We’ve written about how global competition coming into Southeast Asia is intensifying, especially from China (see this article).
But what can local startups do in response, especially in the ecommerce and consumer space? Shein and Bytedance’s expansion into the region are significant in this regard, and while not the only ones, hold key clues to challenges and opportunities for local players moving forward.
We share insights on the topic from our principal Yongcheng Ong from his sharings as a mentor in Insignia Ventures Academy, tapping into his experience as a cross-border VC from China to Southeast Asia:
(1) The China playbook for consumer businesses lines up well with Southeast Asia markets.
The intense cash burn environment that permeated in China has shaped the way consumer-centric entrepreneurs operate and the growth hacks they have in their playbook, which are well suited to kickstarting consumer businesses in emerging markets.
This makes such entrepreneurs looking for greener pastures in Southeast Asia well positioned to quickly take up market share (more so than other global competitors).
An example of one growth hack is how Shein managed build enough trust with their suppliers and partner factories to redefine fast fashion — primarily through on-time payments near unheard of in the market — to employ small batch production and quickly iterate through designs.
(2) Early success is often made via pricing, but is it sustainable?
Local consumer brands may have the advantage of iterating quickly on product development as they understand the market better, but the challenge comes when competitors’ pricing is enough to drive consumers switching for that product.
While this has proven to be a recipe for market entry success in emerging markets (given the propensity of consumers to choose the cheaper option in these markets), whether or not competing on price is enough to sustain a competitive moat is unclear, and would depend on the product and consumer maturity over time as well.
(3) While competition can cause churn short-term, there is also room for diversification long-term.
Competition evens out the playing field for platforms and brands that stay in the market long enough. Brands that went all in on TikTok in its first foray into Indonesia suffered the brunt of the closure, but with TikTok’s second entry, brands will likely still recognize the value of the platform but also play it smarter than before.
(4) Not all competition is equal.
It is important to have an accurate view of the competition to carve out the right niche in an increasingly populated landscape. For example, Shopee in the early days (3P) was less like Amazon (1P) and more like Taobao/Tmall. And as we have seen with the the upcoming “merger” of TikTok and Tokopedia, the competition positioning of these players can quickly evolve.
For example, GoTo now also has access to a pillar in the ecommerce journey that other platforms at this point don’t have the same kind of exclusivity over: social media.
(5) Behind the curtain of pricing is operational prowess.
It boils down to the operational prowess of cross-border teams. On face value, pricing may be the culprit, but behind these pricing strategies and their execution (e.g., access to the right suppliers), are people.
Playbooks are nothing without the teams implementing them, and there may be an opportunity for local Southeast Asia companies to tap into the talent influx and convert potential competition into partners for growth. For early-stage VCs, being able to assess the quality of teams and how they are setup will be key.
Yongcheng Ong is Principal at Insignia Ventures Partners. Previously he spent three years at China-based Qiming Ventures as an associate for their investment team in Southeast Asia and before that was part of Sea Group’s Corporate Development and Strategy team as well as Deutsche Bank’s Structured Commodity Finance team. He graduated from Nanyang Technological University with a Bachelor’s Degree in Accountancy.