Has Taiwan Already Been Conquered by Overseas E-Commerce Players?

3 points to consider!

Recent moribund domestic reports have reported that the battle is over and overseas players have completely overrun Taiwanese home-grown ecommerce players. Right now, momo is the only domestic player that is holding its weight and even it is seeing slower growth. An example of this kind of narrative can be found in this recent article from ET Today https://finance.ettoday.net/news/2820714

Attack of the Foreign E-Commerce Barbarians

🇸🇬 The invasion started with Shopee, who came into Taiwan with their C2C model, offering free delivery and other venture capital-funded price discounts to lure customers. Shopee is estimated to have an annual revenue of nearly NT$ 100 billion NT dollars at this point.

🇰🇷 Coupang, the Korean e-commerce leader, has invested heavily in Taiwan and taken the market by storm. Bom Kim, the CEO, said this year that Taiwan is moving faster towards profitability than its home market, Korea, did. Coupang's annual revenue in the Taiwan market last year has been estimated at around US$161 million (approximately NT$5.2 billion).

🇨🇳 In August, Chinese e-commerce colossus Taobao launched the 99RMB（Around NT$ 450) Free shipping plan for selected items to Taiwan, which is expected to add further pressure to domestic e-commerce. Most of the 50 million items available for free shipping are in the fashion categories, but also other categories such as outdoor and household products fall under the plan. Taobao is extremely popular in Taiwan and can offer prices and breadth of product selection that local players could never get anywhere close to

Many experts are wondering if there is hope for Taiwan’s e-commerce players, especially when the combined revenues of foreign e-commerce platforms in Taiwan have reached NT$ 300 billion. 10 years ago over 30 local e-commerce platforms were competing on the market, but many of these have died.

PCHome was once the market leader. In the early days of Alibaba, Jack Ma used to come to Taiwan to meet with PCHome and study how to run a successful e-commerce business. However, they seem to have come to terms with defeat. At this year's shareholders meeting, Chairman Hung Tze-jan (詹宏志) addressed concerns about the company's ability to survive against Coupang's meteoric rise. His response essentially conveyed that it's futile for anyone to attempt to compete with them.

So is it over for Taiwan E-Commerce?

I think it is important to put things into perspective:

1. It is not just a Taiwan problem.

The whole world is struggling to compete with global e-commerce giants, especially with the rise of Chinese players like Temu and Shein.

Even Amazon, the global leader is struggling to find its competitive edge against the rising Chinese upstarts. According to Statista data, the Temu shopping app reached 337 million downloads in 2023, surpassing Amazon's app by nearly 80%.

Chinese e-commerce players have several clear advantages, such as:

• A domestic market of 1.4 billion consumers, gives the platforms the scale to invest heavily in R&D and develop new features. Having such a large domestic market means that they have huge war chests to invest in overseas expansions.

• Unlike the US and most of Europe, in which Amazon does not really have a competitor, the competition in China is fierce between a host of major players such as Alibaba, Pinduoduo(Temu’s parent company), and JD. Even social media platforms such as Douyin(TikTok) and Xiaohongshu have their own very profitable e-commerce businesses.

• This level of competition means that platforms need to innovate and move at breakneck speed if they have a chance of surviving. Alibaba, the long-term market leader, was momentarily overtaken by Pinduoduo in market cap last year.
  So in terms of of innovation and speed, it is akin to a white belt fighting a black belt when they enter overseas markets.

• Chinese e-commerce platforms have unparalleled access to affordable, high-quality products that consumers crave. A quick browse through Amazon or Shopee reveals that most unbranded items now originate from Chinese vendors.
  Chinese manufacturers have become adept at making top-quality products. Gone are the days of subpar, counterfeit goods from China—the country now produces excellent things that people want to buy. These platforms leverage their strong relationships with vendors to buy and sell at scale, resulting in lower prices for consumers.

2. There is No Need to Overreact

Coupang is the most spoken about of all the foreign e-commerce companies in Taiwan. Their advertisements are everywhere and they dominate discussions about e-commerce and retail in Taiwan.

As mentioned, according to recent estimates, Coupang's 2023 revenue in the Taiwanese market reached approximately NT$5.2 billion. However, this number does not even represent 5% of the revenue of momo in 2023.

Consumers are now au fait with the Silicon Valley/China model of burning through heaps of cash to quickly acquire customers. The hard part is retaining those customers when all the subsidies are gone and then finding a way to make money in the market.

3. Taiwan E-Commerce Can Get Better

Maybe it is true that PCHome could not have competed with the free-delivery subsidies offered by Shopee when the latter entered the Taiwan market in 2016, but not everything is just a matter of money. They could have made significant improvements to their UI (user interface) and UX (user experience), two critical areas where PCHome had faced persistent criticism from consumers for nearly a decade.

Merchandising on Taiwan's domestic platforms is conservative, focused on winning pricing wars for popular products. Brands and distributors are constantly in adversarial relationships with buyers and are forced to offer cheaper pricing and support many promotional events and activities.

Instead, platforms could use their local advantage and the consumer data they own to build relationships with brands and help them tailor their assortments to meet untapped consumer needs. They could also work with them and use their data to help them develop new product lines.

While competing solely on price may not be feasible, merchandising involves much more than offering the cheapest products. They could use the customer data to find blind spots or new opportunities and source more unique and exciting products. In that way, customers will come to platforms just to enjoy perusing the products and not just when they want to buy something