Date
22 May 2018
Taiwan e-commerce companies are looking overseas as more new players enter the market. Photo: Bloomberg
Taiwan e-commerce companies are looking overseas as more new players enter the market. Photo: Bloomberg

Why Taiwan e-commerce firms are eyeing overseas expansion

E-commerce is gaining strong momentum around the world. Amazon.com has become one of the world’s most valuable companies. In China, Alibaba’s Taobao and Tmall platforms are towering leviathans in their field.

And in Taiwan, the market is dominated by local players such as PChome and Eastern Media International Corp. as well as Tencent-backed Shopee

While the island’s e-commerce market is going through a high-growth period, local players are also setting their sights overseas in order to reduce risk as more new players enter the home market.

Overseas expansion also widens the geographical exposure of Taiwan’s e-commerce platform from a local market of 21 million.

On Tuesday, Eastern Media announced that it has completed the acquisition of a 76 percent stake in Hong Kong-based Strawberry Cosmetic Holdings Limited for NT$1.06 billion (US$35.43 million), in a bid to expand into cross-border e-commerce business.

Founded in 1988, Strawberry Cosmetic, which operates Strawberrynet, has ample experience in overseas e-commerce business. The company sells foreign-branded cosmetic products at bargain prices. It has 155 independent suppliers from 16 countries across the globe. It generates an annual revenue of NT$4.4 billion and boasts more than 3.3 million online members.

Eastern Media operates the Easter Home Shopping and Leisure TV shopping platform in Taiwan. Following the acquisition of Strawberry Cosmetic, EHS is projected to expand to between NT$28 billion and NT$30 billion by 2020.

Overseas sales are expected to outpace contribution from the company’s home market in about three years’ time. Given the limited market at home, local companies must tap the global market. The acquisition of an existing e-commerce operator is the quickest way to establish a foothold in the overseas e-commerce market.

In fact, Eastern Media Group has plans to build a whole supply chain in the cosmetic sector. The company has also established a new healthcare supplement product development subsidiary to help Taiwan pharmaceutical firms to produce their own products and sell them on Strawberrynet to reach a global market.

For a long time, Taiwan’s pharmaceutical firms have been contract makers for foreign healthcare brands, and such collaboration should help the local firms to build up their own customer base. The company targets to increase the proportion of private labels to 40 percent by the end of next year.

While Eastern Media aims to tap overseas shoppers through acquisitions, another Taiwan e-commerce leader, PChome, is seeking overseas investors to fund its expansion plans.

Last week, PChomestore Inc. shocked the market by announcing a US$12.19 million privatization plan in a bid to achieve greater returns on investment, after the company suffered losses for four consecutive quarters due to fierce competition with Shopee Taiwan.

PChome said it would introduce new strategic investors for PChomestore and launch an initial public offering in an overseas bourse to fund its expansion.

Over the past two years, PChomestore has been facing stiff competition from Singapore-based Shopee, which has been spending a lot to subsidize buyers from its platform.

This has prompted PChomestore to follow the same tack in order not to lose market share. As a result, the company incurred a loss of NT$1.06 billion last year, or a loss of NT$43.25 per share, nearly three times the company’s share capital of about NT$345 million.

So why does PChomestore target an overseas listing? Because the Taiwan stock market does not allow any listed company to record a negative book value.

The privatization plan could save the company from being dropped from the local stock market, as heavy losses brought the firm’s book value to NT$1.63 per share, just one step away from falling into negative territory.

PChomestore chairman Jan Hung-tze told reporters last week that such stock market rules prevent startup companies from raising capital in Taiwan and force them to list overseas to fund their expansion.

“We aim to revamp the structure of the company by introducing new strategic investors and broadening the company’s business scope,” Jan said.

PChomestore has completed 11 million online transactions totaling NT$12 billion, making it the island’s biggest e-commerce platform operator.

Taiwan may need to be more flexible in its rules in order to allow startup companies to raise funds in the market amid the high growth being experienced by the new economy.

Otherwise, the island may lose its competitive edge and face the risk of being sidelined by other markets.

– Contact us at [email protected]

CG

EJ Insight writer

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