China's JD.com has finally entered into a joint venture with Thailand's Central Group after two months of rumours, forging an e-commerce alliance that will fuel competition in the rapidly expanding market, a source familiar with the matter told the Bangkok Post.
While JD.com declined to comment on the rumours whether the joint venture with Central Group would be implemented this year, the company said Southeast Asian e-commerce is an attractive investment proposition because it is a relatively untapped market.
There are three main factors driving Chinese investment in the region's e-commerce market. First is the region's high internet and mobile penetration, coupled with the large unrealised potential of its online retail market.
"Only 2% of retail in Thailand takes place online, compared with more than 10% in the US and about 15% in China. Southeast Asia's demographics look similar to China's 10 years ago, which suggests that Chinese companies believe they have the experience to take countries like Thailand into the e-commerce space," said the source.
The second is the government's promotion of Thailand 4.0 and the Eastern Economic Corridor, which should improve the e-commerce sector and technology development.
"Those projects have laid a solid foundation to develop businesses faster than in other areas," said the source.
Third, Thailand is the second-largest economy in Southeast Asia by GDP, and it is increasing its trade with China.
"As Southeast Asia's hub, Thailand enjoys convenient geographic advantages and beneficial trading opportunities thanks to its borders with Myanmar, Laos, Cambodia and Malaysia. Furthermore, logistics infrastructure including the Thailand-China railway will boost cross-border trade through e-commerce platforms among these countries," said the source.
JD.com said one of its main competitive advantages is its "tight control over the fulfilment process and logistics system", which ensures that customers receive authentic products. "Unfortunately counterfeit products are all too common in the e-commerce system, especially in China."
JD.com provides same and next-day service to more than 1 billion people in China. As of June 30, 2017, it operated seven fulfilment centres and 335 warehouses covering 2,691 counties and districts across China.
Its second competitive advantage is its big data management capabilities as well its expertise in artificial intelligence (AI) and in unmanned vehicles, the company said.
"For example, in supply chain management, we combine AI algorithms and big data to make product pricing decisions; we have used drones to improve the efficiency of logistics in rural areas."
The company also launched a smart refrigerator earlier this year that uses cameras and image recognition technology to tell users when food will expire. Users can check the food supply in the fridge through a mobile app, and buy more if they start running low.
The partnership will bring together the online experience of JD.com and the marketing knowledge of Central, said Jarit Sidhu, research manager of global research firm IDC Asia Pacific.
"Chinese internet giants cannot enter Thailand directly because they need to understand local needs. Internet giants like Tencent acquired Sanook, and Alibaba acquired Lazada. But those deals joined two pure-play internet players, unlike the JD.com deal," said Mr Jarit.
He said this new venture will allow for the development of omni-channel marketing, in which consumers can buy offline and online. Omni-channel strategies are increasingly popular among internet giants like Amazon and Alibaba, which are starting to acquire brick-and-mortar locations.
The partnership will allow shoppers to try products at the shop and have them delivered at their home, or to buy online and pick up in stores.
Pawoot Pongvitayapanu, president of the Thai e-commerce association, said Thailand will become a battlefield for Chinese titans Alibaba and JD.com. The deal should enable Thai firms to expand their coverage to other countries, he said.