetration rate of online payment in Indonesia is very low, and traditional retail channels will still be the mainstream for local product sales for a long time in the future.

Ye Zhicong, director of the international business department of Youshi Technology, expressed his analysis of market opportunities to Tencent Technology. Taking Indonesia as an example, the fields that Chinese companies can enter can be roughly divided into three categories: the first is the tool category, such as UC, Cheetah, 360, which have light operations and strong productization opportunities, and the window will become smaller and smaller; the second is the products that require medium operations, are not universal, need to integrate local characteristics, and do not need too strong offline support. There will be many opportunities; the third is that there will be some heavy operations projects, that is, they need to be implemented locally.

In addition, games are also a blue ocean that Chinese entrepreneurs are paying attention to.

This year, Dutch market research company Newzoo released a data report on the Southeast Asian game market. The report said that Southeast Asia has become the fastest growing game market in the world. In 2014, game revenues in six Southeast Asian countries, including Vietnam, Singapore, the Philippines, Malaysia, Thailand and Indonesia, accounted for 99% of the total market revenue, and are expected to double to $2.2 billion by 2017.

Southeast Asia's economic growth prospects, large population base and rapid growth of mobile Internet ensure that the region's game market will continue to grow at a double-digit percentage in the next few years. The Southeast Asian game market is growing faster than similar regions such as Latin America. Some institutions predict that by 2017, 85% of the global game industry's growth will come from Asia.

Many challenges and opportunities

Despite the abundant opportunities, Chinese Internet companies still face many challenges in Southeast Asia.

First, there is a shortage of technical talent.

From Singapore, the most business-friendly, to Thailand, which strictly issues visas/work permits, Southeast Asian countries have different degrees of openness to overseas investors, and many startups have found that recruiting new people and retaining high-quality local talent is a daunting problem.

Many Chinese entrepreneurs in Indonesia told Tencent Technology that it is very difficult to recruit reliable technical talents. Their solution is to recruit technical positions from China, carry out development work in China, and the local Indonesian team is mainly responsible for operations.

The second is local operation.

In-depth localization is the key to overseas development. Ye Zhicong, director of the international business department of UC Technology, told Tencent Technology that UC cooperates with many different websites and operators in overseas markets to localize content and "carry out in-depth verticalization in a targeted manner according to needs in different regions."

Effective use of local social media can also help these companies to effectively promote their products. According to statistics, there are more than 200 million active social media users in Southeast Asia, which means that one-third of Southeast Asians use social media. Many Chinese entrepreneurs in Indonesia told Tencent Technology that due to the high cost of offline promotion, they usually promote their products on social platforms such as Facebook and Twitter.

Third, there is a lack of trust and the penetration rate of mobile payments is low.

In Southeast Asia, the level of trust between merchants and consumers is not actually high, so local consumers are more willing to accept the "cash on delivery" payment method. Data shows that this proportion accounts for 67% of all payment methods; and credit card payment is the second choice of locals, accounting for 21% of all payment methods.

Bhinneka is an Indonesian B2C e-commerce company. Its founder Hendrik Tio told Tencent Technology that 40% of users on the platform pay by cash on delivery, 30% by bank transfer, and the rest by credit card.

Although global e-commerce companies such as eBay and Groupon have begun to enter the Southeast Asian market in recent years, and mobile payment companies such as 2C2P have emerged in Thailand, the penetration rate of mobile payments is still not optimistic compared to the popularity of mobile phones in the Southeast Asian market.

Zhong Wei said that Indonesia does not have a good mobile payment tool. "Especially for gaming companies, the main challenge they face is not to cultivate users' payment habits, but to solve the problem of inconvenient payment methods and channels."

As mentioned above, the rapid development of mobile Internet, open consumer spending attitudes, and untapped development opportunities have made Southeast Asia begin to receive more and more attention, but it will still take some time for it to become the focus of attention in China and even the world.