We need to weigh up the costs of e-commerce, not just the benefits

With the pace of economic recovery still sluggish, it fell again in February, resulting in a drop of 6.73 per cent to Bt16.5 billion for the first two months, according to Nielsen.

This kind of news is enough to make anyone gloomy. But there’s a silver lining, and can be illustrated with the current hype for a product available only through direct-sell.

The Thai importer of Korea King cooking pans spent Bt273.44 million on publicity in January and February. That’s a lot higher than the advertising budget of big names like Coca-Cola, Total Access Communication (DTAC), Toyota and Advanced Info Service (AIS).

The relatively small South Korean company has been around for years and is striving to become a respected global enterprise, according to its website, www.Koreaking.co.kr. The website also reveals a government award received in 1997 when export revenue hit US$10 million.  

Yet nowhere is their any information on where we can physically examine the product. It seems the company is focused exclusively on e-commerce.

Online retail giant Alibaba claims it can supply 400,000 of the ceramic-coated pans per month. And for a minimum order of 1,200 pieces, the price (excluding freight and insurance cost) is only $4-$6 apiece.

The online-only strategy seems to work well for the pan-maker, judging by the number of views of a promotional clip on its Facebook page.

Among the buyers is one of my colleagues, who admits she was hooked by a TV promo hosted by outspoken presenter Vuthithorn “Woody” Milintachinda. She said she wanted to test the commercial’s claim that the pans are designed for health-conscious consumers because they can cook without using oil thanks to a nano-silver ceramic coating.

The hype in this case seems to have been generated by an innovative product and the power of advertising and word-of-mouth. Here, the Internet is like a gift from heaven for smaller producers, offering new channels and ways to reach the huge group of potential customers out there.

That also explains why Thailand is so keen to promote e-commerce. As part of a digital-economy push, Deputy Prime Minister Somkid Jatusripitak revealed in January that the ministries of Commerce and ICT are working together to create a website-showcase for Thai products. The website will be linked to Alibaba web portals that generated 76 billion yuan (Bt409 billion) in sales last year.

Needless to say, e-commerce is opening the floodgate for products from small producers. Management and retail consultants predict sharp growth in e-commerce in Thailand and elsewhere in Southeast Asia. In its 2015 report “Lifting the barriers to e-commerce in Asean”, AT Kearney said e-commerce in six Asean countries in 2013 accounted for below 1 per cent of total retail sales, compared to 7.8 per cent in Europe, 7.2 per cent in China and 5.8 per cent in the United States. While noting that the growth prospects are huge, the company said they could only be achieved when infrastructure improves. In Vietnam, the Philippines, Thailand and Indonesia, less than half of the population uses the Internet. Only Singapore can boast access to fixed broadband on a par with places like the United States. However, the advent of 4G services should be a key driver for e-commerce in Thailand.

Meanwhile a report released last week by Bain & Company and Google notes that online retail represents a $6-billion (Bt209 billion) market in Southeast Asia, but with online sales below 4 per cent of total retail, the region still lags well behind developed markets and even other developing markets. Titled “Can Southeast Asia Live Up to Its E-commerce Potential?” the report forecast online retail sales across Southeast Asia could hit $70 billion by 2020.

Such sharp growth would ensure that mailing services also remain buoyant in the years to come.

Online business can also save inventory and operating costs of physical shops. But there are associated costs that we need to ponder.

Since Thai importer Wizard Solutions spent nearly Bt300 million advertising the Korean pans, I assume that the company would expect sales revenue of at least Bt500 million. With no showrooms for pans that are sold for Bt3,300 apiece, orders totalling Bt500 million would mean the company needs to ship 151,515 boxes.

In developed economies, the rapid growth of online shopping and food delivery is raising a new concern over the growing mountains of cardboard and packaging waste. The New York Times reports that 35.4 million tonnes of container-board were produced in 2014 in the United States, with e-commerce companies among the fastest-growing users. Adding to the pollution are emissions from increasingly personalised freight services.

Governments and freight companies in Thailand and the rest of Southeast Asia still have time to consider the benefits and penalties of an e-commerce boom. As the economic costs of environmental destruction and climate change grow, it may take more than recycled cardboard to offset the boon of revenue generated by e-commerce.

We need to boost e-commerce – and also to minimise the associated costs.