Highlights from Chinese commercial sector report and their implications for Southeast Asia (Part 2)

In the second of a two-part dispatch, we will look at several anticipated trends for China’s domestic retail market in 2019, and how these developments will impact Southeast Asia.

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Fung Business Intelligence‘s “China’s Commercial Sector” report highlights several business trends that stem from new demands by Chinese consumers. Though the ongoing trade war between China and the United States carries huge ramifications for many industries, the rising disposable income of China’s middle class—and its higher discretionary spending—may just help stabilise the economy. Here are some predictions made by Fung Business Intelligence about China’s business landscape in the coming year, as well as the consequences for Southeast Asian nations.

Innovation will be the primary driver for high-quality consumer market growth

The Chinese economy is growing steadily due to persistent pushes by the Chinese government as well as novel strategies developed by private enterprises. From the top, we can expect to see continued supply-side structural reforms that will drive down production costs, as well as new policies that will encourage domestic consumption in areas like automobiles, home appliances, and property leasing.

Service consumption, such as food catering and community retail, will become the norm beyond tier-one and tier-two cities

Demand for consumer-focused products and services is growing. The range of services being offered is also expanding. Community retail, for instance, has gained traction, with new operators crowding into the sector.

Retailers will apply new business models

With intense competition and shifting consumer expectations, brick-and-mortar retailers are facing considerable challenges. To upgrade their business models, these businesses have turned to technology-driven innovations and applied digital transformations, including the application of “new retail” concepts where pre-orders, payments, and deliveries are facilitated digitally.

The retail sector’s digital transformation, including the digitisation of its supply chain, will accelerate

The online-to-offline (O2O) retail model has been useful for gathering business data and boosting efficiency. Digitised supply chains provide information for better, faster decisions; data-sharing provides a smoother experience during customer service. Altogether, the retail sector’s digital transformation is spurring consumption.

The convenience store sector—as well as department stores, supermarkets, and hypermarkets—will continue to innovate

With hot money flowing into China’s convenience store sector, brick-and-mortar retailers are increasingly making efforts to revamp and explore new business opportunities using technology.

Rural e-commerce will see rapid growth

Sustained improvements in infrastructure and strong government support have laid the foundation for Chinese farmers to take advantage of e-commerce, providing a new income stream in impoverished areas of the country.

Chinese companies will shift away from price wars to compete on service quality

For years, Chinese logistics and courier companies have been trying to out-price each other, but consumers are increasingly willing to pay a little extra for better services. These firms are now exploring a wide variety of personalised services that use smart technology to meet the changing demands.

 

What do these trends mean for Southeast Asia?

Chinese internet giants have vested interests in Southeast Asia, so the forecasts by Fung Business Intelligence are pertinent for Southeast Asia’s e-commerce market, especially when it comes to funding opportunities and developing new sectors this year.

Since many fields in China are experiencing a saturation, the country’s tech giants must look to foreign markets as new grounds for expansions. Given Southeast Asia’s proximity to China, as well as existing trade ties, the region is a natural location for Chinese money to land.

Alibaba, for instance, is a major investor in Lazada and Tokopedia. Tencent, on the other hand, owns a 34% stake in Sea Limited, which is a backer of Shopee. These three Southeast Asian platforms are prominent players in the region. Given their financial ties with Chinese corporations, developments in China will also impact their operations in Southeast Asian countries.

For instance, as “new retail” becomes more broadly adopted in China, the same thing is happening in Southeast Asia. Sheji Ho, aCommerce’s group chief marketing officer, told TechinAsia that O2O developments in the region are not new, but a necessary solution to combat slowing growth in e-commerce. “New retail” is a way to tap into the 80% of Southeast Asian retail consumers that are still offline, Ho said.

We have already seen how “new retail” is being implemented in Southeast Asia. Last September, KrASIA reported that JD.id launched “new retail” shopping kiosks at Indonesian railway stations. Tokopedia is pivoting its business to become an “infrastructure-as-a-service” provider for both online and offline commerce.

Editor: Brady Ng