Ecommerce in Southeast Asia has become an increasingly hot topic. 2016 was not a quiet year for Southeast Asia’s ecommerce with Alibaba coming into the region through the US$1 billion Lazada acquisition, China’s JD.com’s new shop in Indonesia, SoftBank, Sequoia Capital and SB Pan-Asia Fund’s US$100 million investment in Tokopedia. In 2017, we expect the ecommerce focus will still be on this region with >600 million population.
Keener Competition: A Tough Fight For Small & Medium Sized Companies
In our view, Southeast Asia’s ecommerce players, particularly those small and medium sized will find it tougher to survive and operate their business in hard times. We believe the mounting pressure on these startups is caused by significant funding that was pumped into large ecommerce companies last year.
Big Companies: A Time To Start Spending
With significant funding and strong backers, big companies like Lazada, (currently owned by China’s ecommerce giant, Alibaba) Tokopedia, Matahari Mall and Elevenia will start spending more on marketing and customer acquisition campaign. Alibaba has begun to set its sight on the Southeast Asian ecommerce market after having dominated nearly 80% of all ecommerce in China. Soon, we will see Amazon’s plans to expand to Southeast Asia becoming a reality.
Investors Be More Cautious: Ecommerce Failures In Southeast Asia
All types of investing incur risks. Therefore investors should be more cautious about specific segment they are investing. An example of ecommerce failure would be Singapore’s online grocer, RedMart which was acquired by Lazada at a low price of US$30 million (vs the total amount of fund raised, US$55 million) Additional examples include Lingerie startup Lolalola’s shutting down its website, Ascend Group’s iTruemart shutting down in the Philippines and Japan’s eCommerce leader, Rakuten withdrawing from Southeast Asia and selling its Thailand business back to the original founder.
We believe companies which do not have as strong access to capital as Alibaba or Amazon may find their cash balance drying up quicker as they suffer more cash burnt on marketing campaign and have problems accessing finance.
Is There Any Room For Investment Opportunities?
We expect the year 2017 will usher in more acquisitions led by China’s internet giants like Alibaba and Tencent, thus providing good exit opportunities for VC and PE investors. However, before acquisition happens, these investors are to well-position themselves and have a stake in a business. This could motivate them to invest more on relatively high quality companies with good brand name and momentum such as Carousell. This company has already built quite a reputation in Southeast and gained a widespread media attention and user base. A look into Carousell’s recent small acquisitions implied that there could be a certain level of liquidity needs.
We believe there will be more focus on social-commerce and mobile-commerce within the region in 2017 which would ultimately increase the demand for related developers and valuation of such companies.
Stay tuned and we will showcase more ecommerce startups to you soon.