SMEs may face tougher times with Alibaba’s ‘e-hub’, cautions analysts

PUBLISHED : Wednesday, 22 March, 2017, 9:55pm
UPDATED : Wednesday, 22 March, 2017, 11:34pm

Alibaba’s plans to build an e-fulfilment hub and a cross-border trading services platform in Malaysia’s newly established digital free trade zone may be regarded as a future initiative that helps small and medium-sized enterprises (SMEs) do business globally, but analysts believe these companies may also see tougher times in the short term.

Alibaba’s “e-hub” in the zone is expected to act as a centralised customs clearance, warehousing and fulfilment facility for Malaysia and the region, speeding up imports and exports clearance for SMEs.

The e-commerce juggernaut’s electronic services trading platform is also expected to link up the zone to Hangzhou’s e-commerce pilot area, allowing companies in both countries to conduct trade easily.

“This is precisely the sort of investment that Malaysia hopes to attract from China. The general fear has been that China would simply relocate their low-cost, low-tech industries to Malaysia under the belt and road initiative, but that’s not what Alibaba is doing here,” said Shahriman Lockman, senior analyst at the Institute of Strategic and International Studies in Malaysia.

“At the same time, there’s been growing anxiety among Malaysian businesses – especially SMEs – about losing out to competitors from China. The e-fulfilment hub and e-service platform would certainly open the door to more competition from Chinese SMEs,” Lockman said, adding that the Malaysian government may eventually have to address the perception that Malaysia was “becoming overexposed to China”.

DBS senior economist Irvin Seah echoed this sentiment, stating that while Malaysian companies will be able to gain more access into China, Malaysia’s second largest export market, “trade cuts both ways”.

The e-fulfilment hub and e-service platform would certainly open the door to more competition from Chinese SMEs
Shahriman Lockman, senior analyst, Institute of Strategic and International Studies

However, Seah added that stronger trade flows are a positive in the longer term as competition “always brings about stronger productivity growth and economic efficiency”.

But the larger question surrounding such digital free trade zones is whether Malaysia has the infrastructure to become the “digital free trade centre” of Southeast Asia, according to Ronald Wan, chief executive of investment firm Partners Capital International.

“Digital trade still involves physical trade ultimately. Malaysia has implemented foreign exchange control and tax matters … such free flow of capital [under the digital free trade zone] will have certain conflicts with the policies involved,” Wan said, adding that stronger infrastructure is required in Malaysia to successfully facilitate a digital free trade zone.

Other analysts look favourably upon the upsides of such an initiative, stating that even Hong Kong’s logistics companies can benefit indirectly from digital free trade between Malaysia and China.

“As a logistics hub, Hong Kong has a comprehensive network of logistics services that it can facilitate between countries,” said Alice Tsang, an economist at HKTDC Research.

Tsang also cautioned that Hong Kong’s role as a gateway to China may decrease as such digital free trade zones would allow companies to source items directly from China.

Neil Wang, president of Frost & Sullivan Greater China, praised the establishment of the e-hub and cross-border trading platform as it would enable SMEs to develop new international clients, handle logistics and even payments without geographical restrictions.

Alibaba is the owner of the South China Morning Post.

Additional reporting by Bhavan Jaipragas.

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