The Role of Government in E Commerce Development
Digital Edition Issue 07, Sept 2021
Two years ago, Singapore’s Economic Development Board (EDB) reported that the Asia-Pacific business-toconsumer (B2C) e-commerce market was estimated to be some US$770 billion, surpassing that of Western Europe and North America.1 The Southeast Asian B2C e-commerce market is the fourth largest market in the world, with Singapore and Indonesia boasting the highest e-commerce activity levels. By 2023, the Southeast Asian B2C e-commerce market is expected to more than double, reaching US$53 billion.2
I recently completed a year-long work attachment with Lazada, which is Alibaba’s e-commerce platform in Southeast Asia. During the attachment, I was assigned to Lazada eLogistics (LEL), where I worked on three key projects, in addition to numerous operational initiatives, across seven cities in five Southeast Asian countries and China. Throughout this period, I had the rare opportunity to observe how the industry operates and gain insight into some longer-term trends in e-commerce, e-logistics, and the digital industry in general.
E-Commerce and E-Logistics: Key Practices
A key enabler for e-commerce platforms to become profitable is the gathering of a sizeable number of buyers and sellers on the platform, in order to dominate the market. Once the platform is established, it is monetised in a few ways:
(i) Providing value-added service,
e.g., logistics and fulfilment for sellers;
(ii) Charging a commission for transactions;
(iii) Charging to optimise product listings
for sellers.
As such, a large part of any e-commerce platform’s efforts are directed towards attracting more buyers and sellers.
To attract buyers, e-commerce platforms ensure positive buyer experience by:
(a) building a cheap, fast and reliable
logistics service;
(b) growing their assortment through
onboarding more merchants;
(c) ensuring quality of products sold
through data analytics and monitoring of buyer feedback
and product reviews;
(d) growing channels for sales beyond
the local marketplace, e.g., building
global collections (by bringing
foreign sellers onto the platform),
introduction of “malls” such as Tmall,
LazMall and Shopee Mall that feature
premium products from notable
brands; and
(e) running frequent and regular
promotions including flash sales,
campaigns, incentives for new-to
platform buyers etc.
To encourage more sellers, e-commerce platforms track and grow certain metrics such as Gross Merchandise Value (GMV), number of monthly and daily active users. They also provide cheap, fast and reliable logistics to merchants. There are also many features on e-commerce platforms’ seller centres that enable merchants to sell well, such as data analytic tools and “basket building” tools through which merchants can offer discounts for purchases above a certain amount, or offer free delivery, and so on.
Growth of the E-Commerce Ecosystem
As the e-commerce pie grows, the market has evolved in tandem. Small businesses and big brands alike want to have a piece of the pie, so as not to be left behind. However, not all businesses are structured to take part in e-commerce platforms. Many do not have in-house capabilities: e.g., to list products on multiple e-commerce platforms, manage customer feedback/ complaints, conduct social media marketing, deliver parcels to a customer’s address etc.
In China, e-commerce has seen the proliferation of “support” players, who seek to plug this market gap. These companies provide services to sellers, such as helping sellers list their products on e-commerce platforms or providing translation services for these products in different markets. They also conduct marketing through their pool of online influencers, customer relationship management, warehousing, etc., all for a fee or commissions. Those who work with Taobao sellers are known as Taobao partners.3
In Southeast Asia, a similar trend is setting in, and spin-off firms like Intrepid, Jet Commerce, and A-Commerce have sprung up to provide comprehensive e-commerce services to businesses seeking to sell online.
Such an ecosystem is generally encouraged by e-commerce platforms, as these firms enable more sellers to take part in the e-commerce business and support the industry’s overall growth. Alibaba even has a certification system for its Tmall Partner (TP) Programme, and awards scores to different TPs.4
Other areas that are still evolving are in the areas of e-commerce financing and crossborder payment systems. Of the platforms in play, Alipay is probably the most well-known. Today, Alipay offers its users dozens of services, including being able to take small loans, pay for overseas purchases in foreign currencies, buying insurance, and so on. Alipay has even recently integrated with healthcare providers so users can get a doctor’s appointment at their local hospital through its app, or schedule a call with a specialist doctor for specific health problems.
Besides e-wallets, a range of financial firms are also exploring ways to cash in on the growth of e-commerce transactions, including giving cashbacks (Shopback) and offering instalment plans for purchases on e-commerce platforms (Hoolah).
Regional Policy Trends and Developments
In recent years, Alibaba has secured the Digital Free Trade Zone (DFTZ) in Malaysia as part of its Electronic World Trade Platform (EWTP) initiative. This has enabled Lazada to ocean freight sensitive goods which cannot be air flown (e.g., power banks) and bulky goods (e.g., refrigerators) in advance. These are shipped from China to Malaysia and stored at the DFTZ warehouses, also known as “bonded warehouses”. Buyers in Malaysia and Singapore are then able to enjoy shorter lead time in receiving their purchases, at a lower logistics cost. In a similar vein, Thailand is rolling out its Eastern Economic Corridor (EEC), seeking to develop its eastern provinces into a leading ASEAN economic zone. It will develop airport, rail and port infrastructure in these areas and offer significant incentives to attract foreign investments.
In China, the authorities have approved the establishment of many such bonded warehouses across the country. The goods in these bonded warehouses are not duty-paid; local Chinese buyers can enjoy tax free purchases for goods shipped from these warehouses, subject to an annual cap beyond which they will need to pay import tax.5 This directly competes with distributors and retailers, who have to pay import tax for similar goods before selling it to customers, putting them at a price disadvantage. The trade-off, however, is the benefit e-commerce offers to the public. Consumers also weigh up the pros and cons of buying goods from an importer, which has to clear import regulations, compared with importing goods through e-commerce channels, which could be subject to less stringent checks.
China introduced an E-Commerce Law6 in August 2018. The law covers many areas which are unique to the e-commerce industry, such as whether it would be legal to send personalised promotions based on consumers’ interests and hobbies. The law also addresses uniquely digital concerns, such as prohibiting combined sales traps, defining paid rankings as advertising, and defining and criminalising “brushing” scams.7
What Role Can Government Play in Growing E-Commerce?
A key challenge for digital industry companies that operate regionally is the ability to understand and operate in local markets. Southeast Asia is a culturally diverse region. What sells well in one country may not be so popular in another. Similarly, different marketing tactics have varying levels of effectiveness in different countries.
This presents potential scope for Singapore to play a role to companies seeking to operate in the region. Singapore is a bridge between East and West. Our talent pool offers management expertise that is more international in its approach. These are reasons cited by Ethan Yu, Vice-President of Alicloud, for locating Alicloud’s international business headquarters in Singapore.8
To operate regionally, there is also a need for talents who have international experience and can operate in a multicultural business environment.
To support e-commerce growth, the government should encourage a diverse mix of international companies to setup their regional business base in Singapore. This will in turn encourage other companies to be based in Singapore and be part of a larger ecosystem of international companies. If we are successful, this can become a powerful enabler for Singapore’s companies, which can then leverage the best globally. For example, Alibaba has developed impressive capabilities in AI, data analytics, speech-to-text, and multilingual translation. Singapore’s companies can tap on the variety of capabilities offered by Alicloud, Amazon web services, or Google and choose the best technology for their needs. For instance Dingtalk, an enterprise chat solution developed by Alibaba, offers certain features that may be better than Skype for Business in meeting particular business needs.
By developing an ecosystem of companies and services, Singapore companies can then leverage these networks to make inroads into different markets. While this has always been part of Singapore’s economic strategy, more might be done to plug into the significant ecosystems already in play: such as those of Alihealth, JD.com, Alipay, Tencent, Tokopedia and so on. Indeed, the Singapore Tourism Board recently signed an MOU with Alibaba to co-market Singapore to Chinese visitors. In a similar vein, we could potentially market Singapore companies through these well-established platforms with hundreds of millions of active users.
Besides ecosystem building, a key challenge facing the digital industries is talent. This goes beyond coding professionals. As more digital businesses grow towards unicorn status, they begin to require Chief Executive Officers with the maturity and experience to lead and scale up their companies. To operate regionally, there is also a need for talents who have international experience and can operate in a multicultural business environment.
Besides ecosystem building, a key challenge facing the digital industries is talent. This goes beyond coding professionals.
Our government has spared no effort in looking for ways to groom our local talent, as well as to attract global talent to relocate to Singapore. The government’s numerous initiatives, such as the TechSkills Accelerator (TeSA), partnerships with local tertiary institutions, and recruitment drives overseas to bring tech talents to Singapore, are just some of the efforts to furnish the digital industry with the right people it needs to grow. These have met with some success, but the available talent pool is still not enough to meet the ever-growing demand from digital companies large and small. Many of these efforts will take time to see results. For example, regional exposure trips and internships to tech companies for tertiary-level students will not deliver the next generation of tech talent in the next two years. Given the importance of talent to the success of building our digital ecosystem, we must double down on our efforts to find and groom more talent for the industry.
Conclusion
Developing a digital ecosystem is a key piece of ensuring a vibrant and sustainable digital economy. Many regional cities are all seeking to do the same and are offering different incentives to attract companies to set up operations in their city. It will be increasingly difficult for latecomers to catch up. Singapore is in a good current position, and our steps to build our digital ecosystem place us well for the short-term.
This by no means assures our long-term or sustainable success. To stay ahead, we will have to review our policies, programmes and initiatives continually: to help Singapore-based digital companies gain access to talent and regional partners and markets, as well as to attract more international companies to be based in Singapore. This would entail keeping a close eye on regional developments and trends. For example, how would Malaysia’s DFTZ and Thailand’s EEC affect the regional presence of digital companies? Will the growth of the Vietnamese software engineer workforce be a positive development for the region, or a threat to Singapore’s relevance as a hub for digital companies? And might the growth of Indonesia’s digital economy attract more investments away from Singapore, or can we in fact benefit from our close proximity to Indonesia?
Efforts to find and groom talent for the digital industry will take time to see results.
While we are not in a position to influence these trends, what Singapore needs to do is to continue adapting and responding quickly to seize opportunities as they come along, and ride on positive developments in the region by integrating our digital economy with the regional ecosystem.
- EDB Singapore, “E-Commerce Set To Burgeon in SEA”, March 8, 2017, accessed January 22, 2020, https://www.edb.gov.sg/en/news-and-events/insights/innovation/e-commerce-set-to-burgeon-in-sea.html.
- Satish Meena, “Online Retail in Southeast Asia Is Expected To Reach $53 Billion by 2023”, Forrester, November 29, 2018, accessed January 22, 2020, https://go.forrester.com/blogs/online-retail-in-southeast-asia-is-expected-to-reach-53-billion-by-2023/.
- Eva Yoo, “Behind the Scenes of Tmall’s Brand Flagship Stores and the Taobao Partner Program”, TechNode, August 14, 2017, accessed January 22, 2020, https://technode.com/2017/08/14/tmalls-brand-flagship-stores-largely-operated-taobao-partners/.
- “What Is a Tmall Global TP”, accessed July 1, 2019, https://www.tmall.hk/wh/tmall/import/act/tp.
- TMO Group, “China Bonded Warehousing and Cross-Border eCommerce Tax Reform”, May 1, 2018, accessed January 22, 2020, https://www.tmogroup.asia/bonded-warehousing/.
- E-Commerce Law of the People’s Republic of China, CLI.1.321035(EN), August 31, 2018, http://en.pkulaw.cn/display.aspx?cgid=321035&lib=law.
- TMO Group, “10 Most Important Takeaways from China’s New eCommerce Law”, September 11, 2018, accessed January 22, 2020, https://www.tmogroup.asia/10-takeaways-china-new-ecommerce-law/.
- Data Center Dynamics, “Alibaba sets up Cloud HQ and Data Center in Singapore”, August 20, 2015, accessed January 22, 2020: https://www.datacenterdynamics.com/news/alibaba-sets-up-cloud-hq-and-data-center-in-singapore/.