Alibaba’s massive investment will MEAN many local companies will have to change IF THEY WANT to survive
Alibaba’s big move in Thailand brings with it benefits and positive impacts. However, it will also disrupt local business and industry, and lead to the China-headquartered company dominating the market not only in Thailand but also the entirety of CLMV.
Business leaders are drawing attention to both sides of the Alibaba equation.
Pawoot Pongvitayapanu, founder and CEO of tarad.com, trumpeted the benefits for Thailand of Alibaba’s investment, particularly in the Eastern Economic Corridor (EEC). On the other hand, there are many likely impacts that should concern us, he said.
Once Alibaba’s e-commerce park is fully established in the EEC and connects markets in Thailand and China – and other CLMV markets – it would directly impact and disrupt the merchants and traders who have imported products from China by bypassing them.
More Chinese products will rapidly flow directly to Thai markets, and that also would affect local manufacturers and local importers, eventually leading to employment impacts and long-term changes to the country’s economy. The impact would be less in some areas of the economy, such as the manufacturing and distribution of products already popularly purchased online, including fashion and gadgets.
Next, retail businesses and department stores would be impacted from Alibaba’s arrival, as an increasing number of people would switch to online shopping. That could lead to market domination by the largest and first online retailer – Alibaba.
“That’s especially true, as Alibaba plans to invest in infrastructure and that gives it a large competitive advantage. Of key importance to e-commerce business is warehousing and fulfilment – which Alibaba is hastily developing,” said Pawoot.
Disruption will reach beyond e-commerce and retail to other interlocking businesses, including banking, logistics and other local industries. Since Alibaba has a lot of products and services that go beyond the e-commerce that most people are aware of, it is able to offer financial and insurance services through “big data” monetisation.
However, Pawoot said, Thailand could also expect many good impacts from Alibaba’s investment starting with the direct impacts of the investment itself such as construction. Other positive impacts include encouraging the Thai e-commerce industry, helping Thailand become a hub of product distribution through CLMV (Cambodia, Laos, Myanmar, Vietnam) markets, a potential increase in Thai products exported to China, and improving the skills and performance of some local entrepreneurs.
On the issue of whether goods are “Made on the Internet” or “Made in China”, Pawoot noted that Jack Ma leans toward “Made on the Internet”. The reality, however, is that products are made in China and then flow through Internet transactions and to the Thai market.
“There are differences between Chinese and Japanese investments,” said Pawoot. “Japanese investors come to invest in building production plants and create jobs and employment in Thailand, and Thailand becomes a manufacturing base to produce products to sell to the global market.
“Meanwhile, Chinese investors come to invest in building infrastructure including logistics, warehouses, and fulfilment with the aim to easily and rapidly bring Chinese products to Thailand and CLVM markets. Thailand gets different impacts based on the difference in investment styles between Japanese and Chinese investors,” said Pawoot.
Therefore, the Thai government should carefully consider all aspects of the impacts from Alibaba’s investments and should give more support to Thai e-commerce, he said. He hopes the government does not favour a Chinese business over local businesses, given that Alibaba aims to help Chinese business to easily tap into Thai and CLMV markets.
Given the sheer number of products manufactured in China, government needs to be concerned about the balance of trade between China and Thailand, said Pawoot.
Alibaba’s investment in the EEC should be seen as both an opportunity and a threat to local business and industry, said Krating Poonpol, the founder of Disrupt University and co-fund manager of 500 TukTuk.
The opportunity is limited to SMEs that export to China’s market, he said, but the threat is for almost all local business. Instantly, the middleman and importers of products from China will be bypassed.
“More Chinese products will fly to the Thai market than Thai products will be exported to the Chinese market. It probably will lead to a trade deficit,” said Krating.
E-commerce, logistics, and payment sectors would be impacted. Once Alibaba has established its logistics infrastructure in Thailand, it would have a lot of data about Thai people through their online shopping activities. It could then monetise that data to give it a competitive advantage over Thai players across all businesses, not only e-commerce and logistics but also payments and ride-sharing, and then financial, banking and insurance.
The Thai government should consider supporting and promoting local e-commerce. They could do that with policies that stimulate creation of Thai e-commerce players as well as the key players in other business areas.
“There is opportunity but a large threat, so we need to understand the game of Alibaba. And use Alibaba to attract other giant players such as Tencent, Amazon, and JD to invest in Thailand to balance out the power of each other,” said Krating.
When asked about the Thai start-up ecosystem, Krating said that only a few start-ups have the opportunity to be acquired into Alibaba’s ecosystem, while the rest who compete with Alibaba would disappear.
Meanwhile, Natavudh Pungcharoen-pong, founder and CEO of Ookbee, noted that Alibaba brought Lazada to Thailand a while back, and this latest investment is their next step as well as their future expansion.
“It’s the right move for them. For Thai businesses, I think if you are SMEs, you probably want to use their infrastructure to help expand your business. If you are in retail, or if your business is threatened by them, I think you probably have to start looking into how to adapt to coexist with their business,” said Natavudh.
He added that though Alibaba is the biggest in Thailand now, they are not alone in the e-commerce ecosystem. The adaptability of local businesses will tell who will survive and thrive in the long run.
Siwat Luangsomboon, assistant managing director, Kasikorn Research Centre, said that those Thai SMEs that are able to create more value-addition to their products and tap the China or global market, will benefit from Alibaba’s platform. On the other hand, SMEs that produce simple products will be impacted since they will be unable to compete with Chinese products.
“The middle-man will be immediately and directly impacted, since Chinese products will go directly to Thai consumers,” said Siwat.
It is not only middle-men and e-commerce businesses that will be affected. Financial services will also be impacted given that it is another core business of Alibaba. Once its business is licensed in Thailand, Alibaba’s financial services will affect local non-bank providers. On the other hand, SMEs would benefit.
Thana Thienachariya, senior executive vice president and chief marketing officer of Siam Commercial Bank, said that the impact is that settling for being average “is over”. Alibaba’s presence creates more opportunity for SMEs to sell into China’s market.
Conversely, if they do not make changes, the middle-men will disappear. But overall, the country is likely to end up more competitive and Thailand will be on the world map in an outstanding era, he said.