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Alibaba a game changer for Southeast Asian development

Internet giant eclipses Japan's role in cross-border trade

Alibaba Executive Jack Ma announces a series of investments in Thailand's Eastern Economic Corridor on April 19. The company's mission, he declared, is to "help the young people, small business, farmers and women." (Takaki Kashiwabara)    © Takaki Kashiwabara

TOKYO -- A range of projects launched by Alibaba Group Holding in partnership with the Thai government marks a watershed in the way foreign investment promotes growth in the country and region as a whole.

Where Japanese companies once played a pivotal role in developing Southeast Asia through face-to-face contact and building networks with local partners, the Chinese e-commerce giant can now offer a route into cross-border trade for just about everyone.

Alibaba Executive Chairman Jack Ma Yun met Thai Prime Minister Prayuth Chan-ocha on April 19, and signed four memorandums in areas including agricultural product sales and technological expertise. The centerpiece of Alibaba's grand plan for the country is the Smart Digital Hub, the state-of-the-art logistics facility in the Eastern Economic Corridor, a heavily promoted special economic zone east of Bangkok. The company will spend 11 billion baht ($344 million) on building the plant.

When it goes online by the end of 2019, the Smart Digital Hub will become the focal point for Thai exports via Alibaba's e-commerce platform.

"What Alibaba wants to do in Thailand, our mission, is to help the young people, small business and farmers, women," Ma said after the meeting. "We can make use of the internet to help promote their goods."

To coincide with the announcement, Alibaba opened an official page featuring Thai products on its e-commerce site Tmall. When the company pitched durian, a pungent-smelling tropical fruit, on the site, it received 130,000 orders in three days. 

The Chinese e-commerce giant's move into the Southeast Asian country bears a distinct echo of the strategies taken by Japanese companies decades ago.

Take a stroll around a Bangkok shopping district and you could almost be forgiven for thinking you were in Tokyo at times due to the ubiquity of storefronts with Japanese lettering.

The Thai people's fondness of all things Japanese is a far cry from the mid-70's, when demonstrations were held to protest the "economic invasion" of the country.

Since then, Japan's investment has been crucial to economic development in Thailand, and gradually public sentiment has turned.

“You are true friends," said Bansarn Bunnag, Thailand's ambassador to Japan at an event at his official residence in late April.

By no coincidence, among the guests was Makoto Hirayama, president of Kitoku Shinryo, one of the first wholesalers to bring Thai rice to Japan.

In fiscal 2017, the company handled 20% of the 260,000 tons of Thai rice imported to Japan. It all began around 30 years ago, at a time when protectionist policies in Japan forbade bulk rice imports.

By using a special quota system, whereby raw materials could be imported for processing into products for export, Kitoku Shinryo started sourcing inexpensive sticky rice produced in northern Thailand as an ingredient for crackers bound for overseas markets.

Things changed in 1993, when Japan suffered rice shortages due to a poor harvests after a cold summer. Tokyo was forced to begin emergency imports of foreign rice and the Thai government duly obliged. A number of trading houses, however, opted to bring in komai, rice harvested the previous year, in search of more profits.

Over the next couple of years, Thai rice ended up developing an unfair reputation of being dry and tasteless. Having built up strong ties with their Thai partners, Kitoku Shinryo’s management team felt they had to act and started importing high-end aromatic rice from the country. The product was a huge hit at Thai restaurants in Japan and Thai rice shed a bad rep.

Another success story involving Japanese know-how and Thai products can be seen at the departures lobby of the Suvarnabhumi Airport in Bangkok.

One of the duty-free stores promotes a brand called OTOP, selling a range of goods including handicrafts, food and herbal cosmetics.

Short for "One Tambon, One Product," the program is designed to stimulate small business by supporting unique locally made goods from Thailand's numerous tambon, or sub-districts.

The idea was borrowed from the “One Village, One Product” regional development initiative in southern Japan’s Oita Prefecture, and launched under the premiership of Thaksin Shinawatra, who was looking to shore up support in his rural strongholds.

A worker puts the finishing touches to a clay statue in Dan Kwian pottery village, northeast of Bangkok. Traditional products like these are sold at department stores and duty-free shops under the One Tambon One Product scheme. (left image © Reuters)

In response to Thaksin's request for help, the Japanese government dispatched a team of experts to develop simple agricultural products into goods that were suitable for export, offering guidance on quality management, designing and marketing.

OTOP goods then went on sale in Japan at department stores and through TV shopping channels and fashion magazines. Ironically, the brand then developed a following among Thais who had seen it in Japan.

According to the Thai Ministry of Interior, about 6,050 OTOP goods are now on the market and sales in fiscal 2017 reached 153.3 billion baht ($4.8 billion).

The scope of Alibaba's strategy today, however, eclipses what Japanese investment achieved at its height.

The Chinese e-commerce giant plans to become far more than a sales broker.

According to CEO Daniel Zhang Yong, Alibaba's core asset is data. The company constantly analyzes consumer segments and fast-selling products based on information gathered through Tmall and smartphone payments, which can then be used to propose marketing approaches to small businesses and farmers.

Ma has also taken on advisory roles with the governments in Kuala Lumpur and Jakarta, and construction of other logistics facilities is underway in Malaysia.

Ma has often described globalization as being open to anyone. Even small businesses and farmers in emerging countries, he argues, can benefit from cross-border e-commerce.

Kaori Iwasaki, a senior economist at the Japan Research Institute, said that Southeast Asian countries partner with Alibaba not only because they want to gain from the company’s technology and experience, but also because of a shared philosophy.

Initiatives like Alibaba's have helped build a sense of affinity toward China among Southeast Asian people.

While Chinese President Xi Jinping's Belt and Road Initiative is an overt display of Beijing's growing political and economic influence in Asia, the fine-tuned services of Chinese companies provide soft power.

The likes of Alibaba are now replacing Japanese companies’ analog assistance with digital technology, and will likely prove to be a game changer in the region.

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