What is cross-border e-commerce?

July 1st, 2020

Digitalization in China

The Definition of Cross-Border

If we look in the dictionary, cross-border means an activity that involves people and businesses from different countries. However, cross-border e-commerce nevertheless means international online trade, where buyer and seller are located in two different countries and often are using different currencies and languages. Most cross-border e-commerce is divided into three types: B2C (business to customer), B2B (business to business) and C2C (customer to customer). At the moment, the most popular platforms that are used in Asia for cross-border transactions are Tmall Global, Lazada and Shopee.

As mentioned by the Global Merchant E-Commerce Study, 87% of e-commerce business leaders see that the cross-border e-commerce model is critical to a business’s long term success. Proportionally, from a global perspective, 66% of business owners are selling their products internationally through e-commerce, whilst 31% of them mentioned that nearly a third of their revenue came from cross-border business.

Thus, it goes without saying that most businesses were eager to expand their market across borders, believing that having an international presence will be essential for their company’s success in the long term.

Cross-Border E-Commerce in China

According to a Deloitte report, in 2018 China’s retail market soared to USD 5.8 trillion, making it the second-largest retail market in the world. Highlighting one area with the most potential to contribute to further growth in this number is the cross border e-commerce channel. But what’s so special about cross-border e-commerce in China? International companies are allowed to sell certain goods directly online to Chinese consumers through some of the most popular platforms in China, like Alibaba’s Tmall Global and Kaola, with additional benefits such as no requirements for a business license to operate in the country and availability of Free Trade Zone warehouses in China.

Currently, Tmall is the #1 B2C cross-border platform in China, with 700m monthly active users and a total of 25k international brands. Overall, 92 countries/regions are actively using the Tmall Global platform, selling in 5100+ listed categories. Tmall in particular saw a compound annual growth rate of 76% between 2015 and 2018 and continued to generate RMB 78.5 billion in gross merchandise volume (GMV) in 2019. So, what are the key factors that will support the cross-border ecosystem?

According to a survey by the Chinese Ministry of Commerce, quality, design, and product safety are the key purchase drivers for Chinese consumers. With safety and quality being the primary considerations, beauty and mother/baby categories are—unsurprisingly—the most popular through the cross-border channel. Beauty is the largest category on Tmall Global, accounting for 32% of the total GMV in 2018, up from 20.8% in 2014. This is followed by electronics and pet supplies, which were the fastest-growing categories on Tmall Global in 2018.

And as we may already know, livestreaming has always played an important role in attracting Chinese consumers to cross-border e-commerce platforms. It allows consumers to learn about the products and to secure a good deal while receiving personal-like recommendations in an interactive way from their favorite KOL/KOC or brand ambassador. Beauty, personal care and household cleaning products are the most livestreamed products on Chinese platforms.

The availability of cross-border e-commerce channels is also paving a new way for international brands to test the market without allocating too much of an initial investment. For example, dm-drogerie markt, one of the largest offline retailers in Europe, entered China through a Tmall Global store in 2016, and brand recognition has been successful ever since.

For small international brands that may have limited resources to launch businesses in China, cross-border e-commerce is a fast and efficient way to tap into the China opportunity.

Is Southeast Asia Next?

Cross-border sales from one country to another are the new exciting opportunity in Southeast Asian e-commerce. A growing middle class and high internet adoption rates in the region have laid the foundation for this trend.

Compared to China, the market for cross border e-commerce in Southeast Asia is still relatively small on a global scale. As per iPrice market report estimation, by 2025, it will account for 10% of the global cross border market, reaching over 100 billion USD. However, with this tremendous growth potential, there are many key factors that need to be taken into consideration. Nevertheless, the demand for cross-border e-commerce will remain, leading to a rapidly growing sector, especially in Singapore and Malaysia.

For Southeast Asia, you can find two different market demographics with contrasting characteristics: Growth markets such as Singapore, Malaysia, and Thailand keep thriving, while the Philippines, Indonesia, and Vietnam are found to be less stable, more challenging, but also with more potential growth.

As mentioned above, the most popular model dominating cross-border business in Southeast Asia is nevertheless B2B, with its cross-border e-commerce retail turnover expected to exceed RMB 3.6 trillion (USD 520 million) by the end of 2020, in which exports will make up RMB 2.1 trillion.
At the same time, B2C and C2C are also getting even more popular. And as shown by statistics provided by Google’s Consumer Barometer Survey, two out of three Singaporeans purchase products online from overseas, followed by Thailand, where 49% of the consumers have made international purchases.

Southeast Asia’s e-commerce giants such as Lazada and Shopee are not passing up this opportunity. As early as 2012, Lazada cemented its first presence in the high-potential Southeast Asia market, followed by Shopee in 2015. Since then, the growth for both platforms has been unstoppable and keeps on evolving towards a more unified and global cross border e-commerce future. The future of cross border e-commerce investment will continue to grow and will attract more international brands to tap into the market in order to become the fourth-largest economy in the world by 2030.

Sources: ecommercewiki, businesswire, alizila, thepaypers,chargedretail, kr-asia, businesstimes, Tmall Report-Emerging report post COVID-19.