Global ecommerce has grown 13% annually over the past five years and is now a vital part of a retailer’s multi-channel strategy. In particular, 2012 was a tremendous year for ecommerce. Global sales crossed US$1 trillion for the first time, while Asia-Pacific ecommerce revenues grew 2.2x faster than North America. To top it off, Chinese ecommerce giant Alibaba recorded US$3 billion in sales in a single day. Never before has the world witnessed such explosive growth in ecommerce. And yet only 27.8% of the population of Asia-Pacific is currently connected to the Internet, according to Internetworldstats. Despite such low penetration rates, 46% of all internet users in the world come from Asia-Pacific. It’s clear where the opportunities for ecommerce lie in the future.

Asia-Pacific – The Next Frontier

Towards the end of 2011, the world’s largest daily deal company, Groupon, went public with a valuation of US$12.7 billion. That valuation has fallen 63% to US$4.72 billion today. Even Facebook has seen 44% of its market cap value disappear in just over a year. Contrast that picture with China’s Alibaba. In 2012, Alibaba’s combined merchandise value across its two major platforms, and TMall, exceeded Rmb 1 trillion (US$163 bn) and its transaction volume is likely to outstrip all American eCommerce companies combined in 2013!

And it’s not just China that is driving ecommerce growth in Asia. Countries like Indonesia, Malaysia and Singapore are playing their part. Per capita spend by Indonesians online is estimated to be US$239 and growing, according to a study by Rakuten. Additionally, 75% of Singapore’s population is connected to the Internet, and online retail sales in Malaysia, presently worth US$250 million, are expected to double over the next five years, according to management consultancy AT Kearney.

Broadly, growth in Asia-Pacific is being fuelled by the same ubiquitous drivers talked of before – an emerging middle class, with growing access to technology and devices, the propensity to spend and easier access to products and services.

There is no one-size-fits-all solution to ecommerce in Asia

Asia-Pacific represents many lands with many opportunities, no two the same. International retailers looking to take advantage of positive ecommerce trends in the region need to temper their expectations with the challenges faced.

1) Asia-Pacific is fraught with restrictive ecommerce regulations

In 2012 the Indian government eased regulation to allow foreign direct investment (FDI) into the country but decided to keep its stance on FDI on hold for B2C retail. That means foreign companies looking to do ecommerce in India cannot sell directly to customers. For a foreign online business to even have a local presence in India will require that it separates the local subsidiary, responsible for online retail operations, from the entity that is bringing in foreign capital. These laws have prompted Amazon to ask the Indian government to relax its ruling on B2C ecommerce, but to no avail.

In Indonesia, ecommerce falls under the category of Retail which is closed to any foreign investment as it sits on the negative investment list. As such no foreign investment is allowed at all into ecommerce currently, presenting a dilemma to foreign online businesses looking to tap the online market in Indonesia.

Additionally, with ecommerce booming in Malaysia and China, the governments of each country are drawing up regulations to combat fraud and monitor ecommerce activities, emphasising the growing challenges in Asia of allowing ecommerce to flourish in unfettered environments.

2) Asia-Pacific represents fragmented markets with local nuances

To do business in Asia-Pacific requires international retailers to adapt to local cultural norms and behaviours. For example, India is an 85% cash economy and a number of consumers do not have bank accounts or credit and debit cards, according to CNBC. Even Rocket Internet-backed Indian lifestyle portal offers its customers cash on delivery and a 30-day ‘No Questions Asked Return Policy’. International retailers have to provide Indian consumers with such services in order to win them over and remain competitive. Even Japan, where consumers are more comfortable using credit cards, is a cash oriented culture and the use of Konbini (convenience stores) is a popular payment method.

In Malaysia more than half of users shop online and rely primarily on personal recommendations, search engines and special online offers to make purchasing decisions, according to a management consulting firm AT Kearney. Compare that with China, where online buyers like to read online reviews and comments before making purchases, and demand free shipping on transactions over a certain price.

3) Local barriers to ecommerce logistics in Asia

Indonesia’s distribution infrastructure is geographically fragmented but consumers expect their online purchases to be delivered much faster than is actually possible at present. But Indonesia is also a market where internet access is growing at a rate of 20% annually, according to McKinsey Consulting, and nearly 100 million Indonesian consumers are expected to be connected to the Internet by 2016. It is such projections that are prompting retailers to take it upon themselves to develop their own logistics networks to overcome the shortfall in local transport solutions.

FlipKart, one of India’s leading eCommerce portals, is tackling the challenge of India’s poor distribution network head on and has invested heavily into back-end logistics. It now has over 5,000 delivery men servicing over 45,000 orders daily, according to the Times of India. But such heavy investment into logistics is only possible because FlipKart has raised over US$150 million in external investments. Not many international retailers interested in eCommerce in Asia can afford such an investment to compete with domestic competition.

International internet retailers need a local presence to be successful in Asia

International retailers are aware of the opportunity Asia-Pacific presents but most of them are doing just the bare minimum needed. In a study done by SP eCommerce involving leading US internet monobrand retailers, 48% were found to be selling their products remotely to Asia from the US, while only 9% offered international customers a view of prices in their local currency. Furthermore, not a single monobrand retailer offered Asian consumers access to local payment methods and only 3% offered free returns. These findings point to one thing – that international retailers are offering a mediocre customer experience in Asia.

In order to provide consumers with a superior customer service it is crucial that international retailers offer a local solution. This can be achieved in one of two ways: setting up local subsidiaries in Asian countries or partnering with local eCommerce solution providers. The former represents a considerable risk with high capital outlay and a long gestation period. The latter however allows brands to simulate a local presence and provides the same amount of control and transparency as a local subsidiary would, if not more. An integrated eCommerce solution partner would allow brands to take advantage of the Asian opportunity quickly, efficiently and in the correct manner.

Asian eCommerce, once a sleeping giant, is now awake and growing at a furious pace. The time to take advantage of this opportunity is now.

Written by Aadit Bimbhet