World Retail Voice Blog Post
Thailand Online, part 2 ‐ confessions of an ecommerce exec
In 2012, Japanese ecommerce giant Rakuten withdrew from China. Now the retailer is looking for its big break in SouthEast Asia a region which is still up for grabs. To discover how Rakuten is seeking to ride the wave of online growth in the region, adapting to shifting consumer behaviour and what future awaits Thailand’s digital economy, Planet Retail caught up with Bangkokbased Pawoot (Pom) Pongvitayapanu, Managing Director of Rakuten TARAD.com, in an exclusive interview.
Pongvitayapanu currently serves as President of the Thai ECommerce Association. He founded TARAD.com in April 1999 the first business of its kind in Thailand. It grew into a major provider of integrated online marketplace, ecommerce, merchant services and marketing tools in the country. In 2009, Rakuten acquired a majority stake in TARAD.com, forming a partnership which marked the Japanese company's entry into the Thai market.
Since Rakuten acquired the majority of TARAD.com in 2009, how closely does the current business model resemble the one in Japan? And what makes you different from your competitors?
Originally, Tarad.com’s platform derived money from merchant payments for online shop space rental and ads, whereas Rakuten Japan had a commission model. That means the more their merchants’ sales grow, the more revenue and business growth for Rakuten. After joining Rakuten, we took over their commission model, which also includes ecommerce consultancy services. It wasn’t that hard because our fundamentals were similar.
In comparison to other players in SouthEast Asia like Lazada, we’re quite different in terms of our philosophy. Their main concern is to source the cheapest products to achieve a huge margin. But we want to empower small businesses in Thailand, like the mom and pop shops* in the countryside. Certainly, their [Lazada's] model is different in that they try to make a profit for themselves, while for us, it’s about giving profit back to society.
Also, our model uses open data merchants can freely connect to customers. Our competitors, on the other hand, control the data by taking on the role of middlemen, to earn revenue. As a result, merchants cannot see their customer data or directly interact with shoppers.
Rakuten TARAD.com features 800,000 products from 2,500 merchants, from apparel and electronics to secondhand goods. Which product categories are selling particularly well ?
In terms of product trends, every category is growing. The top categories for us are fashion, watches, gadgets and food including supplements and dietary products. In terms of sales and revenue, IT products and gadgets lead, but in terms of the total number of merchants, the fashion category dominates.
What shifts in online purchasing patterns have you seen in Thailand? How does purchasing behaviour differ from neighbouring SouthEast Asian markets?
I’ve been in ecommerce for more than 15 years and have seen huge changes. Ten years ago, confidence levels in online shopping were low, with purchases in fewer product categories. With more merchants joining, this meant a greater variety of products and pricing, which resulted in more people shopping online. And in the last two years, we had a lot of Groupon clones. That discount and voucher model really convinced consumers to shop online.
What’s unique to Thailand and Indonesia is that people spend a lot of time on social media – they buy through Instagram, Facebook so it has become another sales channel. Mainly it's fashion and cosmetics products that are sold on these platforms, since young women are the heaviest social media users. Rakuten TARAD is also utilising the power of social media to engage with customers.
But overall, ASEAN consumers are similar in the sense that they don’t trust ecommerce. They want to see the product before they pay. That’s why cashondelivery (COD) has been growing rapidly.
What is Rakuten TARAD.com doing to cater to Thai consumer behaviour and expectations? What trends are you seeing in mobile, social media and fulfilment in Thailand?
Actually we do a lot in mcommerce; we believe in mcommerce. In fact, Tarad.com first ventured into mobile commerce in 2003, when Nokia phones had enabling functions. Today, we have a Line account with 12 million members. Every time we send a message on Line, we get a lot of orders. But we don’t only depend on Line. We also use other social media like Twitter, Facebook and Instagram. We do everything to reach customers via mobile, as it’s increasingly more used than PCs.
Line, Japan's social messaging mobile app, has more than 180 million monthly active users, primarily with a large Thai user base. Similar to China's WeChat, it has 'subscription accounts' a feature for brands to directly engage with customers and for celebrities to interact with fans, which is seen as ideal for B2C marketing. In 2014, Line launched a shopping app in Thailand, followed by an online grocery store a few months ago.
This year, efulfilment is going to be a “blue ocean”** because more companies want to tap into the opportunities created by the growth of ecommerce. Regardless of whether it’s a large or small online retailer, as they expand they won’t be able to sustain fulfilment operations themselves. They’ll have to increasingly outsource to efulfilment providers. And, as competition heats up in this market with aggressive pricecutting, this will soon turn it into a “red ocean”.
SouthEast Asia is a key expansion region for Rakuten (Japan), and so far, Rakuten TARAD.com in Thailand is the one shining light in terms of sales growth and the number of merchants using the portal. What role will your Thai business play to support regional expansion?
For Rakuten, SouthEast Asia is really significant. After the first overseas footprint in Taiwan in 2008, we moved on to Thailand, then Indonesia, Malaysia and Singapore. Although all these markets have become important, we [Rakuten TARAD] are quite different because of our long company history. We have a huge membership and a lot of data.
One important aspect is that we understand local markets, so we can share our experiences with Rakuten HQ. Our regional ASEAN HQ is in Singapore. We regularly hold regional HQ meetings, exchanging knowledge and sharing best practices. Our feedback informs Rakuten HQ’s strategic decisions on how to react appropriately in different markets. We cannot apply the same principles and technology used in Japan, but have to adapt to local markets and their consumers.
In the next few years, we’re going to do crossborder sales. That means we can sell freely from Thailand to Singapore, Thailand to Indonesia, or Indonesia to Thailand. We will be a combined marketplace, a global platform. That is a key thing for ecommerce because you cannot sell locally. Since in Thailand we have such a large membership base, this will be really Rakuten TARAD.com office in Thailand. © Nikkei Asian Review efrastructure has more than 200 dedicated specialists and three associated companies which provide payment solutions, search marketing and social media consultancy services. © efrastructure beneficial for the Rakuten group of companies.
You’ve recently launched efrastructure, the first company in Thailand to provide provide complete digital infrastructure and online solutions. Please tell us more. What does it mean for Rakuten?
According to the Rakuten model, merchants have to do everything themselves, despite positive aspects like being empowered and having control. But some SMEs lack digital resources and capabilities, so I noticed a business gap.
That’s why I created efrastructure a onestop service to support those merchants with a variety of digital solutions. We have online marketing, Big Data and search engine marketing companies, which provide a synergised endtoend ecommerce service to businesses.This will allow us to support Rakuten merchants in Thailand.
efrastructure will also be able to help large corporations that lack digital capabilities, but want to expand online, to launch on Rakuten. It will be one of the jigsaw pieces of efrastructure.
How do you see the future for ecommerce in Thailand/SouthEast Asia progressing?
All ecommerce companies have the same goal: we want to move people from offline to online. That’s why I founded the Thai ECommerce Association and invited all our competitors to join, as we need to work together in order to achieve this. There is ample space in ecommerce for many players, as each brings their own set of strengths. Lazada may be good with shorttail or branded products, while we may be better with longtail, SME products.
Although Alibaba still hasn’t embarked on a largescale overseas expansion who knows? In the future, they might enter here. But it’s going to be more fun. Whoever moves fastest and can grow the market faster, will be the winner. But there can’t only be one winner we can all win together.
* Rakuten TARAD.com features merchants from Thailand’s countryside, such as a maker of traditional folk costumes in a small town in the north‐east. It adheres to the company’s philosophy of actively helping small‐ and medium‐sized merchants to develop.
** Terms coined by business school INSEAD professors, who use the concepts of blue and red ocean to describe the market universe. Blue ocean describes the wider, deeper potential of market space that is not yet explored. Like the “blue” ocean, it is vast, deep, powerful, in terms of profitable growth, and infinite. Red oceans refer to the known market space, with defined, accepted industry boundaries and clear competitive rules. As it gets crowded, profits and growth prospects are reduced, and cutthroat competition turns the “red” ocean bloody. This interview is the second part of a twopart feature spotlighting ecommerce in Thailand. Please click here to read the exclusive interview with the Director of ECommerce at DHL.
Associate Analyst Asia
Originally published on Planet Retail on May 14, 2015