Source: Xiaguang Society  By Li Xiaotian

When you find yourself in a Malaysian offline shopping center, it's not hard to notice that the shopping habits of local Chinese consumers are increasingly resembling those in China.

When they see a desired product, they don't immediately buy it. Instead, they take a photo with their phone and use image recognition to compare prices on Taobao—Chinese e-commerce platforms are subtly influencing and shaping local consumer habits and fashion trends.

Malaysia is home to over 6 million ethnic Chinese. The third and fourth generations of Chinese living here can also fluently use the Chinese langugage and have developed a continuous stream of Malaysian Chinese literature. They are keen on using Chinese e-commerce apps for shopping, Chinese social apps for social interactions, and prefer Chinese TV dramas and pop culture.

Now, Malaysia, which is geographically close to China, culturally connected, and commercially intertwined, has also become a "free shipping zone" for Taobao.

In July this year, Taobao, in collaboration with Alibaba International, launched the "Global Free Shipping Plan for Apparel," offering substantial shipping subsidies to provide free shipping for overseas consumers. This helps merchants acquire customers overseas and open new business opportunities.

The initial phase of the project covers regions including Singapore, Malaysia, South Korea, Hong Kong, Macau, and Taiwan. On September 30, the free shipping zone will expand to 12 global stations, extending from Asia to Australia, and will gradually achieve global free shipping.

It is reported that based on the successful exploration of the apparel industry, Taobao has expanded its overseas merchants to all industries, including beauty and baby products, trendy home furnishings, sports and outdoor gear, and small appliances.

So, what changes will Taobao's overseas expansion bring to the competitive landscape of overseas e-commerce? What is Taobao's strategy for overseas markets? And what is the development prospect of the apparel category in overseas markets?

1.

This year, the competition in Southeast Asian e-commerce has intensified, with the market landscape still undecided and players fiercely competing. Taobao's entry into markets like Singapore and Malaysia further stirs and reshapes the competitive landscape.

Moten Ventures released the "Southeast Asia E-commerce Market Report 2024," which shows that the Southeast Asian e-commerce market continued to grow in 2023, with the total GMV of the eight major e-commerce platforms reaching $114.6 billion, 2.1 times that of the first year of the pandemic in 2020. Among them, Indonesia remains the largest e-commerce market in Southeast Asia, contributing 46.9% of the total GMV of Southeast Asian e-commerce, although this proportion has decreased from 54% in 2022; in 2023, Vietnam and Thailand were the key drivers of GMV growth in Southeast Asia, with year-on-year growth rates of 52.9% and 34.1%, respectively; the other three key markets: the Philippines, Malaysia, and Singapore, all achieved double-digit or near-double-digit growth rates.

As for the main players, Shopee and Lazada, the two giants, have consecutively achieved profitability and continue to expand their investment in the Southeast Asian market; meanwhile, TikTok Shop is catching up, having returned to Indonesia after acquiring Tokopedia and becoming the second-largest player in Southeast Asia; Temu has already entered Malaysia, the Philippines, and Thailand, undergoing market testing and possibly looking for ways to enter the Indonesian market.

Among them, the layout of Alibaba's e-commerce in Southeast Asia is also worth noting. On one hand, Lazada is streamlining its organizational structure, focusing on optimizing the supply chain and enhancing user experience; on the other hand, Taobao's "Global Free Shipping Plan for Apparel," a new overseas project, has become a new variable due to its variety of categories and the convenience of free shipping.

It is reported that this project is responsible for merchant recruitment by Taobao Apparel, while Alibaba International Digital Commerce Group (AIDC) is responsible for overseas logistics and user operations; Taobao and Alibaba International's retail e-commerce platform "Hupan" are interconnected, with products sold to overseas Taobao users through Taobao Overseas Edition, as well as to multiple global markets through AliExpress and Lazada.

Taking the Malaysian market covered by the first phase of Taobao Apparel Free Shipping Plan as an example: its total population is about 35.56 million, with a median age of 30.5 years, and a per capita GDP of nearly $12,000. The population structure is young, and consumer power is booming; in 2023, Malaysia's e-commerce GMV growth rate was as high as 10.7%, still in a high-growth period.

Since the launch of Taobao Apparel Free Shipping on August 1, the number of users in Malaysia has increased by 10% month-on-month.

The potential for expansion is thus evident.

In addition, Malaysia is a country composed of multiple ethnic groups. Among them, there are 69.4% Muslims, 22.4% Chinese, and about 6.6% Indians. Liu Jiali, the head of the Taobao Malaysia market, told Xiaguangshe that the social ecology of multi-ethnic coexistence determines that Malaysia's demand for clothing is also rich and diverse.

For example, Muslims, due to religious reasons, need long-sleeved long skirts and prefer cool and breathable fabrics; while Chinese people have a high acceptance of different styles such as new Chinese and European-American styles.

At the same time, Malaysian consumers do not have a strong brand dependency and are equally accepting of niche brands and white labels, making it easier to conduct brand education.

Moreover, Malaysia's year-round hot climate also facilitates Chinese merchants in clearing summer clothing stocks. "In terms of category planning, integrating domestic and foreign markets as a whole will bring greater results," said Kan Shan (Alibaba's flower name), head of Taobao apparel operations.

Regarding Taobao's "Global Free Shipping Plan for Apparel," a new overseas project, cross-border e-commerce expert Zhang Zhouping analyzed for Xiaguangshe: Apparel, due to its characteristics of fast-moving consumer goods, high repurchase rate, and convenient delivery, is a mainstream core category in e-commerce, with major platforms vying to lay out their strategies. Taobao's global apparel plan will intensify competition among platforms.

The conditions required to do well in the overseas market include: First, a user base. To open up the overseas market, the platform must first have a broad base of overseas online shopping users, which is a key factor in attracting more merchants to go abroad; Second, after-sales service. Apparel has a high return rate, and after-sales service in the local area is crucial for overseas consumers, which is also an important measure for the platform to serve users well.

Alibaba International's overseas e-commerce platform covers more than 300 million users worldwide, and the overseas version of the Taobao App has long had a highly sticky Chinese user base. In the past, 100 million overseas users purchased apparel products on Taobao every year, and this demand is very strong. However, in terms of product richness and fulfillment smoothness, there is still room for improvement. With the enhancement of supply and services, the overseas market has huge growth potential.

2.

According to the analysis by Momentum Ventures, the main strategy of Alibaba International Digital Commerce Group to cope with the intense overseas competition is: On one hand, optimizing the supply chain to improve the quantity and variety of products; on the other hand, enhancing the user experience by removing unnecessary and inefficient features and functions. The Taobao "Global Free Shipping Plan for Apparel" fully embodies these two points.

In terms of product richness, since August, Taobao has supported free shipping services for 70 million products overseas. Specifically, in the apparel category, other e-commerce platforms find it hard to match Taobao's scale.

In terms of operational convenience, Taobao Tmall merchants do not need to open a separate store or make special settings for products. Instead, they can join the overseas plan with one click through the same interface and logic. This includes:

Receiving guaranteed income based on a 20% commission; in the logistics segment, merchants do not need to worry about cross-border logistics coordination. After receiving orders from overseas consumers, they only need to send the goods to a designated domestic warehouse, and the goods are considered received upon arrival. If there are returns or refunds from overseas, the platform will bear the cost and handle the product return to a local warehouse in the market. Additionally, Taobao has not chosen a full custody model for the overseas plan but ensures that merchants can maintain pricing power and brand operation rights.

In the past, due to the complexity of the overseas chain, many merchants were interested but mainly observed. Since the launch of the Taobao "Global Free Shipping Plan for Apparel" in mid-July, the merchant sign-up rate has repeatedly hit new highs. In less than half a month, hundreds of thousands of merchants successfully ventured overseas through Taobao, with some merchants seeing their daily overseas order sales increase nearly 500 times compared to before.

Data from August 5 shows that the growth rate of overseas transaction amounts in Taobao's apparel industry is nearly 40%, while the overseas sales growth of merchants participating in the free shipping plan is even more significant, with a year-on-year increase of nearly 90%. Among them, merchants in the shoes, bags, and apparel accessories category saw the most significant growth, with a year-on-year surge of 114% in overseas transaction amounts.

CHIC JOC, a women's clothing brand that started on Taobao in 2013, focuses on high-end designer women's clothing. To establish brand awareness among overseas consumers, CHIC JOC did not choose the full custody model of supplying to e-commerce platforms but first began laying out offline stores overseas. By the end of this year, they will have opened five stores in regions such as Europe, America, and East Asia.

The curator, Mr. Lou, believes that for brands like theirs, which are positioned in terms of price and quality, offline presence is essential for deeply penetrating local markets and establishing local perception, while online presence helps better achieve repeat purchases and enhance customer loyalty. "To sell globally as a brand, one must rely on e-commerce. From a commercial perspective, this is the most efficient way."

After signing up for the CHIC JOC global free shipping plan for large apparel, they do not expect explosive growth in the short term but believe that this model can solve real problems. "It might be one of the most successful decisions by Taobao recently," it is efficient and clear.

"For example, regarding after-sales returns, merchants have fewer worries; there is no need to develop additional applications, and merchants do not need to join special operations. More importantly, Taobao has also promoted overseas, informing about the free shipping policy, etc., allowing overseas customers to pay more attention to these very good brands on Taobao. Even those who originally did not use Taobao can establish new awareness," said Mr. Lou.

It is reported that by the end of September, Taobao's free shipping sites will expand to 12 countries and regions, including Japan, Thailand, Vietnam, Cambodia, Australia, and Canada.

In terms of market selection, Taobao mainly considers three points:

First, the local Chinese population base;

Second, the size of the local e-commerce market. Although the Chinese population in Japan and South Korea is limited, the purchasing power and market potential are considerable. For instance, according to data released by the Korean Statistical Office on February 1 this year, the total transaction volume of South Korean e-commerce in 2023 reached 227.35 trillion won (171.89 billion USD), surpassing the total e-commerce volume of six Southeast Asian countries;

Third, the local logistics infrastructure capacity. For example, it takes about 12 hours to reach South Korea from Weihai, Shandong, by sea. Due to the convenience of logistics, South Korea was also included in the first phase of Taobao's "Global Free Shipping Plan for Large Apparel."

3.

China is the world's largest producer, exporter, and consumer market for clothing. Currently, there are 170,000 clothing enterprises in China, producing over 70 billion garments annually, accounting for more than half of the global output. In 2023, China's clothing exports totaled $164 billion, capturing 31.6% of the global market share. Leveraging comprehensive support systems, innovation capabilities, and advantages in scale and structure, Chinese manufacturing has become a guarantee of global clothing quality and quantity.

Nowadays, as the domestic market becomes increasingly saturated and competition intensifies, exploring overseas markets has become a common choice for apparel merchants. According to a report by the China National Garment Association, in 2023, the shrinking trend in revenue and total profits of China's clothing industry continues, with operational efficiency slowing and profitability becoming more challenging, putting severe pressure on the industry's economic performance. However, looking globally, Statista data shows that in 2023, the global clothing market size has reached $673 billion, twice the size of the global furniture market ($330 billion).

Regarding this, Kan Shan, the head of Taobao Apparel Operations, told Xiaguang Society that since the beginning of this year, domestic women's clothing has been deeply mired in the vortex of increasing return rates. This is because domestic consumers' consumption needs and shopping behaviors are more mature, coupled with services like shipping insurance, leading consumers to choose returns if they are not satisfied with the try-on, resulting in significant return and inventory costs. In contrast, the aesthetic preferences of overseas Chinese are similar to those in China, but according to estimates, the average return rate for overseas consumers is 2%, compared to 50%-60% domestically.

The huge disparity translates into tangible profits for merchants.

Additionally, overseas businesses do not offer return shipping coverage, eliminating the need for shipping insurance and further reducing costs for merchants.

The vast potential of the overseas market attracts sellers to establish a second growth curve. Meanwhile, the mature experience accumulated by Chinese e-commerce platforms in payment, logistics, after-sales service, and flexible supply chains provides a solid foundation for the overseas expansion of apparel and other non-standard products.

Kan Shan believes that the overseas competitiveness of Taobao Apparel fundamentally lies in the comparative advantages of China's textile manufacturing industry and Chinese clothing brands. "When we were initiating projects around June and July this year, I conducted merchant surveys in Shenzhen and Guangzhou, asking if they regularly went to Japan and South Korea to draw creative inspiration. One merchant immediately interrupted me, saying that 15 years ago, apparel merchants indeed tended to seek inspiration from Japan and South Korea, but now they believe that China's design and brand power have surpassed those of Japan and South Korea. The Chinese apparel industry not only excels in manufacturing capabilities but also leads in capturing fashion trends and constructing brand concepts."

For example, KPOP idols, who are seen as global trendsetters, are gradually being conquered by Chinese trendy clothing brands that started on Taobao: the domestic brand SINCETHEN, which focuses on vacation and leisure styles, quickly went viral on Xiaohongshu with photos of BLACKPINK, (G)I-DLE, and Red Velvet wearing their clothes; the designer brand SHUSHUTONG, which specializes in sweet and cool styles, has won the favor of many idols like Sunmi, Somi, and Jennie; and the hottest sixth-generation girl group NewJeans has also closely collaborated with the Chinese trendy brand CFIERCE multiple times, showcasing the light and dynamic nature of Generation Z.

Several KPOP idols have popularized the Taobao women's clothing brand SINCETHEN

Chinese trendy and traditional-style clothing, represented by New Chinese Style, also has a broad consumer base in overseas markets. The Taobao store Huashangge, which specializes in Song brocade clothing, signed up for Taobao's "Big Fashion Free Shipping Plan," and its overseas GMV in August increased by more than 100% month-on-month.

Huashangge has not deliberately done any marketing targeting overseas markets, but its unique style naturally attracts overseas Chinese with a sense of nostalgia. These groups are generally women over 40 years old, and the owner Chen Yu has learned that their professions include doctors, artists, and others, with some even wearing their clothes to teach calligraphy to foreigners. Most users are in the United States, with some in Australia.

Young scholar Zhang Neixian discusses in his book "Guochao: The 21st Century Chinese 'Renaissance'": "When you try to create a Chinese trend, Chinese symbols (Chinese), new ideas (Idea), and facing the market (Market) are the necessary and sufficient conditions to ignite popularity. Only cultural elements that adapt to the times can be spread, recognized, and have vigorous vitality, bringing national confidence."

In this sense, the overseas expansion of clothing is the best carrier for the overseas expansion of Guochao culture.

As Abby, a Malaysian Chinese user of Taobao, said, although the Malays and Indians around her do not understand Chinese, they are still attracted to the new Chinese-style clothing on Taobao and ask her to help purchase them. "Don't think they don't wear Chinese clothes; they love them because beautiful things can transcend borders and ethnicities."