Thailand appears to have lost out in the race to find its own Jack Ma or e-commerce market leader in a market increasingly dominated by Chinese owned firms selling Chinese products. What Thailand does have, however, is the world’s most active social media sales network driven by its black economy using platforms and banking facilities.
A Thai e-commerce expert has described the sector as dead to Thai internet entrepreneurs looking for opportunity as the country’s market for online sales through e-commerce platforms has come to be dominated by two firms Lazada and Shopee which are effectively Chinese owned although headquartered in Singapore. Mr Pawoot Pongvitayapanu of Thai E-Commerce Association has also expressed concern about the role of the Eastern Economic Corridor project and its impact on Thai firms linked to the sector.
A theory that has emerged over the last hundred years or so is that planned or managed economies do not work. The wisest men in economics are often those who don’t claim to know it all but who believe that if you provide a free economic environment with sound rule of law, it is as much as can be done. Afterwards, let the market and self-starting entrepreneurs take care of the rest. We say theory because there is, of course, a counter-argument.
Key government policies all give more access to China
To some extent, this had been the approach in Thailand up to recent years until the government brought forward ambitious new projects such as Thailand 4.0 and the Eastern Economic Corridor. The government has also pursued avidly the Regional Comprehensive Economic Partnership project as part of its role in ASEAN which aims to create a free market between ASEAN national economies and 5 other Pacific economies including China, Japan, Australia, New Zealand and South Korea.
India pulled out of the RCEP Asean Pacific free trade area to protect its economy from Chinese competition
India pulled out of the partnership at the recent Bangkok summit in November and there is now talk of Japan wavering although this has been denied officially, as it becomes clear that the plan will further strengthen China’s economic influence in the region.
At home in India, PM Mr Modi has been praised even by the opposition for his decision in Bangkok, which was seen as protecting Indian firms from cheap Chinese competition.
Although India has an impressive technology sector and its economy is huge, it has still not been developed.
In comparison, Thailand’s GDP per capita is over 3 times that of India while the kingdom’s figure is only 80% of that of China.
Decimation of the Thai small business sector by ever greater uptake of online sales platforms
2019 has been a disappointing year for Thailand economically with a contraction of exports leading to falling output and employment.
While the focus has been on the Thai baht and the US-China trade war, many economists and observers have failed to highlight something else.
That is the accelerating decline of the small business sector in the country as e-commerce and online platforms become the point of first recourse now for many Thais seeking to purchase goods rather than going the smaller traders or old fashioned super stores.
This presents a challenge to Thailand’s existing economy and one that opens the country up to great peril as much as it promises opportunity.
Huge online firms such as Lazada and Shopee wrestling away market share from Thai firms
The fact is that Thai firms only do 3% of their trade through online channels while large online portals such Singapore’s Lazada and Shopee are gradually wrestling away control of Thailand’s retail market as it moves inexorably online.
The problem for Thailand is that both firms are foreign-owned by and large by Chinese interests.
Agreement between Alibaba Group and the Eastern Economic Corridor Office announced in November
In November, the Eastern Economic Corridor Office announced a range of memorandums of understanding between itself and the Alibaba Group which will see the Chinese internet giant establish itself in the region.
However, the agreement signed appeared to go far beyond this. It talked of promoting Thailand’s tourism offerings in secondary provinces, offering training to up to 33,000 Thais in online technology and even introducing Thai shops and restaurants to online users in China.
Plan to benefit Thai shops and restaurants as Alibaba proposed a ฿11 billion investment
‘Such mutual collaboration will be beneficial to Thai farmers, SMEs, Domestic E-commerce operators and startups who want to gain access to the global market,’ Mr Kanit Sangsubhan, the Secretary-General of the Eastern Economic Corridor Office said in a statement released to the press as the agreements were signed.
The announcement predicted that the Alibaba Group would invest ฿11 billion in a smart digital hub in the area over the coming year.
The agreements also foresaw the group working with Thailand’s Customs Department to develop the new hub and its operations.
Agreement with Alibaba, not an exclusive one
Mr Kanit, at the end of the statement in November, did point out that the agreement with Alibaba was not an exclusive one. ‘The transformation of digital trade and businesses will be an important step towards Thailand 4.0. Note, however, that these MOUs do not preclude other similar business operators to enter Thai markets in the future,’ the EEC’s top official said.
Concerns expressed by Thai E-commerce Association member about the impact on existing Thai firms
Concerns about the current situation have been expressed Pawoot Pongvitayapanu of the Thai E-commerce Association.
He points to the Eastern Economic Corridor which is set to become a designated area in Thailand where Chinese online trading platforms can establish in the kingdom. He says that this will impact existing Thai firms who hitherto used to partner with Chinese firms interested in exporting from Thailand’s designated free trade zones.
Mr Pawoot was speaking to The Nation news outlet.
He revealed that he recently had a conversation with Mr Kanit of the Eastern Economic Corridor on the subject.
Conversation with Mr Kanit of the EEC – taxes to be raised on foreign goods entering Thailand
Mr Kanit informed him that the facilities being established in the Eastern Economic Corridor would assist in exporting Thai goods and products to the Chinese and other external markets within the region.
Mr Kanit pointed out that the Thai Revenue Department planned to adjust its tax regulations to apply 7% VAT to all foreign goods sold in Thailand in the future.
This will apply to goods ordered from abroad. He seemed to be aware of the threat and told the Thai e-commerce expert that protective measures would be necessary to avoid a deluge of foreign goods coming into Thailand particularly from China.
Survey of goods promoted by Lazada from October 11th finds that nearly 45% are Chinese products
Mr Pawoot identified from a survey of goods and offering on Lazada from October 11th this year that 44.65 % of goods and products on sale were Chinese made.
However, it was reported at the same time, that between 60 and 70% of all goods sold through the big 2 online shopping platforms being Lazada and Shopee, now originate in China. This shows just how popular Chinese goods are with Thai consumers.
This is particularly true for technology products and gadgets where 70% of the goods on offer are Chinese made.
Eastern Economic Corridor plans will benefit Thai consumers with faster delivery times and lower prices
The effect of the Eastern Economic Corridor on this trade will be pronounced. It will be beneficial for consumers who will find shorter delivery times and better prices.
However, it will leave thousands of Thai firms and middlemen redundant while also putting pressure on existing Thai retailers who maintain an online presence.
There simply will be no way to compete with products sold in Thailand but originating from the factory in China.
Chinese dominance will relegate Thai entrepreneurs to niche areas as they seek opportunities to grow
Mr Pawoot uses the highly popular Lazada online shopping platform, Thailand’s Number 1, as an example.
He says that in 2020, ฿10 billion will be spent by Thai people on this platform to buy Chinese made goods. He predicts that in five years, this figure will be ฿50 billion.
For Thai online traders, the current trend and outlook will effectively cement Chinese dominance over the market relegating Thai internet entrepreneurs to seek niche areas which are less price-sensitive in which to develop.
E-commerce platform market in Thailand now dominated by the top 2 – Lazada and Shopee
Thailand’s e-commerce sphere is now effectively dominated by Lazada and Shopee.
In recent years, Thailand’s economic leadership has dreamed of finding its own unicorn or market leader in this area. However, at this time, Thai government policy is assisting these established firms, headquartered in Singapore but which are also Chinese owned.
Lazada is owned by Alibaba Group while the largest shareholder in Shopee is the Chinese conglomerate Tencent Holdings based in Shenzhen.
Market dominance in Thailand
To put their dominance in perspective, a survey of Thailand’s top 10 eCommerce platforms which showed Lazada and Shopee on top showed that both the sites currently control over 85% of the market held by the top 10 sites or over 6.3 times the combined users of the other eight platforms on the list.
Lazada alone has over 30 times the average users of any other site on the top 10 for 2019.
Both platforms developed in Singapore but have subsequently become Chinese owned
Both Lazada and Shopee were initially formed and developed in Singapore established in 2012 and 2015 respectively but in 2016 Alibaba took control of Lazada, the emerging and innovative force in eCommerce developed by the Rocket Group.
The firm is now nearly entirely owned by the Chinese giant through an investment of $4 billion.
Shopee was formed in 2015 and emerged as a mobile-centric online retailer with an emphasis on high-level security. On its listing on the US Stockmarket in 2017, the Chinese firm, Tencent Holdings emerged as a 40% owner.
Eye-catching advertising campaign
Shopee in Thailand in 2019 has become a key player through an eye-catching advertising campaign using the worldwide footballer and icon Cristiano Ronaldo.
In the meantime, Lazada has emerged as Thailand’s No 1 online shopping website with nearly 45 million users per month.
Most firms in the top 10 in Thailand are existing retail brands and they too will face stiffer competition
The chart of Thailand’s leading eCommerce sites for 2019 tells an interesting story.
The list is topped by both Shopee and Lazada which between them have 75 million users per month. However, there are Thai players on the list, most of them representing existing retail brands who have moved into the online world. Firms such as JIB, Powerbuy, Central Group and Home Pro.
Some startups have not made it to the top
At the same time, many high profile startups have not made it to the top such as the WeLoveShopping site promoted by the Ascent Group in 2015 a division of True Corporation itself owned by the CP Group, one of the largest privately-owned conglomerates in the world controlled by the Thai Chearavanont family.
No 4 on the list is a shopping platform managed by a Danish man who came to Thailand in 2013
One interesting eCommerce site which comes in at No 4 on the list for 2019 is a site called Chilindo.com whose pioneering CEO is Casper B Jensen from Denmark.
Set up in 2014 with a funding package of $450,000, the site is an auction platform that has captured the imagination of millions in Thailand and has 1,750,000 users a month.
The website now employs over 500 people in Thailand, is highly profitable and represents an original concept.
Thailand 4.0 needs Thai executives with experience
For Thailand to succeed with its goal of technological transformation and leadership under its Thailand 4.0 programme, its needs entrepreneurs and business developers with experience who have been blooded in the industry with practical experience of innovation success at a high level.
This is unlikely to happen in the current eCommerce establishment dominated by two firms founded in Singapore and which are now Chinese owned.
Alibaba executive Lucy Peng transformed Lazada
Up to the end of 2018, Lazada was managed by Lucy Peng an inspirational Chinese woman who with her husband, had worked with Alibaba for many years in the early years.
Described as down to earth and funny, she oversaw the transformation of Lazada into one of the most user-friendly online sales platforms ever developed and which is now Thailand’s leading player in the market. Lazada is over 90% owned by the Alibaba Group.
Thai expert suggests Thai entrepreneurs must now find new channels and opportunities
This is acknowledged by Mr Pawoot of the Thai E-commerce Association. He now suggests that Thai entrepreneurs must find new channels.
He proclaims that the generic e-commerce platform opportunity in Thailand has effectively died with the domination of the top firms now consolidated. Even more so with the government’s Eastern Economic Corridor initiative, which looks to cement their position or at least make it near impossible for smaller competitors to emerge.
The business continues to grow by over 30% per year and is worth ฿200 billion according to to the President of the Thai e-commerce Association, Thanawat Malabuppha, but the mountain is now simply too high for budding entrepreneurs to scale.
What is still driving the e-commerce sector for Thai firms is the existing retail sector working off their own branding. These outlets account for 25% of the market.
However, they will now be on the front line to be targeted by increased competition from the two big e-commerce platforms growing in users and confidence who already dominate the e-commerce platform market which in itself represents 35% of online sales.
Thailand and its black market players are world leaders at social media peer to peer selling
This leaves 40% of the market which is serviced through social networks.
Thailand, perhaps uniquely in the world has rapidly growing social network peer to per sales system is driven in a large part, by small traders and the black economy. It is outside government control, booming but facing closer scrutiny by tax authorities.
Users have become adept at using advances in the banking system such as instant payments and social media facilities for displaying goods and even services to be negotiated online using photos, audio and video as mediums.
An economy that empowers society
Unfortunately, we only hear of it when things go wrong, such as the sale of fake products including cosmetics and health products or even downright fraud. However, it is a huge growth sector in this expanding sphere of activity that has yet to be definitively understood and harnessed for the overall good.
There is something here more than simply about the distribution and payment of goods or the efficiency of scale. It is about having an economy rooted in the community, one that provides an impressive value for money service but also helps sustain a healthy and empowered society.