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Cross-Border E-Commerce in Asia Pacific

- Consideration from Japan

July 2019

Corporate Directions, Inc.

Kenji Sekijima (sekijima@cdi-japan.co.jp)

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Table of Contents

◼What is “Cross-Border E-Commerce”?

➢ Definition

➢ Typical transaction types

➢ Unique cross-border transaction practices in Southeast Asia

⚫ Case) Grabr

◼Market Circumstances

➢ Market volume of cross-border e-commerce

⚫ Worldwide

⚫ From China, largest market of cross-border e-commerce, to Japan

➢ Reasons behind growth of Japanese products at cross-border e-commerce sites

◼Marketing Activities

➢Product & Price

➢Promotion

➢Place

◼ At the conclusion

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At the beginning…

This contributed presentation details the current business trends of cross-border e-commerce in Asia Pacific region.

The popularity of Japanese products in Asian Pacific region has been increasing with the recent strong growth of

tourists visiting Japan. In addition that tourists purchase the products in Japan, the number of tourists purchasing

Japanese products after returning home has been growing. Furthermore, based on word-of-mouth communications from

friends and acquaintances who have visited Japan, the number of customers purchasing Japanese products before visiting

Japan has been also increasing.

Needless to say, merchandise sales at cross-border e-commerce sites is an excellent sales means that enable

Japanese companies to expand their trading area while minimizing initial investment required for overseas expansion. On

the other hand, the reality is not all Japanese products are sold well at cross-border e-commerce sites. Japanese

companies need to recognize their lack of resources and capabilities, and the shortage area might be required to closely

cooperate with partners which deeply figure out the customer characteristics in Southeast Asian region.

Readership in this contributed presentation assumes…

◼ segments to expand sales of Japanese promising products in Asia Pacific region

➢ person in charge of sales operations at overseas subsidiaries of Japanese company

➢ person in charge of product procurement at retailer/ e-retailer/ distributor, etc.

◼ segments to support the overseas expansion for Japanese companies in Asia Pacific region

➢ person working at marketing agency

➢ person working at research companies

➢ person working at logistics companies operating in Asia Pacific region, etc.

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◼ Cross-border e-commerce is generally defined as follows in Japan.

Ministry of Economy, Trade and Industry（METI）

➢Cross-border shopping is an electronic commerce between a consumer and a business with a nationality other than

the country where the consumer resides

The European Commission

➢ According to “Consumer survey on cross-border transactions” published by European Commission, cross-border

shopping is any purchase made by consumers from retailers or providers located in a country other than the

country in which a particular consumer is resident. A purchase can be made either in person or via distance

shopping.

What is “Cross-Border E-Commerce”?

Definition

－4－

What is “Cross-Border E-Commerce”?

Typical transaction types

◼ Cross-border e-commerce can be broadly divided into 3 types, but basically, purchasing activities through e-

commerce platformer is considered the mainstream.

Transaction Type

Direct Purchase

Domestic

EC Platform

Overseas

EC Platform

Overview

• Direct purchase from overseas

operators

• EC platformer is operated within

the borders, but merchandisers

registered in EC site are

overseas operators

• Both EC platformer and

merchandisers registered in EC

site are both overseas operators

Purchase Flow

Merchandiser

Order

Delivery

Merchandiser

Order

EC Platformer

MerchandiserEC Platformer

Order

Delivery

Delivery

Border

Customer

Customer

Customer

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Reference 1) Unique cross-border transaction practice in Southeast Asia

◼ Personal sellers account for larger part of cross-border commerce, so consumers can ask friends or someone to

purchase products which are much cheaper and faster than current cross-border e-commerce.

Merchandiser

Merchandiser

Merchandiser

1. Request 2. Visit Japan

3. Purchase products4. Delivery

Southeast

Asia

Japan

Personal Sellers

5. Payment

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Reference 2) Unique cross-border transaction practice in Southeast Asia: Grabr

◼ “Grabr” has started to adopt the unique practices of Southeast Asia’s cross-border transaction as a new business.

Source: Grabr website

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Market Circumstances

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Market Circumstances

Market volume from FY2014-FY2020

◼ Cross-border e-commerce market in Asia Pacific region has a higher growth potential and would be expected to

jump into the largest market from FY15 upward.

➢China is said to be the leading force in Asia Pacific cross-border e-commerce market.

Source: Accenture「Global Cross Border E-Commerce Market 2020（2015/06）」

71 99 144218

299381

476

7392

112

131

156

184

217

6782

98

115

133

153

177

0

300

600

900

1,200

(USD billion)

(FY)1816

677

14

235

15 17 19 20

North America

Western Europe

Asia Pacific

Others

308

531

401

827

994

CAGR (14-20)

37.1%

Actual Forecast

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Market Circumstances

Market volume from China, the largest cross-border e-commerce market, to Japan

◼ As Japan accounts for larger presence in China, the largest cross-border e-commerce market, purchase amounts

from Japan have continued to grow in response to the whole market growth in China.

12.0

15.1

18.5

22.3

26.3

0

10

20

30

40

50

(FY)20

(US$ bn)

17 1918 21

CAGR (17-21)

+22%

Actual

* IUSD: 108.5JPY（as of 2019/06/17）

Cross-border EC transaction volume from China to Japan Top countries: where to purchase in China

Forecast

13%

13%

9%

4%

4%

3%

3%

2%

0 5 10 15 20 (%)

Japan

Thailand

UK

South Korea

France

U.S.A

Australia

Singapore

Source: Ministry of Economy, Trade and Industry 「Market Research on E-commerce (2017/04)」、PayPal and Ipsos「PayPal Cross-Border Consumer Research 2016」

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Market Circumstances

Reasons behind growth of Japanese products at cross-border e-commerce sites

◼ Cross-border EC market has been rapidly expanding in Japan since there are benefits for both consumers and

merchandisers’ side.

Consumers’ perspective Merchandisers’ perspective

Higher internet

penetration

• With the spread of smartphones (Internet),

many people in Asian region have access to

information around the world. They can

easily access to cross-border EC sites, and

buy high-quality and genuine products while

comparing them with products sold in their

county.

Lower entry

barrier

• The overseas expansion through cross-

border EC would not have to establish a

physical sales company or develop store

network in Asia.

• In addition, the merchandisers can sell the

almost same products through cross-

border EC sites.

Repeat

purchase of

tourists visiting

Japan

• There are many cases in which foreigners

visiting Japan purchase home appliances,

hygiene products, food products, clothes,

etc. in Japan and love to use them after

returning home and purchase repeatedly

using cross border EC site.

• In addition, word-of-mouth from foreigners

visiting Japan has great.

Expansion of

trade area

• Future consumption in Japan has been

expected to decline for reasons of

population decline, etc. Cross-border EC

makes it easy for whole ranges of the

Japanese companies to expand the trade

area.

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Reference (1): Spread of smartphones in Asian region

◼ The higher penetration rate of smartphones in major Asian cities has accelerated the environment to purchase

products through cross-border EC sites.

Source: Hakuhodo, Inc.「Market Research in 2016 (N=10,700)」

81.0%

41.6%

64.8%

53.5%

85.4%

49.1%

71.2%

27.1%22.8% 22.0% 23.3%

99.5% 99.4% 99.0% 98.9% 98.8% 97.9% 97.8%95.1%

88.9%

74.9%71.5%

0

20

40

60

80

100

JakartaSingaporeGuangzhou

(%)

ShanghaiHong Kong Taipei Beijing Seoul

26.6%

77.9%

Kuala

Lumpur

Metropolitan

Manila

Bangkok Ho Chi

Minh City

2012

2016

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Reference (2): Repeat purchase of foreigners visiting Japan

◼ The increasing number of tourists visiting Japan enjoy a shopping spree and then clearly has a positive impacts

on the purchase phase of “after visits” and “before visits”.

20

5

10

35

0

15

30

25

Taiwan

（Million Visitors）

10

24.2

11 12 13 14 15

Others

16 (FY)17

China

6.2

South Korea

Thailand

16.3

18

26.2

6.34.6

Hong Kong

7.9

10.5

20.0

CAGR(10-18)

+19%

Good cycle of purchasing Japanese products Increase of tourists in Asian region visiting Japan

Source: Japan National Tourism Organization「Statistical information」

Visiting Japan

Before Visits After Visits

Inflow promising consumers

Memorable

purchasing

experience

In Japan

Word-of-mouth communication

Travels to

Japan

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Reference (3): Repeat purchase of foreigners visiting Japan

◼ The past purchase experience in Japan, or word-of-mouth communication from relatives and acquaintances who

have visited Japan have a positive influence on the purchase at the cross-border EC site.

Source: Ministry of Land, Infrastructure, Transport and Tourism 「White Paper on Tourism (2017)」

30.0%

35.1%

34.2%

38.9%

39.2%

13.8%

21.3%

14.8%

12.7%

20.1%

19.2%

20.2%

21.8%

23.9%

26.3%

37.0%

23.4%

29.2%

24.5%

14.4%

0% 25% 50% 75% 100%

United States

South Korea

Taiwan

Hong Kong

China

Past satisfied purchase experiences in Japan

Recommendation from acquaintances who visited Japan

Recommendation from information media about sightseeing in Japan

Other reasons

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Marketing Activities

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Marketing Activities

Conditions to consider in expanding cross-border e-commerce business in Asia Pacific region

◼ Japanese merchandisers would be required to design strategic marketing process to capture the strong cross-

border purchasing demand of consumers in Asia Pacific region.

Product & Price

Promotion

Place

Marketing Process Overview

• Product categories already sold well to tourists visiting Japan and with higher level of satisfaction

would be 1st candidate to expand through cross-border e-commerce sites.

✓ Of course, there are differences in suitable products by countries, so sellers would be

required to consider product categories tailored to characteristics of the countries

• In addition, sellers need to care about price elasticity because cross-border e-commerce specific

expenses such as overseas transportation costs and customs* would weaken the price

competitiveness compared with local similar products.

• Sellers with lower awareness would be required to widen the upstream part of the marketing funnel

compared to products that are already sold well for tourists in Japan

✓ There is a huge difference in the promotion method between products that are already

popular among tourists visiting Japan and products that are not.

• Cross-border e-commerce is an excellent channel for capturing customers “before visit” and “after

visit”. On the other hand ideally, in order to maximize the business, sellers would be required to

develop strong sales channel combined with inbound market due to creating seamless flow

between inbound and outbound.

*Customs duties vary depending on the country and products, so it would be required for the companies which consider overseas expansion to investigate before actual product sales.

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Marketing Activities

Product & Price: Product category

◼ Product categories with higher purchase rates and higher satisfaction levels should be considered first when

expanding through cross-border e-commerce sites.

➢Among products meet the above conditions, products already expanded and sold well at local stores would

not be suitable for cross-border e-commerce.

Source: Japan Tourism Agency 「Consumers Trend of Foreigners Visiting Japan (2017)」

0

5

10

15

20

0 20 40 60 80

Electric appliances

Japanese-style clothing/Folkcraft articlesConfectionery

Most satisfied items（%）

Purchase rate in Japan（%）

Other foods/Beverage/Alcohol/Cigarette

Cosmetics/Perfume

Camera/Video camera/Exclusive watch

Medical goods/Toiletry products/Healthy goods

Clothes/Shoes/Bags

Manga/Animated character’s related items

Books/CD/DVD/Postcards

Promising Segments

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Marketing Activities

Product & Price: Price Elasticity

◼ As cross-border EC specific expenses such as overseas transportation costs and customs weaken the price

competitiveness, sellers would be required to care about the price elasticity before actually listing the products.

Source: Mizuho Information&Research Institute, Inc.「Survey on repurchase intent of Japanese products for foreigners visiting Japan (August, 2016)」

4.63

4.43

4.39

4.04

4.01

3.88

0 1 2 3 4 5 6

Unknown order method

No SKUs

Higher shipping cost

(Reasons)

Quality concern (genuine or not?)

(Score)

Higher price

Longer waiting time for delivery

【Purchasing obstructive factors at cross-border EC sites; N=600】

* On a scale of one (=Not at all true) to six (=very true)

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Marketing Activities

Promotion

◼ Companies which sell products in Japan but not popular for tourists need to plan and implement basic marketing

activities steadily in overseas market to newly create “good cycle” of purchasing activities.

Popular products among tourists visiting Japan Lower-awareness products among tourists visiting Japan

AwarenessS

Inflow promising consumers

Awareness

Consideration

Prospect

AwarenessS

Promote Repeat

Purchase

Nurture

Loyal

Purchase

Nurture

Loyal

Promote Repeat

Awareness

Consideration

Prospect

• Mass Advertisement

• SNS Advertisement

• Product Sampling

• Listing Advertisement

• Pure Advertisement

• Dynamic Advertisement

✓ Products with lower awareness

among tourists visiting Japan

would be required to conduct

additional activities to expand

upstream of marketing funnel.

Marketing Activities (e.g.)

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Marketing Activities

Place

◼ Not only Japanese but also Asian players would be required to develop the strong channel structure in

cooperation to entice consumers in whole phases since they could complement each other’s area of expertise.

“Good cycle” of purchasing Japanese products

Visiting Japan

Before Visits After Visits

Memorable

purchasing

experience

In Japan

Word-of-mouth communication

Traveling to

Japan

• Japanese players proactively capture inbound market

at physical stores in Japan.

• Asian players proactively capture outbound market

through cross-border EC.

(+) Ideally, collaboration between Japanese and Asian

players would be required to achieve seamless flow in the

phase of “before visits”, “visiting Japan” and “after visits”.

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At the conclusion…

◼ Many Japanese merchandisers are looking forward to strengthening cross-border e-commerce business in Southeast

Asia because further strong market growth would be expected.

➢Southeast Asian market is considered promising as “China +1 Market” among overseas business managers of

Japanese companies.

◼ The key factor for success in cross-border e-commerce business is an appropriate choice of reliable partners. Due to the

nature of cross-border e-commerce, many Japanese companies which consider overseas expansion through cross-

border e-commerce will be SMEs (Most of large-sized Japanese companies have already operated business in overseas

markets with their own marketing units). They tend to have a shortage of key resource and capabilities in overseas

market, so have difficulty running smoothly without a reliable partners that complement scarce areas of Japanese

merchandisers.

➢On the other hand, there might be more cases where large-sized Japanese companies utilize cross-border e-

commerce sites as tests prior to the actual product development in Asia Pacific region.

◼ Ideally in the near future, both Japanese and Asian players should aim for achieving the seamless purchasing experience

for customers due to developing common customer base to share necessary information in the inbound/ outbound

markets in Japan and Asia Pacific region.

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Corporate Directions, Inc.

23rd Floor, Tennoz First Tower

2-2-4 Higashi Shinagawa,

Shinagawa-ku, Tokyo 140-0002 JAPAN

Tel ： +81-3-5783-4640

URL ： http://www.cdi-japan.co.jpAll rights reserved. Copy and reproduction forbidden.