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E-Commerce: A place at the table for local e-commerce platforms

E-Commerce: A place at the table for local e-commerce platforms

24 May 2021

“We feel very strongly about taking back our local e-commerce space,” says Jerry Ng.

In an interview with Digital Edge, the chief operating officer of locally founded and owned e-commerce platform PG Mall says there is a space in every country for a homegrown, locally owned and operated e-commerce platform.

To this end, PG Mall is intent on growing beyond its current position as the third-largest e-commerce platform in the country, behind international players Shopee and Lazada.

Shopee is owned by SEA Ltd, which counts Chinese tech conglomerate Tencent Holdings Ltd as a major investor. Lazada, meanwhile, is owned by Alibaba Group Holding Ltd.

While the platforms battle it out for the burgeoning Southeast Asian consumer market, PG Mall is looking to execute a two-pronged plan to grow its own local and regional influence.

On the local front, Ng believes the company is well placed to rely on its “Made in Malaysia” status to capture more of the local e-commerce activity. “We would like to do our part to awaken that ‘Buy Malaysian’ spirit from the 1990s. I’ve always thought it was a very important value to have as a Malaysian.

“In fact, I would argue that we’ve done this quite successfully since our founding in 2017.  According to their financials, Shopee burns through US$1 billion [RM4.1 billion] a year in the region.

“For all their campaigning, we are not only surviving, but thriving. Our own burn rate is comparatively smaller, of course, in the millions of ringgit, but we’re locally owned and operated, growing, and we’ve been here since 2017. Clearly, we’re doing something right.”

Ng is betting that Shopee, currently believed to have the upper hand over Lazada in the region, will not be able to maintain its leading position indefinitely.

A JP Morgan report from earlier this year notes that Shopee is actively monetising its platform across the region. In addition to scaling back on shipping subsidies, the platform has taken to increasing commission rates, which the report says has opened up the possibility of increased competition from other players in the region.

“Given the investments they have received over the years, Shopee has had to enter various regional markets over the last few years. While they’ve done really well in some markets, they have struggled in others.

“It’s going to be a challenge for Shopee to fight so many battles on so many fronts in the region. They have to spread themselves and they lack the ability to choose their battles — this is going to be a bit of a disadvantage for them,” says Ng.

PG Mall dreams of China

Where Ng believes PG Mall is really positioned to make a difference is in e-commerce exports, with his platform carrying the torch for Malaysian merchants.

More importantly, he believes PG Mall is well placed to bring more local merchants than ever to the notoriously difficult-to-penetrate Chinese consumer market.

To this end, PG Mall recently launched its “Sell to China” proposition, in partnership with JD Worldwide — a cross-border e-commerce platform that enables China-based consumers to purchase products from around the world.

JD.com is another Chinese e-commerce platform that grew to prominence around the time Alibaba became a household name in this part of the world.

Local merchants who sign up for PG Mall’s “Sell to China” programme get preferential rates on import taxes imposed on goods heading into China, in addition to other platform-specific discounts and waivers.

To encourage merchants to get in on PG Mall’s “Sell to China” initiative, the platform launched a promotion called “ConsuMerchant”. It essentially describes a cashback programme, which rewards shoppers for referring their friends and family.

Cashback rewards are earned once a successful transaction is made through one’s own or one’s referrals’ purchase. The more the referral spends, the greater the cashback rewards earned by the original shopper.

“We see ConsuMerchant as our best tool to encourage activity on the platform, as opposed to participating in the kind of race to the bottom that we observe on other platforms,” Ng explains.

“There tends to be a lot of price-cutting, free shipping and subsidies on e-commerce platforms. Supposedly, this is the only way to attract and retain shoppers. But instead of encouraging this race to the bottom among our merchants, we want to incentivise consumers to shop with us, by giving them cashback rewards for their purchases.”

PG Mall funds its Consu­Merchant programme using a portion of the 5% transaction fee, which it levies on all successful transactions that occur on the platform.

But why is PG Mall looking to get local merchants into the Chinese consumer market now? It is undoubtedly an exceedingly valuable space to be in, but local e-commerce merchants have tended to struggle in the Chinese market in the past.

In a nutshell, it has to do with demand from China for high-quality goods out of Southeast Asia. JD.com took pains to build and market itself as an online purveyor of branded, high-quality products. This is how it has been able to differentiate itself from its perennial competitor, Alibaba, which has tended to cater for the wholesale market.

Chinese consumers who shop on JD.com are looking specifically for high-quality products such as jewellery, fashion and foodstuff. Because of this, they are not as price sensitive as they would be if they were to shop on other platforms.

In this regard, Ng explains, there has always been strong demand by Chinese consumers for Malaysian-made products, such as food, accessories and even batik fashion.

In addition, he suggests there has been a measure of social heartburn in the region, brought about by a perceived lack of e-commerce trade reciprocity.

“We have observed the e-commerce landscape in the region and seen a lot of foreign-owned platforms whose objectives are to help merchants in China sell to Malaysia and the region.

“These are platforms that have historically made it very easy to acquire goods from China to sell in this part of the world, but it has been difficult to build a consistent e-commerce pipeline in the opposite direction.”

Surprisingly, e-commerce-specific trade data is difficult to come by. Checks by Digital Edge with Matrade have so far indicated that the agency does not track e-commerce-specific cross-border data and trade balances with theMalaysia’s trading partners.

“We don’t have full figures, but I believe e-commerce trade from China to Malaysia is substantial. I’m not sure, however, whether there is very much trade in the opposite direction,” Ng explains.

He says two key reasons explain why goods from China have sold so successfully in this part of the world: price competitiveness; and varying levels of ownership of some of the biggest e-commerce platforms in the region.

“When it comes to the issue of price competitiveness, to be fair, this isn’t a problem that is unique to Malaysia. Many countries have faced this issue and, while it has become contentious in recent years, it is also true that China simply has a huge working population and manufacturing capacity. They are the absolute best at the volumes game.

“A number of companies in China have further invested in various regional e-commerce platforms. This allows manufacturers in the country to move their goods in such huge volumes throughout the region.”

There is another, perhaps uncomfortable, implication from this dynamic.

Given that various e-commerce platforms operating in Malaysia are tied to owners in China, it is possible that local merchants on these very platforms, looking to do cross-border trade with Chinese consumers, are at a fundamental disadvantage. “While certain e-commerce platforms have their own variations of a ‘Sell to China’ campaign, being that these platforms are owned by companies in China, I imagine the trade direction on these platforms to be largely one way,” Ng says.

Source: The Edge Markets