Developing eCommerce Market Entry Strategies in Asia Pacific Advisory Report 2015 2 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

CONTENT

FOREWORD 4

1 SNAPSHOT OF ECOMMERCE IN ASIA PACIFIC 5

2 KEY CHARACTERISTICS OF THE ASIA PACIFIC ECOMMERCE LANDSCAPE 9 2.1 Growing Internet Penetration Across All Markets 10 2.2 Growing Consumer Spending 11 2.3 Social Media a Driver for eCommerce 11 2.4 Mobile is Massive 13 2.5 Changing Trends in eCommerce Payment Solutions 14 2.6 Marketplaces Play a Dominant Role 15 2.7 Cross-Border Trade in the Region 15

3 HOW TO TAKE YOUR ECOMMERCE BUSINESS INTO ASIA PACIFIC 17 3.1 Planning and Strategizing Your Market Entry 18 3.2 Market Entry Strategies for eCommerce in Asia Pacific 19

4 ECOMMERCE BEST PRACTICES 22

5 CHOOSING AN ECOMMERCE SOLUTION AND PARTNER 25 5.1 Building Your eCommerce Digital Backbone 26 5.2 Leveraging Regional Expertise and a Strong End-to-End Partner 27

CONCLUSION 28

3 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

FOREWORD

This report is a result of the collaborative strengths of two eCommerce leaders in Asia Pacific: Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world’s leading retailers to continuously innovate in our complex, consumer-driven world; and SingPost eCommerce, Asia Pacific’s leading full service eCommerce enabler, providing full service eCommerce solutions for global brands. The purpose of this report is to provide key insights and present the latest research findings on eCommerce in APAC, highlighting the region’s potential as well as the unique challenges present in its individual countries.

The region is expected to grow by 20% annually until 2018, surpassing North America in terms of online B2C sales1. Similarly, South East Asia reflects an upward trend; by 2020, the Association of South East Asian Nations (ASEAN) region is projected to be the world’s ninth largest economy and Asia’s fourth largest, translating to almost USD $1.9 trillion2. Faced with slower growth rates in their home markets, international brands and retailers have started to look towards APAC’s fast growing markets.

However, while the region is ripe with opportunity, entering and succeeding in the market requires brands and retailers to work with strategic partners that have extensive expertise and reach across the region, along with a deep understanding of local consumers as well as insights into the varying legal regulations within each market.

4 1 http://ystats.com/uploads/report_abstracts/1097.pdf, 2 State of eCommerce in South-East Asia, Econsultancy, 2014 1. SNAPSHOT OF ECOMMERCE IN ASIA PACIFIC Asia Pacific is expected to become the leading region foreCommerce sales globally in 2015, representing 33.4% of the total retail sales, compared with 31.7% in North America and 24.6% in Western Europe.

5 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

B2C eCommerce Sales Share Worldwide, 2013 to 2018 (percentage of total)3

COUNTRY 2013 2014 2015 (P) 2016 (P) 2017 (P) 2018 (P)

NORTH AMERICA 34.9% 32.9% 31.7% 31.1% 30.7% 30.6%

ASIA PACIFIC 28.3% 31.2% 33.4% 35.1% 36.4% 37.4%

WESTERN EUROPE 26.4% 25.4% 24.6% 23.9% 23.3% 22.7%

LATIN AMERICA 4.2% 4.3% 4.2% 4.1% 3.9% 3.7%

CENTRAL & EASTERN EUROPE 4.1% 4.0% 3.8% 3.5% 3.3% 3.2%

MIDDLE EAST & AFRICA 2.2% 2.3% 2.3% 2.4% 2.4% 2.5%

Source: eMarketer, 2014 Countries such as , , , Singapore and South Korea have all been showing strong online retail potential. In terms of online market size, technology adoption and consumer behavior, infrastruc- ture and growth potential, they all rank within the top 15 countries globally4.

The Growth of eCommerce in Asia Pacific

JAN 2015 A Snapshot of Asia Pacific’s Key Digital Statistical Indicators

TOTAL ACTIVE ACTIVE SOCIAL MOBILE ACTIVE MOBILE POPULATION INTERNET USERS MEDIA ACCOUNTS CONNECTIONS SOCIAL ACCOUNTS

4,021 1,407 1,065 3,722 879 MILLION MILLION MILLION MILLION MILLION

URBANISATION PENETRATION PENETRATION POPULATION PENETRATION 45% 35% 26% 93% 22%

Source: We Are Social, 2015

The growing spending power of the middle class is a key driver for the recent explosion in eCommerce5, with middle class consumers in Asia Pacific projected to account for more than 50% of the global middle class by 20206. Other key drivers for eCommerce growth in APAC include the rapidly expanding online and mobile user bases in emerging markets, increase in sales through mobile commerce, advancements in payment and shipping options and the push into new international markets by major brands7. SingPost eCommerce serves over 1000 brands across Asia and for most of these brands, growth rates reached 200% in 2014. This strong growth is expected to continue in 2015.

6 3 http://www.emarketer.com/Article/Worldwide-eCommerce-Sales-Increase-Nearly-20-2014/1011039, 4 A.T. Kearney’s 2013 Global Retail E-Commerce Index., 5 http://www.asiabriefing.com/news/2014/06/e-commerce-trends-developments-asia-pacific/,6 http://www.oecd.org/dev/44457738.pdf, 7 http://www.emarketer.com/Article/Global-B2C-eCommerce-Sales-Hit-15-Trillion-This-Year-Driven-by-Growth-Emerging-Markets/1010575 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

Individual markets across APAC, however, vary widely in terms of culture, regulations, infrastructural development, mobile usage, social penetration, payment systems and logistics networks. For instance, while Australia is one of the most sophisticated APAC markets when it comes to its payments infrastructure8, in India, Indonesia, Vietnam and Thailand, more than 60% of all transactions are still cash-based9. Differences such as these greatly impact where and how eCommerce adoption develops across the region.

eCommerce Market Size of Countries in APAC

Australia Indonesia Singapore eCommerce will account for Annual online sales was The online shopping market 4.5% of all retail sales, which will forecasted to grow from USD $1 was projected to reach USD pass USD $10 billion, by the end billion to USD $3 billion in 2014. $2.7 billion in 2014 and grow of 201510. It is expected to reach USD $10 significantly to USD $3.45 billion billion by the end of 201514. by 201519.

China Japan South Korea

Retail eCommerce sales is The eCommerce market was Retail eCommerce sales are expected to hit USD $672.01 valued at USD $38 billion in expected to reach USD $36.76 billion in 2015, a 42.1% increase 2010 and is predicted to hit USD billion in 2015, up 11% from USD from 201411. $49 billion in 201515. $33.11 billion in 2014, accounting for 9.8% of total retail sales20.

Hong Kong Malaysia Thailand Internet retailing in Revenue in Malaysia’s The eCommerce market is reached USD $1.5 billion in 2014, eCommerce market amounts to estimated at USD $1 billion and is a CAGR of 16% over the past five USD $804.5 million in 201516. expected to reach USD $6 billion years12. between 2020 and 202521.

India Philippines Vietnam Home to 243 million Internet At USD $1.15 billion in 201317, A report from the Vietnam users, India’s eCommerce the eCommerce industry is eCommerce and Information industry is growing at 38% projected to increase at a CAGR Technology Agency (VECITA) annually. Analysts expect market of 101.4% during 2013 to 2018. revealed that Vietnam’s size to touch USD $100 billion in The B2C eCommerce market eCommerce sales hit USD $700 the next five years13. is projected to grow at 107.4% million. USD $354 million of that during the same time period18. amount registered officially on VECITA at the end of 201222.

7 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

These countries present viable business opportunities but are clearly part of a highly fragmented region. For instance, while China has high growth potential but less favorable online consumer behavior and lower technology adoption rates (low internet penetration rates) relative to other countries, at least 40% of consumers who do go online make online purchases despite constraints in the local financial or logistical infrastructure23. Establishing a strong local online presence in these markets requires a focus on brand development that is consistent with global standards and delivery capabilities that beat the competition. In more developed markets like Japan, South Korea and Singapore where high technology adoption rates, advanced infrastructures and a track record of innovative shopping online prevail, brands must invest in interface technologies and back-end capabilities to differentiate their offerings24.

SingPost eCommerce serves over 1,000 brands across Asia and for most of these brands, growth rates reached 200% in 2014. This strong growth is expected to continue in 2015.

8 http://www.businesstravelnews.com/Expense-Management/Asia/Pacific-s-Business-And-Regulatory-Kaleidoscope-Complicates-Payment,- Expense/?a=trans, 9 http://www.speCommerce.com/asia-pacific-serving-consumers-without-credit-cards/, 10 http://www.emarketer.com/Article/ Australian-Retail-eCommerce-Sales-Top-10-Billion-2015/1011823, 11 http://www.chinainternetwatch.com/15235/retail-e-commerce-2015/, 12 http:// economists-pick-research.hktdc.com/business-news/article/Research-Articles/E-commerce-Recent-Developments-and-Opportunities-for-Hong- Kong-Businesses/rp/en/1/1X000000/1X0A2EJB.htm, 13 http://www.firstpost.com/business/corporate-business/why-profitable-business-is-a-must- for-e-commerce-business-in-india-1984857.html, 14 http://www.aseanbriefing.com/news/2014/06/11/e-commerce-markets-across-asean.html, 15 http://www.statista.com/statistics/274493/worldwide-largest-e-commerce-markets-forecast/, 16 https://www.statista.com/outlook/243/122/ ecommerce/malaysia, 17 http://www.slideshare.net/ronhose/philippines-startup-report-2013-24672346, 18 http://www.news.kenresearch.com/ post/101829123338/the-philippines-e-commerce-market-outlook-to-2018, 19 http://www.speCommerce.com.s3.amazonaws.com/dl/fs/141211_fs_ singapore_factsheet.pdf, 20 http://www.emarketer.com/Article/South-Korea-Home-APACs-Third-Largest-Retail-eCommerce-Market/1011803, 21/22 State of eCommerce in South-East Asia, Econsultancy, 2014, 23/24 http://www.atkearney.com/documents/10192/3609951/Online+Retail+Is+Front+and +Center+in+the+Quest+for+Growth.pdf/f6693929-b2d6-459e-afaa-3a892adbf33e 8 2. KEY CHARACTERISTICS OF THE ASIA PACIFIC ECOMMERCE LANDSCAPE Compared to global markets in the West, countries in Asia Pacific vary widely on several levels. With such unique characteristics of each market, brands looking to enter the region need to carefully consider these individual markets’ requirements in order to develop the best market entry strategy.

9 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

2.1 Growing Internet Penetration JAN 2015 Global Internet Penetration Figures Across All Markets Canada 93% The ASEAN region had 199 million internet users UAE 92% (32% penetration) in 2014. This figure is expected South Korea 90% to rise to 294 million (48% penetration) within Australia 89% three years26. UK 89% 89% USA 87% AUG 2014 Internet Penetration in Asia Pacific Japan 86% 84% Singapore 81% MARKET INTERNET PENETRATION Hong Kong 79% Spain 77% Australia 89% Argentina 75% Poland 67% China 40% Malaysia 66% Hong Kong 75% Italy 60% Russia 60% India 11% Saudi Arabia 58% Brazil 54% Indonesia 22% Egypt 53% Turkey 49% Japan 80% Mexico 49% China 47% Malaysia 61% South Africa 46% Philippines 44% New Zealand 88% Vietnam 44% Philippines 32% Global Average 42% Nigeria 38% Singapore 75% Thailand 37% Indonesia 28% South Korea 83% India 19%

Taiwan 75% Source: We Are Social, 2015 Thailand 30%

Vietnam 34% In more developed APAC countries like Singapore, internet penetration has been bolstered by high Source: Nielsen, eCommerce: Evolution or Revolution in the connectivity and ownership of multiple mobile Fast-Moving Consumer Goods World?, 2014 handsets. In terms of smartphone ownership, countries with the highest penetration are Hong China has shown the most dramatic increase in Kong and Singapore at 87%, followed by South internet penetration from only 2.1 million total Korea (80%), Malaysia (80%), Australia (75%) internet users in 2000, to almost 600 million in and China (71%)30. The number of consumers 201327. This growth was spurred by strong PC sales, with multiple mobile handsets are also rising, the rollout of broadband connection and growing particularly in Malaysia (47%) and Hong Kong 3G connections28. The abundance of affordable (31%)31. mobile devices and mobile subscriptions have also contributed to this upward trend29.

26 http://simontorring.com/wp-content/uploads/UBS-report-2014.pdf, 27 http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/ 10 Newsletters/China-360/Documents/China-360-Issue15-201401-E-commerce-in-China.pdf, 28 http://simontorring.com/wp-content/uploads/UBS- report-2014.pdf, 29 http://etc-digital.org/digital-trends/mobile-devices/mobile-smartphones/, 30/31 http://www.nielsen.com/ph/en/insights/news/2014/ asian-mobile-consumers.html Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

2.2 Growing Consumer Spending SingPost eCommerce (2015) reported that the growth of eCommerce in APAC is driven by the rise of the middle class, particularly in China, India, Indonesia, Malaysia, Thailand and Vietnam. Asia will make up 64% of the global middle class, contributing to 40% of its consumption by 2030. Along with greater spend- ing power, APAC’s consumer base is also maturing in terms of technology adoption. They are increasingly tech savvy and open to adopting new technologies such as online payments. This increasing trust in on- line shopping technology has made a positive impact on eCommerce32.

2.3 Social Media a Driver for eCommerce Home to some of the most socially active countries in the online space such as Indonesia and South Korea, the region has a consumer base that is highly engaged across multiple international social media platforms such as Facebook and Twitter, but also localized social media networking sites like Kakao (Korea) and WeChat (China).

JAN 2015 Social Media Regional Overview

ACTIVE SOCIAL MEDIA ACTIVE SOCIAL MEDIA ACCOUNTS VS TOTAL POPULATION REGION ACCOUNTS, IN MILLIONS

45% East Asia 690 58% North America 206 32% Southeast Asia 199 48% South America 197 47% West Europe 197 45% East Europe 190 9% South Asia 157 9% Africa 103 37% Central America 79 17% Middle East 41 45% Oceania 17 4% Central Asia 3

Source: We Are Social, 2014

In terms of online engagement, Asians also surpass their Western counterparts. There is a large overlap of social networking and eCommerce, with social media integrated into the purchase path of consumers. For example, before making a purchase, Chinese consumers often first collect information and advice from their peers on social media. After the purchase, they continue to stay engaged in the online social space by posting ratings or reviews of their purchases. In China, 75% of internet users post at least one review or rating per month, whereas less than 20% of users who do so in North America and Europe33.

32 33 http://www.speCommerce.com/asia-pacific-serving-consumers-without-credit-cards/, http://etc-digital.org/digital-trends/eCommerce/insights- 11 for-marketers-eCommerce/regional-overview/asia-pacific/ Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

JAN 2015 Top Five Social Networks in Asia Pacific, by usage

FACEBOOK 6% 5% 10% 18% 48%

TWITTER 32% 19% 22% 15% 12%

WECHAT 40% 14% 16% 9% 11%

LINE 43% 15% 15% 9% 8%

LINKEDIN 54% 18% 15% 8% 5%

Never Rarely Occasionally Frequently Very Frequently

Source: Waggener Edstrom Communications, 2014

China’s Tmall, for example, has integrated social media as a consumer-powered review and recommendation system where products with higher scores are given more exposure, indicating just how impactful social media reviews are on a product’s online visibility and in a larger sense, a brand’s reputation. Active social media users in China largely overlap with consumers that have spending power, compared to the West where those with greater spending power tend to be much older and use social media less34. Facebook continues to reign as the dominant social network being used across Asia Pacific, with Twitter ranking second in the region. However, the usage rates for these international platforms vary across markets. While consumers in Indonesia and India led in terms of Twitter users, Chinese instant messaging app WeChat and business networking site LinkedIn also showed significant usage35. WeChat has also leverages social media to promote services to its 300 million users, including 100 million overseas, by offering various services from mobile payments, mobile commerce options, taxi booking services and consumer-to-consumer (C2C) money transfers. Users can even link their credit card account to the app to complete transactions through their mobile device36.

In South Korea, a leading apparel brand powered by SingPost eCommerce launched a social campaign on Kakao. In the week prior to the social campaign, total visits stood at 11,637. After the campaign, the brand saw a significant jump to 20,110 total visits, an almost 100% increase, illustrating the success of the campaign and the impact of social on eCommerce in the region. Just like the broader eCommerce sector, APAC’s social media landscape is highly diverse and as such success stories indicate, it is critical for brands to take a local approach to their social media and content strategy by carefully considering consumer preferences in each country.

12 34 http://www.forbes.com/sites/helenwang/2014/08/25/why-china-will-lead-innovation-in-social-and-mobile-commerce/, 35 CONTENT MATTERS: The Impact of Brand Storytelling Online in 2014, 36 http://etc-digital.org/digital-trends/eCommerce/social-commerce/regional-overview/asia-pacific/ Three countries that lead globally in the mobile 2.4 Mobile is Massive space in terms of smart phone adoption are Hong Kong (87%), Singapore (87%) and South Korea APAC accounts for half of the world’s mobile (80%). In Singapore, an average user has at least subscribers, with 1.7 billion unique mobile 3.3 connected devices, also one of the highest subscribers. This figure is expected to grow rates in the world38. The reason for this trend is further by 5.5% a year (CAGR) until 2020, reaching clear - Compared to the West, people in Asia are a staggering 2.4 billion subscribers37. generally more likely to use a smartphone than a desktop computer to go online. More consumers JAN 2015 Mobile Users in Asia Pacific in Singapore (48%) and Malaysia (41%) would use their smartphone to research products online compared to consumers in UK (21%) and Germany (20%)39. Consumers in developing countries are also quickly growing as sophisticated as those in Mobile Regional Overview developed countries, with their extensive pre- purchase research done online, along with price 98% East Asia 1565 comparisons and soliciting of friends’ opinions 77% South Asia 1296 through social media and blogs40. 79% Africa 900 Southeast 119% Asia 744 139% East Europe 583 West 125% Europe 521 South 126% America 519 APAC accounts for half of the North 101% America 358 Middle world’s mobile subscribers, 124% East 294 Central with 1.7 billion unique mobile 91% America 191 Central 112% Asia 76 subscribers. This figure is 109% Oceania 42 expected to grow further by Mobile Connections, vs Total Population Mobile Connections, in Millions 5.5% a year (CAGR) until 2020, reaching a staggering 2.4 billion subscribers.

Source: We Are Social, 2015

37 http://www.gsma.com/newsroom/press-release/asia-pacific-home-half-worlds-mobile-subscribers/38 https://www.consumerbarometer.com/en/ insights/?countryCode=GL, 39 http://www.digitalnewsasia.com/mobile-telco/asian-smartphone-use-eclipsing-the-west-google-tns-survey, 40 http:// 13 www.atkearney.com/documents/10192/3609951/Online+Retail+Is+Front+and+Center+in+the+Quest+for+Growth.pdf/f6693929-b2d6-459e-afaa- 3a892adbf33e Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

JAN 2015 Global Mobile Commerce Rates 2.5 Changing Trends in eCommerce South Korea 37% Payment Solutions China 27% UAE 27% Singapore 23% Hong Kong 23% Germany 20% Turkey 19% Malaysia 19% UK 18% USA 18% Spain 17% Argentina 17% Italy 16% Vietnam 15% Saudi Arabia 15% Australia 15% Brazil 15% The payments space is also highly fragmented. Mexico 14% With markets having various maturity levels, a one- Poland 14% Canada 13% size-fits-all-solution does not work in APAC. On one France 12% hand, credit card penetration remains low in de- South Africa 11% veloping markets like Indonesia (6%) and Thailand 41 Philippines 11% (5%) . Likewise, transactions in India, Indonesia Thailand 11% and Vietnam and Thailand are predominantly cash Indonesia 9% based, as SingPost eCommerce reported (2015). In India 9% contrast, more developed markets like Singapore Russia 8% and South Korea have credit card ownership as high Japan 6% as 3.3 and 5 cards per person, respectively42. When SingPost eCommerce enabled bank transfers for Source: We Are Social, 2015 one of its leading brands in Malaysia, the brand en- joyed an increase of 30% in conversion rates within In January and February 2015, one of SingPost the month following implementation. This 30% in- eCommerce’s clients, a leading apparel retailer crease was reflected in revenue growth as well. With in the region, saw 63% of its traffic coming from such varying readiness levels and payment method mobile and tablet in the Singapore market alone. preferences, it is critical that brands offer localized In Australia, the same retailer saw significant traffic payment options that best suit the markets they are (53%) coming from mobile and tablet devices serving, taking into consideration local regulations during the same period. Across Southeast Asia, and market infrastructure43. another SingPost eCommerce client also noted that half of its traffic was coming from mobile and Smartphone adoption and the strong growth of tablet devices. tablet usage have also opened new avenues to pay- ment solutions: mobile wallets like WeChat and Ali- Given the region’s advancement in the mobile pay in China, and Paytm and Freecharge in India44, space, having a mobile strategy and strong mobile eWallets like Smart Money and GCash in Philippines capabilities are no longer optional but a key suc- and Dompetku in Indonesia, have all emerged as in- cess factor for retailers looking to explore APAC’s novative, viable ways for consumers to make pay- eCommerce landscape. ments for their online purchases by leveraging mo- bile devices45.

14 41 http://www.statista.com/chart/3057/mobile-share-of-e-commerce-transactions/, 42/43/44/45 http://www.specommerce.com/asia-pacific-serving- consumers-without-credit-cards/ Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

2.6 Marketplaces Play a Dominant Role In APAC, market places like Alibaba’s Taobao and Tmall in China, Rakuten and Yahoo in Japan and eBay’s Gmarket and Auction in South Korea are dominating the online retail channels46. Alibaba’s Tmall, in particular, has become a strategic gateway to China as it accounts for almost 50% of the B2C market in the country. Tmall has over 100,000 brands, of which an estimated 2,000 are foreign, and over 500 million registered users47.

2.7 Cross-Border Trade in the Region eCommerce growth in the region is also attributed to the increasing amount of cross-border trade. The cross-border trade figures for China alone are staggering; in 2013, 18 million online shoppers spent RMB 216 billion, with projections for this figure to hit up to EUR 11 billion by 201848. Top overseas sites for China were the US (48%), the UK (46%), Austria (33%) and the (16%)49. Another key market indicative of growing cross border trade in the region is Australia, with its 6.3 million online shoppers spending AU 6.5 billion in 2013. By 2018, this is expected to hit AU 16.6 billion annually50. These findings send a clear signal to brands that Asia Pacific is actively shopping on international sites and are seeking access to international products. However, to fully leverage this growing demand and capture the online market, international retailers should go beyond cross-border and set up eCommerce operations in local APAC markets.

With such varying readiness levels and payment method preferences, it is critical that brands offer localized payment options that best suit the markets they are serving, taking into consideration local regulations and market infrastructure.

46 http://www.horizons.gc.ca/eng/content/e-commerce-asia-growth-online-marketplace, 47 https://www.forrester.com/Five+Global+Marketplaces+All 15 +Brands+Must+Know/fulltext/-/E-RES115420, 48/49/50 https://www.paypal-media.com/assets/pdf/fact_sheet/PayPal_ModernSpiceRoutes_Report_Final. pdf To fully leverage Asia Pacific’s customers that are actively shopping on international sites and are seeking access to international products, global brands should set up eCommerce operations in local APAC markets.

16 3. HOW TO TAKE YOUR ECOMMERCE BUSINESS TO ASIA PACIFIC In order to understand this region better and determine a strategy that best suits their eCommerce growth plan and available resources, businesses need to consider several key factors.

17 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

3.1 Planning and Strategizing Your Market Entry For eCommerce managers looking to explore the region, it is very challenging to assess the potential of individual eCommerce markets in APAC and develop a market entry roadmap that is tailored to your business. The next few sections cover key areas in planning a strategy and also propose market entry strategies for exploring this lucrative region.

MARKET RESEARCH

As a first step, do your research on the markets, specifically the size and growth of each market, number of active internet users, growth of online spending and other spending patterns, as well as share of online sales compared to total retail sales. Here are some key steps: • Conduct overall market research • Determine your demand • Conduct competitor analysis.

SIZE YOUR OPPORTUNITY

Once you have done your groundwork research, size your opportunity by looking at:

• Share of online retail as a percentage of total market share • Your offline sales compared to total offline retail sales • Your existing brand site’s traffic as an indicator of traffic to your online store • Conversion rate analysis.

DETERMINE ECOMMERCE TECHNOLOGY REQUIREMENTS

Once you have considered external factors, look inwards at what your business needs from a technological perspective. Each business would have its unique requirements but some key considerations include: • Flexibility to customize content to suit local markets in terms of marketing, merchandising, currency and languages • Customizable site experiences with an open platform • Centralized content and data management for greater speed and accuracy • Order Management System (OMS) that provides single view of orders, customers’ details, inventory and promotions • Omni-channel operations that provide an integrated set of tools and processes to serve your customers anytime, anywhere • eCommerce Platform that supports localization and better online customer experiences.

CONSIDER LOGISTICS, CUSTOM DUTIES AND LEGAL FRAMEWORKS

Find out about the logistics infrastructure in each market you want to enter, considering the minimal level of each market to determine distribution center locations. Also consider differences 18 in global, regional and local inventory management. Remember: the legal regulations in the region are varied and complex. Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

a MARKET AND DRIVE TRAFFIC TO YOUR SITE

While marketing will be one of your biggest challenges, key word analysis can help you understand your local market requirements and search behaviour. Also important is localizing your Search Engine Optimization (SEO) strategy as search engines vary across the region.

3.2 Market Entry Strategies for eCommerce in Asia Pacific

SHIP CROSS-BORDER

Going global with your retail website can take you down two different paths of cross-border shipping: A) By Parcel Forwarding or; B) Via Cross-Border Merchant Enablement:

CROSS BORDER A PARCEL FORWARDING B MERCHANT ENABLEMENT

Consumers can choose to sign up with cross- As a merchant, you can partner with border shipping providers to receive a virtual service providers such as Borderfree, address overseas. International providers, International Checkout, BongoUS and Global such as vPost – a service by SingPost Shopex. These service providers integrate eCommerce -, Borderlinx, Comgateway and international shipping capabilities into your MyUS provide consumers in Asia Pacific with site, allowing you to reach a global market. a shipping mail address in countries like the US and UK to buy products from online shops that do not support deliveries into the APAC region. Upon arrival of an order at the overseas shipment facility, the service provider oversees inspection checks and packing, and consolidates the packages for shipment to their overseas destinations.

While either option is an easy-to-implement interim solution, it creates a fragmented brand experience, as customers have to deal with a third party for delivery and fulfilment. Another key concern would be the potential negative experience customers could face when they encounter exorbitant shipping costs or delayed shipping by the third party. While not a service directly provided by retailers, customers will associate this experience with your brand, which could harm your brand image and customer loyalty in the long run. Brands can use cross border shipping as a first step to leverage the present and fast-growing demand for international brands and products among APAC consumers. While cross-border is an effective way of reaching global customers without established operations in local markets, it limits a retailer’s reach and revenue potential. Brands that have successfully penetrated Asia Pacific’s eCommerce market have done so with strong localized transactional eCommerce sites.

19 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

GO LOCAL

Research shows that consumers in Asia Pacific are increasingly looking for international products and branded shopping experiences. However, the region is also highly fragmented in terms of languages, payment preferences and online shopping and social behaviour. Successful brands in the region have catered to such diversity by building localized shopping experiences. Local branded presence also provides a platform for global brands to have full ownership of customer data, build brand awareness and develop long-term customer loyalty. Below are two options to enter Asia Pacific:

A NORTH ASIA FIRST

Countries such as Japan and South Korea have spearheaded the region’s eCommerce sector, developing almost at the same speed as that of Western markets. To gain a foothold in APAC, many brands chose to enter these markets due to their already advanced technological infrastructure, high eCommerce penetration and ready consumer base. Many brands that have selected the developed eCommerce markets in North Asia for their market entry also often chose the marketplace route given the high market share of such players. However, this market place approach posed limitations on brand building and access to customer data.

Today, China is also a lucrative route for brands entering this region. Many global brands choose China as a key market entry point for APAC, particularly because of Tmall’s high market share in China’s B2C market. However, a marketplace-only strategy poses limits to long term brand building. It can also present consumer-facing issues over authenticity and fraud, potentially diminishing a monobrand’s credibility in the long run. Chinese consumers themselves are becoming increasingly mature and are looking for unique shopping experiences with brands. Their growing trust in online platforms extends beyond marketplaces; over 70% of luxury purchases by Chinese consumers are made at monobrand boutiques – this is over 20% more than the global average51.

North Asia is also not a quick and easy in-and-out strategy. Retailers eyeing this region need to be prepared for a long-term commitment. For monobrands that do decide to go with a combination of marketplaces and monobrand sites, it is important to have a presence in a marketplace, given their high market share, but also have a transactional and localized monobrand site that drives your brand messaging, serves as a means to ensure consumers that your products on other eCommerce channels are authentic and offers exclusive products that draw people to the monobrand site. Some brands have effectively combatted the price-driven nature of marketplaces versus maintaining their brand identity by only offering off-season or outlet products on marketplaces. In this way, brands can still participate in marketplaces as one of their acquisition channels, without killing their margins or diluting their brand.

20

51 http://www.chinaconnect.fr/the-store-and-website-luxury-brands-key-touch-points/ Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

GO LOCAL

B BEACHHEAD MARKET ROLLOUT eCommerce businesses today need to show results over a short time period. For markets like China, a successful market strategy is usually a more long-term plan with significant returns often only after several years. This is because many brands are zeroing in on China and strong local marketplaces, while local brands dominate the market, making it a highly competitive environment a difficult market to penetrate for new entrants. For brands looking for a low-risk opportunity with significantly less investment in resources and time, entering the APAC region via a beachhead strategy focused on developed markets in Southeast Asia and the Pacific region can prove highly lucrative. These Southeast Asian and Pacific markets are home to a consumer base that is actively shopping online and have the supporting logistical infrastructure and technological development. These markets also make a great test bed for markets in North Asia, particularly so for China, given the large overseas Chinese population in these countries.

While marketplaces are a key eCommerce channel in these markets, many successful market entrants leverage both monobrand sites as well as marketplaces. Brands entering these markets need to build operations and technology capabilities that allow for quick time-to- market as well as localization.

21 4. ECOMMERCE BEST PRACTICES Successful international expansion requires time and careful planning. This de- mands a keen understanding of consumer behavior, knowing their preferences and differentiating nice-to-have from must-have features. In meeting consumer de- mands, brands should not shy away from adopting unique approaches. By carefully considering key factors in individual markets, brands can avoid pitfalls encountered by many early market entrants.

22 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

4. ECOMMERCE BEST PRACTICES Planning alone does not ensure success. Brands still need to develop a supportive ecosystem of trusted technology and logistics partners who understand the brand’s objectives, while providing local knowledge about the market. Apart from having an external support network, brands must also have the capability to go international for the long haul. The challenges are many: competing against established online retailers, not being profitable in the first one or two years, experiencing low conversion rates and unpredictable consumer behavior. Given these challenges, brands must be able to make extensive adaptations to the business. They need to go beyond the basics and leverage their best tools and features to compete on a global scale. The following best practices lay the groundwork for eCommerce success in the region: BEST PRACTICES CHECKLIST

Create A Seamless Customer Experience Across Channels (Omni-channel) Consumers today want a seamless brand experience across multiple touchpoints. To meet customer demands, brands should be able to manage, orchestrate and serve customers across all channels. Unlike multi-channel, where channels are separate and consumer engagement can be fragmented, omni-channel allows consumers to shop with no boundaries between online and offline. This means messaging must be consistent across multiple touch points, providing a seamless journey where customers can switch devices at different points of their purchase journey. Shopping experiences become more personalized as brands leverage consumer data at different points of engagement with the brand. Leading brands also enable ship-from-store fulfilment and customer pickup in-store.

Leverage Social to Drive Sales (Social Commerce) Engage customers in the social spaces where they gather. Make sharing easy with minimal sign ins and plug ins while providing customers with various options to connect using multiple social media channels such as Facebook, Twitter, WeChat, Line and LinkedIn. For social media to be truly effective in a brand’s eCommerce strategy, community management is key. It needs to be responsive, provide accurate information and have the capabilities and teams to manage the channel as a means to communicate with consumers.

Make Mobile Site Capabilities A Priority Offer fully mobile optimized sites and experiences that go beyond being “mobile friendly”. While a mobile friendly website simply makes a website viewable on a smartphone, requiring cumbersome scrolling or zooming, a mobile-optimized website loads easily with content scaled for efficiency. Some mobile commerce best practices include using geo- location to direct customers to the nearest offline store; activating social logins and guest sessions to facilitate mobile check out process; providing alternative mobile payment options, incorporating mobile product videos; optimizing product image galleries and including social media share buttons52.

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Offer Localized Payment Solutions to Suit Your Target Markets Offer a wide array of payment options to facilitate purchase, be it online payment, cash on delivery or payment via mobile apps. Look into your market’s behaviour to get insights on how to localize payment options.

Offer Convenient Methods of Deliveries and Returns Provide delivery and return methods that support a dynamic and urban consumer lifestyle, such as providing parcel lockers that customers can access 24/7. Create clear and straightforward guidelines that are easy to find. Shipping costs should also be visible on the site rather than surprising customers on the check out page. Develop a capability for effective ‘cross-border’ returns such as offering free shipping on returns. Also, leverage promotions on delivery and returns to drive traffic, conversion rates and sales.

Provide Local Customer Support Providing support in local language drives conversion. 75% of online consumers surveyed in Europe, Asia and South America prefer to buy products in their native languages, while 60% rarely or never buy from English-only websites53. Likewise, online transactions in Asia are driven by language; 70% of Japanese consumers surveyed made electronic payments in local-language websites54.

Consider Key Platform Capabilities Required An eCommerce platform provides an integrated set of tools and processes to power your omni-channel strategy, reduce operational and integration complexity, and enable your team to create consistent brand experiences across channels.

Centralize Your Customer Management Obtain a holistic view of the customer by managing a single customer record across channels and touchpoints, including purchase history, regardless of the purchase and fulfilment location. With a central customer record, you can measure the performance of cross-channel shoppers, assign them to customer segments and personalize their experience with dynamic and relevant content.

Focus on Content Syndication Integrated master and subsequent catalog structures allow you to easily share products across categories, catalogs and sites. You can also manage and maintain seasonal, branded and future catalogs simultaneously, putting an end to inconsistent information across channels. Deliver highly branded, personalized and consistent content across channels, and help your customers make smarter buying decisions.

Ensure You Have Clear Inventory Visibility Give your customers “buy anywhere, receive anywhere” convenience by providing accurate inventory availability across channels. Real-time inventory visibility across multiple locations, including stores, is key to enabling the buy anywhere, fulfill anywhere experience. Reduce excess inventory, capture lost sales and promote the most profitable products to your customers.

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5. CHOOSING AN ECOMMERCE SOLUTION AND PARTNER The next step to develop your strategy to go international is by determining the operational, logistical and technological capabilities your business needs to succeed. Having a supportive partner ecosystem with extensive experience and key insights into the region can make a huge difference. For eCommerce brands looking at international expansion, particularly for the highly complex Asia Pacific region, it is key that they find a partner ecosystem with the following capabilities:

Develops and launches eCommerce Knows the markets Provides a cost stores and operations and has valuable structure that is quickly and easily. insights into manageable and each country’s scalable as your requirements, business grows. growth drivers and Provides an unique consumer eCommerce platform behaviors. that enables agility, localization and quick roll out. Supports customers who are shopping Has omni-channel cross-border. capabilities that allow your consumers to shop anytime, Has localized anywhere. payment capabilities, whether online or offline, to suit local payment preferences. Has the ability to drive performance Has a regional reach marketing, and logistics network specifically, drive to manage shipping traffic to your site and returns across through online and Supports your multiple countries. offline marketing and customers across partnerships. multiple geographies and languages.

25 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

5.1 Building Your eCommerce Digital Backbone The Demandware cloud platform is scalable, secure and built to run digital commerce operations around the world, including China. It is purpose-built for cross-border and global expansion and allows retailers to manage local languages, currencies, customs, products, preferences and other geo-specific aspects from a central platform. Global retail teams can deliver locally translated commerce experiences that transact in native currencies – while maintaining central control over the brand experience. Our clients grow faster than their peers; in 2014, Demandware comparable clients grew revenue more than 30% last year, which twice the industry average.

Empowering Business and Technical Users Easy-to-use applications empower business users to control and manage the shopping experience including branding, merchandising and promotions, with minimal IT involvement. An open development environment enables technical users to develop highly customized brand experiences. From content management to integrated responsive design to geo-location-driven experience management, the platform supports best practices in digital commerce and enables retailers to continually evolve the shopping experience to meet and exceed customer expectations.

Point-of-Sale and Digital Store Solutions The platform provides several options for bringing the power of the cloud into the store. Enterprise point-of- sale (POS) solutions range from mobile device-based to traditional register and till formats. For retailers that prefer to keep their existing POS infrastructure in place, a tablet-based, endless-aisle digital store solution provides store associates with access to customer records and web inventory, enabling them to reduce lost sales due to stock-outs and walk-outs, and to better serve customers.

World-Class Operating Environment The Demandware Commerce Cloud is based on a world-class cloud infrastructure that is fully built, proven and secure. Points of delivery (PODs) situated around the world are readily available to support the roll out of new brands, new sites and new omni-channel initiatives. The platform scales seamlessly to support any size business with 99.99% historic site availability around the globe. Critical security certifications, including PCI and SOC2, are always up to date. With Demandware, retailers can rest easy knowing that there is a world-class operating environment to support their growing business and a dedicated team of experts to make sure that it runs smoothly at all times, even during seasonal peaks.

Open APIs Scalable RESTful APIs allow external web applications to interface with core commerce functionality. Developers can leverage the APIs to quickly build and deploy custom applications with confidence, knowing they work with the products, promotions and transactions in the platform, and will result in a consistent experience across every customer interaction.

Data-Driven Personalization and Analytics The platform combines data sources to create a distinct data footprint for each consumer. It applies leading- edge data science to personalize the products, promotions and content presented to each individual shopper. It also collects, aggregates and anonymizes data from across all consumer interactions, providing Demandware clients with the ability to benchmark performance against their peers and optimize their business results.

Distributed Order Management Distributed order management capabilities enable retailers to provide “buy anywhere, fulfill anywhere, service anywhere” experiences. The platform helps to alleviate out-of-stock issues with a single, enterprise-wide view of inventory, including real-time inventory counts that track products on order or in transit. It can also help reduce customer service costs by enabling self-service functions, such as order tracking, cancellations or managing returns. It accelerates entry into new international markets with proven, secure solution purpose- built for global operations. And with its cloud deployment and multi-site architecture, time to market is reduced while allowing retailers to test new markets with minimal investment.

26 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

5.2 Leveraging Regional Expertise and a Strong End-to-End Partner SingPost eCommerce’s full service eCommerce solution provides global brands with Asia Pacific’s first end-to-end managed eCommerce solution. By partnering with SingPost eCommerce, your business gains access to a full suite of services: enterprise-grade eCommerce technology, regional warehousing, delivery and returns management, regional customer care supporting all relevant languages and dialects 24/7, as well as performance marketing to drive traffic and sales for your eCommerce store.

SingPost eCommerce’s knowledge and resources are seamlessly integrated into a full spectrum of capabilities; from customer service, to marketing and website management, to fulfilment, so as to provide brands with a one-stop-shop solution for their market entry into Asia Pacific.

eCommerce Technology SingPost eCommerce experts build and implement enterprise-grade online stores for brands and retailers that utilize a stack of leading eCommerce technology software. These cutting-edge eCommerce technology solutions allow businesses to scale their business across Asia Pacific while providing a highly localized and customer-centric shopping experience.

Warehousing Solutions Through a network of 24 logistics centres across APAC as well as global hubs in US and UK, SingPost eCommerce builds the logistical backbone of eCommerce businesses for major global brands. Warehousing and fulfilment related operations for business-to-consumer eCommerce is fundamentally different from traditional logistics solutions for business-to-business trade. That is why SingPost eCommerce has developed industry specific eCommerce fulfilment processes that are integrated with state-of-the-art warehouse and delivery management systems.

Delivery & Returns Management SingPost eCommerce is a regional expert with an extensive network and thorough understanding of the diverse customer expectations, custom regulations and legal requirements. The wide range of delivery and returns solutions offered by SingPost eCommerce gives merchants’ customers a choice of affordability or speed with tiered offerings. Through well-established mail and courier networks, SingPost eCommerce enables brands and retailers to deliver their eCommerce promises to their customers while maintaining profitable cost structures.

Store Operations SingPost eCommerce provides store operation services dedicate to delivering and managing the day-to-day operations. The team of experts covers management of product catalogue and content, coordination of marketing and oversees the order and inventory management. SingPost eCommerce’s end-to-end solution, provides all components required to manage the operations of eCommerce stores.

Customer Care Through a network of customer care centres across the Asia Pacific region, SingPost eCommerce provides personable, multi-lingual customer care. The highly trained Customer Care team focuses on developing regional customer care strategies tailored to local markets across Asia Pacific to support eCommerce expansions, while enabling an economically viable cost structure.

Performance Marketing SingPost eCommerce provides performance marketing solutions that are focused on maximizing marketing spend. Through effectively harnessing existing data and monitoring trends, SingPost eCommerce gathers relevant insights to help better understand customers and their behaviour. Leveraging our deep understanding of Asia Pacific’s diverse markets, the performance marketing solutions are built on technology, relentless data measurement and analysis, and strategic usage of the best digital marketing channels.

27 Developing eCommerce Market Entry Strategies in Asia Pacific, Advisory Report 2015

CONCLUSION

As eCommerce across APAC continues to grow at phenomenal rates, brands and retailers who want to expand their global footprint must take into consideration the key characteristics of this region: a growing middle class with greater spending power, an online population that is highly plugged into social media, increasing adoption and innovation of new technologies, particularly in the mobile and payments space, and a growing appetite for international products. Driven by unrelenting internet usage brought about by growing PC sales, the increasing availability of broadband and 3G connections and, more recently, the abundance of affordable mobile devices and mobile subscription rates, the Asia Pacific online consumer is more sophisticated and tech-savvy than ever before. They surpass their North American and European counterparts in terms of online social engagement and are increasingly lucrative for online retailers.

However, this highly lucrative region is also highly diverse. Individual markets differ in terms of culture, legal regulations, mobile usage, social media platforms, payment systems and infrastructural and logistics development, making a blanket solution unviable. The answer is localization. Apart from speaking the language of its consumers, brands need to gain a deep understanding of consumer behavior and preferences, coupled with a flexibility to adopt unique approaches that address the unique needs and preferences prevalent in each market.

Equally important to ensuring eCommerce success is working with strategic partners equipped with local knowledge and extensive reach across the region. By having a supportive ecosystem of trusted technology and logistics partners, retailers can look forward to valuable insights and support, agility and scalability that will allow them to grow their business across multiple geographies and languages. With localization in place and a robust network of regional support, brands can forge ahead with a market entry strategy that best suits their objectives, capabilities and strengths to realize Asia Pacific’s full eCommerce potential.

28 ABOUT SINGPOST ECOMMERCE

Who We Are As part of the Singapore Post Group of Companies, SingPost eCommerce is a full service eCommerce partner that provides global brands with Asia Pacific’s first end-to-end managed eCommerce solution which includes - Enterprise Grade eCommerce Technology, Warehousing, Delivery and Returns Management, Site Operations, Customer Care and Performance Marketing. We operate across Asia Pacific with a fully interconnected eCommerce infrastructure and 22 distribution centres, in addition to our global centres in the US and UK.

What We Do SingPost eCommerce helps global brands launch their online business and strengthen their eCommerce logistics operations in Asia Pacific. We help assess market potential and develop entry strategies, with a focus on maximum return on investment. Through our regional set up, we provide custom duties management and enable local delivery and returns. In many cases, clients can leverage our legal entities across the region and we can be Merchant of Record on behalf of the brand.

Get In Touch

To learn more about our full suite of solutions, visit www.specommerce.com/solutions

Alternatively, get in touch with us at +65 6841 2000 or email us at [email protected]

Singapore • Australia • China • Hong Kong • Indonesia • Japan • Korea • Malaysia • New Zealand • Philippines • Thailand • • United States •

29 ABOUT DEMANDWARE

Demandware Commerce Cloud An Open, Future-Proof Platform for Omni-Channel Commerce The Demandware Commerce Cloud is a highly scalable platform that minimizes the complexities and costs of running extensive global commerce operations and enables seamless, high-impact consumer engagement across all devices, channels and geographies. Built on a scalable and secure multi-tenant cloud architecture, the platform provides enterprise capabilities with the agility of the cloud.

Speed, Agility and Innovation Demandware empowers retailers with the speed, agility and innovation required to accelerate the strategic business initiatives that drive growth. It provides an open and scalable enterprise cloud commerce platform that puts business users in control and enables impactful consumer engagement across devices, channels and geographies. Backed by a world-class cloud operating environment that is scalable, reliable and secure, and a business model that puts client success above all other priorities, Demandware reduces the cost and complexity of running global, omni-channel commerce operations.

Eliminating Barriers to Growth Retail growth strategies come in many different forms. Whether it’s about providing customers with a more unified online and offline experience, expanding into new geographies and markets, or launching new brands and sites, Demandware provides a more agile and innovative solution for enterprise retail, without compromising quality, control and scale. It’s the reason why more and more retailers are moving away from rigid on-premise platforms and switching to Demandware’s industry-leading cloud platform.

Headquarters

US +178 1425 1400

APAC and Japan Region

Australia +612 8249 8307

China and Hong Kong +852 3798 2660

Japan +813 6759 8281

For more information about Demandware solutions, visit us at: www.demandware.com or contact us at [email protected]

30 NOTES

31 2015 Singapore Post Limited. All Rights Reserved.