Why 2020 is the year of cross-border ecommerce in Japan

Why 2020 is the year of cross-border ecommerce in Japan

Kelvin Phua

Global Head of Payment Networks at PPRO

Kelvin Phua joins PPRO as the Global Head of Payment Networks. Based in Singapore, Kelvin is responsible for accelerating the acquisition and management of local payment networks onto PPRO’s payment platform. He is also responsible to lead PPRO’s entry into key markets across the globe. Prior to his role in PPRO, Kelvin spent the last eight years in PayPal in the South-East Asian (SEA) region. Kelvin had created a successful channel partner strategy, implemented partnerships with PSPs to acquire and integrate new merchant business, and worked directly on transformation and turn-around projects for enterprise customers and global marketplaces. Most recently, he was PayPal’s Country Manager for Malaysia.

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Why 2020 is the year of cross-border ecommerce in Japan

18.03.2020 10:30 am

Japan is the world’s third-biggest economy. Its GDP per capita is just under USD 40,000, according to GDP per capita (current USD) - Japan, World. The World Bank. That’s almost four times the global average. The average Japanese consumer spends USD 1,666 a year with ecommerce merchants. And the Japanese ecommerce market, already worth over USD 160 billion, is growing by an impressive 9% a year, according to internal PPRO research.

Japan is also the third-largest ecommerce market in the world. 98% of Japanese consumers are banked and 93% have an Internet connection. According to research cited by Pitney Bowes, 70% of Japanese consumers shop online

The story these statistics tell is that Japan is a highly prosperous, developed, cosmopolitan and well-connected market. But there is a growing perception among Japanese consumers that they are getting less value for money than in the past. 

This is down to what economists call “shrinkflation”, when manufacturers face rising costs and, rather than put up prices, they reduce the size or quantity per unit of their product. This is causing many Japanese consumers to look for ways to get better value for money.

Just 10% of Japanese consumers shop with ecommerce merchants based overseas

For comparison, PPRO internal data analysis shows that in Hong Kong, that figure is 75%, in the Philippines 50% and in China 43%. So, what’s different about Japan? This feels like a loss for both parties. 

It’s also something of a mystery. It could be that some of the explanation lies in long-standing misperceptions. Western companies may think that Japan, with a culture perceived as being very different from their own, is a difficult place to do business.

There has been a long-running pessimism in Western media about Japan and its economy, which has misled Westerners into thinking that the Japanese market is less desirable than it really is. For years, Western economists, pundits and politicians have been speaking about “Japanificiation”. This refers to the economic conditions that prevail in most of the developed world: relatively low growth rates (compared to previous eras) combined with persistently low inflation. 

But this is a highly distorted view of Japan’s attractiveness as a consumer and retail market. If you ignore the gloom around the country’s supposed “low-growth” economy, what emerges is a picture of a highly connected economy with low rates of penetration by cross-border e-commerce specialists. And while we may not be able to pin down exactly the reasons why this should be the case, that it suggests a market rich with opportunity for experienced cross-border sellers. 

In other words, the ecommerce competition is very low in this area with high demand.  

Japan is a great place to do business. On the World Bank’s Ease of Doing Business Index, Japan ranks higher than countries such as France, Spain, Switzerland and the Netherlands. The country scores well in areas such as ease of starting a new business, protection for investors and ease of trading across borders. 

All of these factors — the low competitive market penetration, high levels of connectivity, good financial infrastructure, high level of online spend and a growing emphasis on value for money — all suggest a market with plenty of potential for ecommerce merchants with the market strategy and local insight to give Japanese consumers what they want. And the advantage is bound to reside with the first movers in each category. In which case, the question is, who will be first to overcome their trepidation and go on to make it big in Japan? 

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