While the ‘bang, bang’ sound may seem like a coffin shutting, it is actually hundreds of startups knocking on the door of opportunity
Late last night, major news broke that Amazon is set to enter Southeast Asia, through Singapore, in the coming days.
While the average Singaporean let out a roar of approval (is there any city who appreciates two-hour shipping more than Singapore?), smaller e-commerce companies may be quaking in their boots.
E-commerce was already a competitive sector. According to e27 data, 1,270 startups in the database define themselves as e-commerce companies. By comparison the second largest sector is consumer technology (720), and third is marketing (678).
But, before Amazon, these startups had been fighting over the largest piece of the pie. 38 per cent of investors in the e27 database marked e-commerce as a sector of interest. B2B/enterprise was the second-largest category at 24 per cent, and consumer technology came in third at 21 per cent.
The point is, an already competitive game is about welcome the Michael Jordan of e-commerce. This should freak out small companies who lack the resources to compete, right?
Yes, while there will be losers once Amazon ramps up operations, companies that can think quickly and build a unique offering could find themselves well-positioned for acquisition as the giants battle for market share.
As pointed out by Michael Smith Jr., a Partner at the early-stage VC firm Seedplus, competition in general is a good thing, and having a company like Amazon in Southeast Asia helps foster interest from across the world.
This increased attention can only be a good thing for Southeast Asian startups.
India as a model
Amazon launched in India in 2012 (via the price-comparison site Junglee.com). The India experience offers some guide as to what could happen in Southeast Asia. It is not a perfect comparison, but with five years in the country, we can glean some educated guesses.
Since 2012, the company’s main competition, Flipkart, has acquired six companies (and, as of today, may be set to acquire Snapdeal). And speaking of Snapdeal, that company has acquired 10 companies since 2013.
Amazon has acquired 78 companies in its lifetime and, if a Bloomberg report from June comes to pass, the company will make a food-play in India by purchasing BigBasket.
If Alibaba plays the role of Flipkart, history would suggest Southeast Asian startups could be the target of acquisition.
However, the India-model is useful, it has limitations. The most notable being that Amazon entered India when e-commerce was a nascent technology. That is not the case in 2017’s Southeast Asia.
The region has its own homegrown growth-stage companies, which obviously won’t just give up because Amazon is in Singapore.
These brands, like Qoo100, Carousell or Matahari Mall, will need to play catch-up. The quickest way to do this is through buying technology, services and new markets. For small mom-and-pop startups — let’s use Grana as an example — if any of these companies want to enter Hong Kong, acquisition could be the best strategy.
Furthermore, JD.com is planning to enter Thailand before the end of the year.
So, while the competition in India helped fuel acquisitions of smaller startups, the fight will look far different in Southeast Asia as a multiple Chinese giants enter the region, Amazon starts to ramp up, and local growth-stage startups begin to make moves to compete.
Benefiting from a fragmented market
Southeast Asia’s biggest crutch — the fact that companies need to cross international and cultural barriers at an early stage — should become an asset.
Kay Mok Ku, a Partner at Gobi Partners, pointed out that Amazon is a horizontal e-commerce marketplace. Thus, when it enters a new country, the first step will be localisation.
“It may make sense for them to acquire vertical e-commerce players which have built up local market expertise or supplier relationships which may be very different from other markets which Amazon has been operating in. Amazon has demonstrated that strategy in the past, with its acquisition of Zappos and Diapers.com,” he told e27.
Startups should benefit from the fragmentation in the region as Amazon (as is widely expected), uses Singapore as a launchpad to enter neighbouring countries.
In countries like Indonesia, Amazon will have to catch up to Alibaba, who already has experience and, in the case of RedMart, a golden goose.
Xiaofeng Wang, a Senior Analyst at the market research firm Forrester, explained the dynamics with Alibaba as such:
“Having been in the market for a few years, Alibaba-Lazada has a stronger understanding of the demands and behaviours of local customers, as well as working with logistics and vendor systems.”
“It has also been working on building an ecosystem since the acquisition of RedMart, and launched their Liveup loyalty program that partners with other digital ecosystem players such as Uber and Netflix,” he said.
The RedMart point is especially interesting. Alibaba suddenly has an extremely valuable asset, because Amazon is desperately trying to make food a staple of its services. Does organic growth make sense for Amazon if Alibaba already has RedMart?
It is impossible to predict, but it is not out of the realm of possibilities that Amazon will it look towards local companies to kickstart a localised food venture.
Guess who benefits from this? Yup, local startups.
If the American experience is any model, malls in Southeast Asia are going to have to rapidly adapt their business model or risk becoming, as the New York Times put it, “temples to commerce“.
Ku pointed out that malls should already start to “shift from retail to lifestyle mix.”
While a less obvious M&A opportunity (unless a company like CapitaLand would rather purchase a full-time service), startups that provide malls with retail-alternatives should see a bright future in the next few years.
Ku brought up examples of F&B, education and health/wellness.
Adapt or die
As the saying goes, steel sharpens steel, and the steel just got a whole lot sharper in Southeast Asia.
Competition should get much more fierce in e-commerce and certainly some companies will die thanks to Amazon. But, in competition lies opportunity, and suddenly e-commerce companies are staring at a new exit landscape.
The companies that can think with creativity may soon find e-commerce to be a fruitful investment in the coming years.
Copyright: wolterk / 123RF Stock Photo
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