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China technology

From supermarkets to super apps, Southeast Asian tech start-ups are looking to China not Silicon Valley

  • Southeast Asian companies are increasingly looking towards China for internet and technology innovations to drive their business models into the future
  • Both regions have high mobile penetration rates, with large swathes of people going directly online via the mobile internet
PUBLISHED : Friday, 26 October, 2018, 6:04am
UPDATED : Friday, 09 November, 2018, 2:24pm

It’s 11am on Sunday morning in the industrial area of Singapore’s Pasir Panjang district, and the sun is streaming through the floor-to-ceiling windows at Habitat, a technology-enabled supermarket concept by online grocery start-up Honestbee.

Customers mill about the sprawling, 60,000 square feet store browsing multiple shelves of imported items and checking out the fresh produce on offer.

Some gawk as overhead conveyor belts transport bags of packed groceries, ordered by online customers, across the store in preparation for delivery, as others gather around the automated checkout area (there are no cashiers) to push their supermarket trolleys onto conveyor belts, watching as their groceries disappear behind metal doors to be packed.

Near the checkout area, customers stand in line at the live seafood counter, waiting their turn to order Boston lobsters and fresh oysters, which can be shucked on the spot and served with wedges of lemon on a bed of crushed ice.

Eateries line the perimeter of the store, offering everything from Japanese souffle pancakes and grilled meats to beer-battered fish and chips and Italian pasta.

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Launched last week, Habitat is Honestbee’s concept of what future supermarkets could look like and doubles up as an innovation lab for the company to test out integrated online and offline strategies for the future of retail. The concept is somewhat similar to Hema supermarkets in China, operated by e-commerce giant Alibaba Group Holding and emblematic of a wider trend whereby Southeast Asian companies are increasingly looking towards China for internet and technology innovations to drive their business models into the future.

The similarities between Habitat and Hema are quite obvious: Shop in-store or opt for on-demand delivery? Check. Mobile payments? Check. Buy fresh seafood and have it prepared in-house for a piping hot meal? Check again. However, Southeast Asian companies are also putting their own twist on things.

“Hema did New Retail … and set the stage for that, but we’re trying to evolve it and put our own take on this,” said Pauline Png, vice-president and managing director for Honestbee’s Habitat supermarket.

“We feel that an offline space … is about human interaction and about learning and being inspired and engaging the five senses,” she said, pointing out that the supermarket and dining areas are integrated to give shoppers a better experience. Hema currently separate these sections and Hema still offers manned cashier counters whereas Habitat has automated check-outs only.

The aim is to “inspire more human engagement for a multi-sensory shopping experience”, according to Honestbee, which has dubbed this model of incorporating online and offline shopping for groceries “NewGen Retail” (Alibaba, which owns the South China Morning Post, calls its own model “New Retail”).

The trend of Southeast Asian companies adopting business models proven to work in China – such as Tencent Holdings’ WeChat super-app model, Alibaba’s Taobao e-commerce model and Alipay’s innovation of escrow payments for e-commerce transactions among others – has been dubbed unsurprisingly as “Copy from China”.

This represents a shift from the “Copy to China” experience, whereby a decade ago many Chinese companies adopted the business models of established US technology firms at a time when the world’s most populous country was still developing as a new technology power.

Mobile-first business models, pioneered in China, are becoming popular in Southeast Asia as the region is at a similar stage of internet connectivity to where China was a decade ago, according to Hian Goh, co-founder and partner at Openspace Ventures in Singapore. Both regions have high mobile penetration rates, with large swathes of people going directly online via the mobile internet whereas in the West most people began their online life on computers.

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“Southeast Asian tech companies feel like they have the capability to learn from Chinese business models because we are a mobile first internet economy,” Goh said.

Other commentators point to the widespread adoption and appeal of consumer technology in Southeast Asia’s emerging markets.

“Many Southeast Asian start-ups look towards the China model as this part of the world is still very consumer technology-driven, and China has already [proved their models work],” said Chua Joo Hock, managing partner at Vertex Ventures, the venture capital arm of Singapore’s Temasek Holdings.

“In a way, yes there is “Copy from China” in companies here, but obviously the market is different … They look at the good things China has done, the kind of margins they should expect, and localise it accordingly,” he said.

For example, Habitat is located in an industrial area and is not that easy to get to. The reason for picking such an area is that it gives Honestbee the space it requires to execute its vision, says Honestbee’s Png. In contrast, Hema supermarkets tend to be located centrally and in malls, making it easy for consumers to access and allowing it to guarantee 30 minute deliveries within a 3km-radius.

To be sure, Asian companies are not the only ones trying to crack the future of retail. In the US, which arguably gave the world internet browsers, messaging services, e-commerce and social media first – e-commerce firm Amazon in 2016 introduced Amazon Go, a partially-automated store that allows shoppers to grab what they need and leave, with Amazon using sensors and camera-tracking technology to determine what items a shopper took, automatically charging their card. But the recent impetus in Southeast Asia is clearly coming from China.

Singapore-based mobile classifieds platform Carousell, which pioneered the “snap, list, sell” model when it comes to selling second-hand items, earlier this year launched CarouPay, a payment system within its app that serves as an escrow service. If a buyer makes payment through CarouPay, the funds are held by the third party until the buyer has received the item, whereupon payment is then released to the seller.

This model is similar to the strategy that Alibaba took with building its e-commerce empire, where it launched Alipay as a payment and escrow service to improve trust between buyers and sellers on its Taobao e-commerce platform. Alipay’s escrow service is widely credited with increasing the popularity of the Chinese e-commerce platform as it created greater confidence between buyers and sellers in China’s generally low-trust society.

CarouPay is currently available only in Carousell’s home market, Singapore, although the company is looking to introduce this feature to the rest of its markets, according to Quek Siu Rui, co-founder and chief executive of Carousell.

Quek said that the idea to implement CarouPay was deduced from a “first principles” approach, as an escrow service solves the fundamental problem of trust between buyers and sellers. “Applying escrow has been around for a while in the peer-to-peer buying and selling process,” he said.

But unlike Alibaba, which developed Alipay as a digital wallet that allows users to store value and use it within the Alibaba ecosystem of services, CarouPay uses US payments system Stripe to process the payments and works with local banks to accept payments via digital wallets such as DBS Paylah and credit or debit cards.

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“Every market has different payment behaviours and our payment systems and support will have to vary from market to market,” said Quek, pointing out that it is not feasible for Carousell to roll out a one-size-fits-all payments system across its seven markets in Asia.

“In Indonesia for example, it’s unlikely that we will be able to work only with credit cards [as payment] as penetration is so low, you’d have to work with multiple wallet players and [facilitate] bank transfers.”

Southeast Asian technology companies in different service areas, such as Grab and Go-Jek, have also looked towards China for inspiration as the two companies expand beyond offering ride-hailing services. They also count Chinese tech companies Didi Chuxing and Meituan-Dianping as shareholders respectively.

Indonesia’s Go-Jek has established itself as a provider of local services in its home market, delivering everything from food, groceries, and parcels. Via the Go-Jek app, users can even shop online and have drivers deliver their online shopping to them, or book massages and movie tickets. Since July this year, Singapore-based Grab has integrated food delivery and on-demand groceries delivery into its app as it seeks to become an “everyday app” for users.

This so-called super-app model, where users are able to access a plethora of services within one main app, was pioneered by Tencent’s WeChat messaging app. From a simple messaging app launched in 2011, the company has evolved to become a must-have app in China, offering not just messaging services but also a social feed, digital wallet and mini-programs that gives users access to everything from addictive mobile games to bike rentals without ever having to exit the WeChat platform.

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At the end of the day, the best entrepreneurs are those who have a willingness to adapt quickly to the cultural and business practices in different countries across the region, said Openspace’s Goh. Singapore, which has become the de facto start-up hub of the region thanks to strong government support, solid infrastructure and an inflow of venture capital, is also “uniquely positioned” as a base to draw on lessons from both China and Silicon Valley, he said.

And there’s a lot at stake for those looking to drag Southeast Asia into the 21st century. The gross domestic product of Asean, comprising 10 Southeast Asian countries, is about US$2.8 trillion according to data from UOB Group. That is roughly the same size as China’s GDP in 2006, before it embarked on a decade of breakneck growth and innovation.

“We have today’s technology and mobile connectivity transforming a market that feels like China 10 years ago,” said Goh. “My gut feel is that we will take five years to do what took China took a decade to achieve.”