Ecommerce is bursting out of China into Southeast Asia and the Middle East

Business & Technology

Chinese cross-border ecommerce and supply chain service companies are expanding into the rest of the world and aiming to lead an ecommerce miracle similar to China’s.

Illustration for SupChina by Alex Santafé

This month, cross-border ecommerce exhibitions are taking place almost every week in China in Shandong and Fujian provinces, and Hangzhou, Guangzhou, and Shenzhen, driven by provincial and municipal governments. On the one hand, the recent relaxation of pandemic controls has sparked the wave of offline exhibitions; on the other hand, it is a clear indication of a turning point after years of the rapid development of ecommerce technology, products, and supply chain capabilities in China. Cross-border ecommerce is the future, and the trend is unmistakable and irreversible.

In 2021, a critical inflection point occurred: Whereas Chinese cross-border ecommerce was initially controlled by trading companies focusing on volume, the trade is now dominated by manufacturing enterprises with the ability to integrate industry and trade with supply chain management.

  • Domestic apparel manufacturer Zhejiang Semir Garment 浙江森马服饰, for example, in 2019 established a business center to coordinate cross-border ecommerce for its Semir and Balabala clothing brands.
  • The company made the decision to focus on countries along the Belt and Road Initiative (BRI) in the Middle East and Southeast Asia; its overseas business tripled from 40 million yuan ($5.96 million) in 2019 to 120 million yuan ($17.88 million) in 2021, and it now has a total of 50 stores abroad.
  • Even for the wholesale traders of the famous market in Yiwu, Zhejiang Province, the share of cross-border ecommerce in their total sales is now exceeding 50%.

Investment is flowing in: In the first quarter of this year, 15 financing events occurred in the field of Chinese cross-border ecommerce, with total financing of 2.26 billion yuan ($336.86 million). Startups engaged in supply chain management, compliance platforms, and logistics services received financing ranging from tens of millions to 300 million yuan ($44.71 million).

  • This week, Surpath 驿玛科技, which integrates supply chain management by means of artificial intelligence (AI) technology, completed pre-A series financing of tens of millions of yuan.
  • HGJ.com 海管家, a freight logistics services provider, earlier this month raised 100 million yuan ($14.90 million) in Series B financing, to be used for research and development and overseas expansion.
  • Evatmaster 欧税通, a provider of cross-border ecommerce compliance services, early in June raised 300 million yuan ($44.71 million) in Series A financing.

The context

COVID-19 has contributed to a global increase in the adoption of ecommerce. According to data from the United Nations Conference on Trade and Development (UNCTAD), the average share of internet users who made online purchases in 66 countries increased from 53% in 2019 to 60% in 2021. The greatest increases occurred in developing regions, notably, the Middle East and Southeast Asia.

  • In the United Arab Emirates, the share more than doubled to 63% last year; in Bahrain, it tripled to 45%; and in Thailand, it breached 50% for the first time.

The entry into force in January this year of the Regional Comprehensive Economic Partnership Agreement (RCEP) among 15 Asia-Pacific countries, the world’s largest free-trade agreement, is facilitating rapid growth of cross-border ecommerce in the region by reducing fees and taxes, and accelerating the process of trade digitization.

In particular, Southeast Asia, with a large and comparatively young population (with a median age of 30.2), is the region with the highest potential for replicating an ecommerce miracle akin to China’s:

  • While the internet penetration rate in the region is over 70%, the share of users making use of ecommerce is still only between 5% and 10%.
  • According to a survey of 196 Chinese cross-border ecommerce companies, half of the companies’ sales in Southeast Asia accounted for a third or more of total overseas sales.
  • Yet while entry barriers are low and growth prospects are high, ecommerce users in this region still have high price sensitivity and low brand loyalty.

But in addition to Southeast Asia, there are also other regions with great prospects where supply chain management is advancing rapidly, notably, the Middle East and Latin America.

One risk factor for Chinese cross-border ecommerce companies is an over-reliance on third-party ecommerce platforms such as Amazon, Wish, eBay, and Walmart, or payment platforms such as PayPal. In 2021, for example, Amazon closed tens of thousands of Chinese accounts for violations, and similar recent actions (as well as changes in platform rules and regulations) by the likes of Apple and PayPal have caused losses among Chinese cross-border ecommerce companies.

In order not to leave their fate in the hands of one foreign platform, these Chinese companies are increasingly setting up their own independent platforms. But this requires substantial initial investments and comprehensive supply chain management, putting it out of reach for small and medium-sized enterprises (SMEs). Overall, however, according to Amazon, the number of registrations by Chinese sellers on its platform has increased by 40 times in the past four years.

The takeaway

China’s ecommerce miracle is going global, and Southeast Asia is the first region to feel the full effect, with the Middle East and Latin America set to follow closely behind.