AB3602

Strategic Management

Week 9 – Case: Shopee’s Short-Lived Venture in India

Caleb Tse
Strategy, IB and Entrepreneurship Division
Nanyang Business School
Nanyang Technological University
Y2023-24 S2
 External Analysis:

• What opportunities and threats in the Indian

market have e-commerce companies
encountered?
 Opportunities
Technological & Socio-cultural Political Factors
Factors
• India digitizing fast (only 40% • Indian gov. facilitating
internet penetration, 42% digitalization initiatives to
smartphone penetration) improve internet access
• Rise in digital literacy • Gov. establishing digital
• Launch of digital payment payments infrastructure
systems (Paytm Payments (United Payments Interface)
Bank)
• Covid effects – more online
shopping

3
 Threats
Geopolitical Factors Political-Legal Factors
• Border clashes between • Consumer Protection Rules to
India/China – India pushing to protect consumers in e-
economically decouple from commerce yet to be finalized
China by gov. (Rules still vague, laws
• Indian gov. conducting overlap)
irregular tax probes on Chinese • Scams, fake websites and
investors, imposed duties on inadequate consumer
Chinese products, banned protection – consumers stay
Chinese apps away from e-commerce
• Foreign companies (Amazon &
Walmart) facing anti-trust
investigations for unfair trade
practices
4
 Threats
Environmental Factors Socio-cultural Factors
(Logistics)
• Poor road infrastructure – • Cash still king for many Indian
challenging for distribution consumers (distrust in digital
systems payments)
• Non-uniformity in written • Understanding/navigating e-
addresses and geographical commerce is still problematic -
zones (postal index numbers) – literacy rates in India at 77.7%
challenging for automation
• Last mile deliveries difficult –
higher inventory costs

5
 E-commerce Industry Structure?
Medium
Threat of
Entry

High Low –
Medium
Medium
Supplier’s Industry Buyer’s
Power
Rivalry Power

Medium
Substitutes 6
 Internal Analysis: Key Capabilities?
• What are Shopee’s key capabilities possessed in ASEAN?
• VRIN analysis: How would this translate/maintain into India?
• Competitive consequences?
Is the Is the Is the Capability Is the Capability Competitive Performance
Capability Capability Costly to Non- Consequences Implications
Valuable? Rare? Imitate? substitutable?
No No No No Competitive Below-average
disadvantage returns

Yes No No Yes/no Competitive Average

parity returns

Yes Yes No Yes/no Temporary Average

competitive returns to
advantage above-average
returns
Yes Yes Yes Yes Sustainable Above-average
competitive returns
advantage
 Operations
• Operations (Shopee Mall,
Shopee Marketplace) Valuable? YES – helps exploit the opportunities created by IT, AI etc.
supported by to improve services offered to customers
information systems SOMEWHAT – rare for companies to devote resources to
Rare?
(data analytics provided educate sellers (but Amazon & Flipkart does same thing)
by Shopee supports
vendor’s inventory
Costly to Imitate SOMEWHAT – industry experience and org.
culture/founder’s experience required for sustained
management) support
• Works closely with
Non- YES – Shopee’s org culture, structures, routines are
suppliers/sellers to conducive to orderly operations. Hard to replace.
improve services, substitutable?
collating data on Competitive Shopee’s advantage is temporary at best as incumbents
shopper’s patterns. Consequence have strong ability to improve offerings and also backed
by MNCs.
8
 Service
• Mobile first approach
allowed Shopee to Valuable? YES – it exploits latest socio-cultural trends in shopping
leverage S.E.A’s high behaviour by tailoring to its users – increases customer
mobile penetration rate. loyalty/trust.
• Strong community Rare? SOMEWHAT – Shopee Live and Google Ads integration
developed through (others have similar features)
Shopee Live, Shopee
Costly to Imitate TO A GREAT EXTENT – it takes a lot to build an org culture
Games, Shopee Feed, that supports creative talent, and systems to develop and
Shopee Live Chat, constantly improve unique shopping experiences
Shopee Guarantee, YES – the creative talent, internal HR support, and IT
Non-
ShopeePay support are not easily replaceable.
• Allows Google Ad
substitutable?
integration Competitive Shopee has temporary competitive advantage - likely
Consequence generating average to above-average returns
9
 Marketing & Sales
• Hyper-localized
approach in driving Valuable? YES – Through SEA limited’s customer database, it can
marketing campaigns detect and follow market trends fast.
for each market – SOMEWHAT – some companies have adopted hyper-
Rare?
engages brand localized approach, but Shopee is unique with its targeted
ambassadors with local marketing from Garena’s mobile game database.
flavor.
Costly to Imitate SOMEWHAT – adopting a hyper-localized approach
• Leverages massive requires good understanding of country’s culture and
success of Garena’s Free support from org. culture.
Fire to enter new YES – the marketing arm is not easily replaceable
Non-
markets (leverage
targeted advertising to
substitutable?
Shopee) Competitive Shopee has temporary competitive advantage - likely
Consequence generating average to above-average returns
10
 Shopee’s International Strategy?
• Why enter India?
• What are some ongoing trends that lead to challenges of its
operation? Liability of foreignness
• Entry mode? Benefits vs. concerns?
 Shopee’s International Strategy
• Entry mode:
• Type of Wholly-Owned Subsidiary
• SPPIN India Private Limited in July 2021 – held by 2
Singapore-registered holding companies, SPPIN I Private
Limited and SPPIN II Private Limited
• Why indirect ownership structure?
• Blur its Chinese origins/connections (ties with Tencent,
Chinese CEO)
• Legal, but may have been perceived to be illegitimate and
raised suspicions, thus becoming the target of
politicians/regulators

• Formed non-equity strategic alliance with courier providers

So why did Shopee Fail?

13
 Trade-offs in Market Exit?
Pros Cons
• Cut losses for the platform and • Forgo future potential of 1 of
its parent company (ban on the largest
Free Fire game led to 75% drop markets/populations in the
in SEA’s share price) world
• Allows focus on existing core • Can’t claw back any losses in
markets – S.E.A and Latin resources devoted to develop
America the market
• Downsizing/down-scoping
results in loss of talent

14
 Key Insights

• Not understanding how key capabilities can/cannot translate to new market

environment is detrimental (i.e. distribution issues)

• Underestimating geopolitical tensions and political/legal uncertainties and

challenges can put a firm in seriously disadvantaged position (e.g. not the case for
Shopee in Brazil).

• Adopting an entry mode with an illegitimately-perceived ownership structure will

make it difficult to operate smoothly and without interference (stricter corporate
governance + transparency needed).

• Could Shopee have considered a targeted market entry approach – testing model
on Indian states with highest internet penetration & road infrastructure (Karnataka,
Kerala, Andra Pradesh, etc.), before full entry? (trade-offs exist)
See you next week