The Journal The Authority on Global Business in Japan

A mutual acquaintance recently recounted his experience purchasing shoes online from the UK. The shoes were delivered by an international courier service when the buyer was not at home, so he was surprised and irritated when he found he could not request another delivery attempt through the courier’s website. Instead, he was obliged to call a number which connected him to an automated answering system. He had to wait two days for redelivery.

There are two takeaways from this anecdote. First, it is becoming increasingly easy to purchase goods from all parts of the world through the Internet. Second, despite its rapid growth and penetration, e-commerce around the world continues to provide different customers with differing experiences.

While such mobile devices as smartphones and tablets are making purchasing more convenient for consumers, m-commerce and related technologies are presenting vendors with a number of challenges—and opportunities. This is the result of the market being accessible almost anywhere and anytime.

RAPID GROWTH
The recent global growth of e-commerce has been remarkable. The market research company eMarketer estimates that in 2016, worldwide e-commerce sales will grow 23.7 percent to reach $1.915 trillion, and hit $4 trillion by 2020. Purchases of goods and services using the Internet then are expected to account for some 14.6 percent of retail sales worldwide.

Moreover, while sales of goods and services using mobile devices accounted for 20.8 percent of e-commerce sales in 2013, the ratio is expected to expand to 46.6 percent by 2018.

Asia is the center of this growth. In 2015, The Economist Corporate Network (ECN) published a report—Asia’s Digital Disruption: How technology is driving consumer engagement in the world’s most exciting markets—in which it identifies three digital trends in Asia. First, the number of mobile phone subscriptions—increasingly meaning smartphone usage—has been rising fast. By 2019, the ECN estimates Asia will have 4.3 billion mobile subscriptions, or 117 for every 100 people, meaning more people in Asia will have access to the Internet in the palm of their hands.

In 2010, for example, there was just one smartphone in India for every 100 people. Fast forward to 2015, and the number was 19 for every 100 people. Every three seconds, three more people in India experience the Internet for the first time and, by 2030, 1 billion people in the country will have access to the Internet.

The second digital trend concerns social media. The ease of going online has manifested itself very strongly in terms of the use of social media, especially in Southeast Asia, where about 80 percent of Internet users access social media sites. This has led to advertising and marketing through social media, and many businesses in the region exploiting the popularity of social media for targeted advertising. However, since social media penetration as a percentage of the total population remains relatively low despite the large number of users, there is still massive room for growth.

The third trend concerns the growth of e-commerce, which is growing faster in Asia than anywhere else. In 2013, China overtook the United States as the world’s largest e-commerce market.

The share of e-commerce as a percentage of total retail sales in many Asian countries is expected to double between 2013 and 2018. In China, about 13 percent of total consumer retail sales now are online, with more than half on mobile devices.

So what about Japan? In 2013, e-commerce accounted for about 4 percent of all retail sales—a higher share than in many countries, including Australia, Singapore, and Indonesia. Moreover, about half the sales involved mobile devices.

Interestingly, despite its high Internet penetration rate of 91%, Japan has relatively low social media usage; only slightly more than 60 percent of online consumers using social media. This contrasts with the 90 percent-plus social media usage rate in countries with much less Internet penetration, such as Indonesia, Thailand, and the Philippines.

MOBILE COMMERCE EXPERIENCE
The rapid growth and deepening penetration of e-commerce and m-commerce has made it easier for people to browse, compare, and purchase goods and services anytime, (almost) anywhere. But e-commerce and m-commerce customer experiences vary widely.

Recall the earlier anecdote. In highly-connected Tokyo, our mutual acquaintance was able to buy shoes online from the comfort of his apartment. For residents of China’s e-commerce villages, however, online shopping means going to a physical store to browse and order goods using communal computers or mobile devices shared by the community specifically for online shopping. Imagine a store without any items in stock, just a counter where one can place orders online.

Urban dwellers in high-income nations may find this sounds counterintuitive, but the fact that rural China has been able to adopt and catch up with e-commerce is impressive. How many villages or small towns in rural Japan or the United States have such an innovative approach to e-commerce? We believe it is closer to zero than in rural China where, as of 2014, the number of so-called taobao villages—with clusters of online entrepreneurs who have opened shops on the Taobao Marketplace website operated by the Alibaba Group—is north of 70,000, according to AliResearch.

One of the main reasons Japan and the United States do not have e-commerce villages is that their transportation and communication infrastructure, as well as the courier services, are far more advanced than those in China.

In the case of Japan, that is reflected in the country’s e-commerce and m-commerce. According to a study published by Kurt Salmon in 2016, only about 25 percent of brands provide a buy-online pick-up in store (BOPIS) service. This is a low number, compared with 54 percent for the UK and 51 percent for the US.

There are two ways to interpret this comparison. First, we can conclude that Japan is behind in terms of delivery options, compared with the UK and the US. To us, more convincing is the second interpretation: Japan does not have a great need for BOPIS because its courier services are reliable.

Delivery in Japan is fast. The average total delivery lead time is 3.6 days, and continues to improve. By comparison, the average in the UK is 5.6 days and in the US 5.7 days. Moreover, courier companies in Japan offer very flexible delivery time options. Rescheduling of missed deliveries can also be easily arranged (unlike with the global courier service the UK shoe vendor used).

But while Japanese courier services are advanced, not every vendor in Japan makes full use of them. Global and luxury brands in Japan lag behind local brands in terms of delivery time options. According to the Kurt Salmon study, while all local Japanese brands and online department stores offer delivery flexibility, only 50 percent of luxury brands and 57.1 percent of global brands in Japan offer such flexibility.

That said, e-customers and m-customers in Japan are lucky compared with their counterparts abroad. Separate Kurt Salmon studies found that no vendors in the UK, the US, Germany, or France offer delivery flexibility.

Yet Japanese vendors lag behind vendors in the UK and Germany in terms of their adoption of mobile apps. The same Kurt Salmon study found that only 22 percent of Japanese brands have mobile apps, while 73 percent in the UK and 49 percent in Germany do. However, Japanese brands lead in having websites that are responsive to mobile devices, with 92 percent, compared with 87 percent and 86 percent, respectively, in the UK and Germany.

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IMPLICATIONS FOR BUSINESS
What does all this mean for businesses considering m-commerce in Japan? Harry Hill, CEO of Nagoya-based Oak Lawn Marketing, believes that m-commerce is more than just about sales. Increasingly, mobile devices are being used to research or inquire about products.

The question is, then, how do m-commerce vendors improve their conversion rates, making sure more people who browse their products actually buy them?

Faced with an abundance of competition and rapidly advancing technology, vendors are realizing that, whatever competitive advantage they may have at any given time, it will hold for increasingly shorter periods of time. They have thus begun to invest less in new product development and more in improving user experience. Increasingly, m-commerce vendors’ mobile apps are being used for customer engagement, rather than for the purchase or sale of their products.

But vendors can improve their customer engagement by using new technologies. Hill spoke of the need to understand how different customers may prefer different methods of engagement, and the possibility of using metadata to understand individual customer behavior and preferences.

He also mentioned the need to address barriers that often stop people from completing their online purchases, such as the need either to install an app before a purchase can be made, or to sign up to the website before or during checkout. A possible solution is offering m-customers the chance to sign up or install an app after they complete their purchase.

At the center of all this is the need to understand what the customer wants, in terms of products or services, as well as ways in which they are delivered, and the methods vendors use to engage with them. Given the rapid turnover of new technologies, the biggest challenge facing many businesses is keeping up. This requires that businesses have the right people with the right skills.

In Japan’s case, according to Prof. Alfred Taudes of Vienna University of Economics and Business, one of the main issues is that many CEOs are not up to date with the latest IT and related technologies. He believes that today, all employees of businesses engaged in e-commerce and m-commerce need to have the skills to tackle IT issues. IT is no longer just for the guys in the IT department.

The need to understand customers and improve customer experience is not a new concept. It has long been recognized by brick-and-mortar vendors. Through the use of the Internet and other communication technologies, e-commerce has made shopping more convenient and accessible to many people. Yet, this has come at a cost. As the customer has become distant and abstract, the shopping and selling experience has become less personal.

But with the advent of m-commerce and the associated new technologies, a more personal online shopping experience is possible. M-commerce vendors will have to do what physical vendors do: get close to the customer and put themselves in the customer’s shoes, albeit in a digital setting.

Dr. Florian Kohlbacher is director of the Economist Corporate Network (ECN), North Asia, and a leading expert on business and consumer trends in Asia. Rehabya Wijaya is a Research Associate at the Economist Corporate Network (ECN), Tokyo, and a graduate student of public policy at the University of Tokyo.
In 2013, China overtook the United States as the world’s largest e-commerce market.