Cross-Border E-Commerce in Asia Pacific- Consideration from Japan

July 2019
Corporate Directions, Inc.
Kenji Sekijima (sekijima@cdi-japan.co.jp)－0－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－1－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 oftourists 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 fromfriends 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. Japanesecompanies need to recognize their lack of resources and capabilities, and the shortage area might be required to closelycooperate 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.

－2－What is “Cross-Border E-Commerce”?
Definition◼ 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 thanthe 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 thecountry in which a particular consumer is resident. A purchase can be made either in person or via distance
shopping.

－3－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 ecommerce platformer is considered the mainstream.
Transaction Type

Overview

Direct Purchase• Direct purchase from overseas
operators

Purchase Flow

Order
Delivery

CustomerDomestic
EC Platform

Overseas
EC Platform• EC platformer is operated within
the borders, but merchandisers
registered in EC site areoverseas operators

Merchandiser

Order

Customer

Delivery

EC PlatformerMerchandiser

Order• Both EC platformer andmerchandisers registered in EC
site are both overseas operators
Customer

Delivery

EC Platformer

Merchandiser

Border－4－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 topurchase products which are much cheaper and faster than current cross-border e-commerce.

SoutheastAsia

Japan

Merchandiser
1. Request

2. Visit Japan

4. Delivery

3. Purchase products
Merchandiser

5. Payment

Personal Sellers

Merchandiser－5－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－6－

Market Circumstances－7－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 tojump into the largest market from FY15 upward.
➢ China is said to be the leading force in Asia Pacific cross-border e-commerce market.
(USD billion)
Actual

1,200

Forecast

994
Others

900

827
CAGR (14-20)
37.1%

177

North America

217

Western Europe

476

Asia Pacific20(FY)

677
153

600

531
133

401
300

115

308
98

235
820

184

67
73
71
14156

131

112

92
99

144

1516

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

218
17299

18

381

19－8－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.
Cross-border EC transaction volume from China to JapanTop countries: where to purchase in China(US$ bn)
50

ActualForecast

40
CAGR (17-21)
+22%

3013%

South Korea

13%

U.S.A
26.3
22.3

18.5

20Japan

15.1
12.0
109%

France4%Australia

4%

UK

3%

Thailand3%

Singapore

2%01718192021(FY)05101520 (%)* IUSD: 108.5JPY（as of 2019/06/17）
Source: Ministry of Economy, Trade and Industry 「Market Research on E-commerce (2017/04)」、PayPal and Ipsos「PayPal Cross-Border Consumer Research 2016」－9－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 andmerchandisers’ side.
Consumers’ perspective

Higher internet
penetration• With the spread of smartphones (Internet),
many people in Asian region have access toinformation around the world. They caneasily access to cross-border EC sites, andbuy high-quality and genuine products while
comparing them with products sold in theircounty.

Repeatpurchase oftourists visitingJapan• 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 repeatedlyusing cross border EC site.
• In addition, word-of-mouth from foreigners
visiting Japan has great.

Merchandisers’ perspective

Lower entry
barrier• The overseas expansion through crossborder EC would not have to establish aphysical sales company or develop store
network in Asia.
• In addition, the merchandisers can sell thealmost same products through crossborder EC sites.

Expansion oftrade area

• Future consumption in Japan has been
expected to decline for reasons ofpopulation decline, etc. Cross-border EC
makes it easy for whole ranges of theJapanese companies to expand the tradearea.

－10－

Reference (1): Spread of smartphones in Asian region◼ The higher penetration rate of smartphones in major Asian cities has accelerated the environment to purchaseproducts through cross-border EC sites.

(%)
99.5% 99.4% 99.0%
100

98.9%

98.8%

97.9%

97.8%

95.1%
88.9%

85.4%
81.0%

77.9%

80

74.9%

71.2%

71.5%64.8%

60
53.5%
49.1%

40
41.6%

26.6%

20

27.1%
22.8%

22.0%

23.3%

Kuala Metropolitan Bangkok
LumpurManilaHo Chi
Minh CityJakarta

2012

2016
0Hong Kong Guangzhou

Taipei

Beijing

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

Seoul

Shanghai Singapore－11－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”.
Good cycle of purchasing Japanese productsIncrease of tourists in Asian region visiting Japan（Million Visitors）
Inflow promising consumers

3530
26.2

Visiting Japan
25
Memorablepurchasingexperience
In JapanTravels toJapan

CAGR(10-18)
+19%

20

Thailand
20.0
South Korea

15

Hong Kong
10.5

Taiwan

7.9
6.3

6.2
4.6

5
After Visits

Others16.3

10Before Visits

24.2

China0
10

11

12

13

14

15

16

1718 (FY)Word-of-mouth communication

Source: Japan National Tourism Organization「Statistical information」－12－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.

Past satisfied purchase experiences in Japan
Recommendation from acquaintances who visited Japan
Recommendation from information media about sightseeing in Japan
Other reasons

China

39.2%

Hong Kong

38.9%

Taiwan34.2%

South Korea

35.1%

United States

26.3%

12.7%

23.9%

14.8%

13.8%

25%

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

29.2%

20.2%

23.4%

19.2%

50%

14.4%

24.5%

21.8%

21.3%

30.0%

0%

20.1%

37.0%

75%

100%

－13－Marketing Activities－14－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 crossborder purchasing demand of consumers in Asia Pacific region.
Marketing Process

Overview

Product & Price• 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 berequired to consider product categories tailored to characteristics of the countries• In addition, sellers need to care about price elasticity because cross-border e-commerce specificexpenses such as overseas transportation costs and customs* would weaken the pricecompetitiveness compared with local similar products.

Promotion• 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 alreadypopular among tourists visiting Japan and products that are not.

Place• Cross-border e-commerce is an excellent channel for capturing customers “before visit” and “aftervisit”. On the other hand ideally, in order to maximize the business, sellers would be required todevelop 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.

－15－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.
Most satisfied items（%）

20
Promising Segments
Clothes/Shoes/Bags

15

Medical goods/Toiletry products/Healthy goods
Cosmetics/Perfume
Other foods/Beverage/Alcohol/Cigarette

10Manga/Animated character’s related items
Electric appliances

5Camera/Video camera/Exclusive watch
Japanese-style clothing/Folkcraft articles

0Confectionery

Books/CD/DVD/Postcards

020406080

Purchase rate in Japan（%）
Source: Japan Tourism Agency 「Consumers Trend of Foreigners Visiting Japan (2017)」－16－

Marketing Activities
Product & Price: Price Elasticity◼ As cross-border EC specific expenses such as overseas transportation costs and customs weaken the pricecompetitiveness, sellers would be required to care about the price elasticity before actually listing the products.
【Purchasing obstructive factors at cross-border EC sites; N=600】(Reasons)
Higher shipping cost

4.63

Longer waiting time for delivery

4.43

Higher price

4.39

No SKUs

4.04

Unknown order method

4.01

Quality concern (genuine or not?)

3.88
0

1

2

3

4

56 (Score)* On a scale of one (=Not at all true) to six (=very true)
Source: Mizuho Information&Research Institute, Inc.「Survey on repurchase intent of Japanese products for foreigners visiting Japan (August, 2016)」－17－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

Inflow promising consumers
Marketing Activities (e.g.)
Awareness

Awareness

AwarenessS
Consideration

Consideration

Prospect

ProspectPurchase

Purchase

Promote Repeat

Promote Repeat

NurtureAwarenessS

Nurture

Loyal

Loyal••••••

Mass Advertisement
SNS Advertisement
Product Sampling
Listing Advertisement
Pure Advertisement
Dynamic Advertisement✓ Products with lower awarenessamong tourists visiting Japanwould be required to conduct
additional activities to expand
upstream of marketing funnel.

－18－Marketing Activities
Place◼ Not only Japanese but also Asian players would be required to develop the strong channel structure incooperation to entice consumers in whole phases since they could complement each other’s area of expertise.
“Good cycle” of purchasing Japanese products• Japanese players proactively capture inbound market
at physical stores in Japan.

Visiting Japan

Memorablepurchasing
experience
In JapanTraveling toJapan

Before Visits

After Visits(+) Ideally, collaboration between Japanese and Asianplayers would be required to achieve seamless flow in thephase of “before visits”, “visiting Japan” and “after visits”.

• Asian players proactively capture outbound market
through cross-border EC.

Word-of-mouth communication－19－

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 ofJapanese companies.

◼ The key factor for success in cross-border e-commerce business is an appropriate choice of reliable partners. Due to thenature of cross-border e-commerce, many Japanese companies which consider overseas expansion through crossborder 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 Japanesemerchandisers.
➢ On the other hand, there might be more cases where large-sized Japanese companies utilize cross-border ecommerce 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 experiencefor customers due to developing common customer base to share necessary information in the inbound/ outboundmarkets in Japan and Asia Pacific region.

－20－All rights reserved. Copy and reproduction forbidden.

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