When the tide of speculative capital subsides and predictions of explosive growth fail to materialize, some players inevitably clear out, while new ones, sensing opportunity, move in.
The brightest story of Chinese brands venturing into Southeast Asia this year is undoubtedly Pop Mart. In the first half of the year, the company achieved revenue of RMB 560 million (USD 78.4 million) in Southeast Asia, marking a 478% year-on-year increase and accounting for 40% of its overseas income.
However, skepticism about the Southeast Asian consumer market has never been scarce. Critics have argued that the region’s purchasing power is unlikely to see short-term improvement, leaving no room for premium products. Others contend that Southeast Asia’s low e-commerce penetration renders it unsuitable for Chinese companies that excel in e-commerce operations.
Entering 2024, Chinese companies started shifting from merely venturing overseas to embracing globalization, with increasing emphasis on brand-building. Who is retreating from Southeast Asia, who is doubling down, and what are the lessons for those who stay? More importantly, who will go the furthest?
Who is retreating from Southeast Asia, and who’s doubling down?
Two years ago, Southeast Asia seemed like the perfect destination for Chinese brands looking to expand overseas amid a flood of capital.
Among emerging markets, Southeast Asia was an unquestionable first choice. Longtime global players were already entrenched, while newcomers capitalized on the golden window of opportunity. According to Meetsocial’s 2023 list of emerging overseas brands, 34% of the 50 listed companies were active in Southeast Asia.
In May 2023, a report on the ASEAN business environment by the China Council for the Promotion of International Trade (CCPIT) revealed that approximately half of surveyed companies expected their market share in ASEAN to grow, half anticipated turning a profit, and over half projected increased revenue.
However, with growth waning, some brands have managed to stay, while others have exited quietly.
The same report also noted that around 7% of Chinese companies reported potential losses in ASEAN. 20% foresaw declining market share, profits, and revenue, while 2% planned to scale back operations or exit altogether.
“Southeast Asian consumers are skeptical of high-priced, low-utility brands,” said Xu Tian, founder of ATM Capital, a Chinese venture capital firm specializing in Southeast Asia. The firm has invested in early-stage successes like Meituan and J&T Express, with eight portfolio companies going public.
Standing in the city centers of Singapore, Jakarta, or Bangkok, one might see many mid- to high-end Chinese brands attracting considerable traffic. “But for brands seeking to expand into lower-tier cities—covering 50–70% of the population—their chances are slim,” Xu said.
Chinese breakout brands in Southeast Asia tend to succeed with products that require minimal localization and have weaker cultural associations. Han Peiyi, China country head at Ninja Van, highlights that substantial progress has been achieved in categories such as 3C electronics, electric vehicles, tea-based beverages, and beauty products.
For example, in Q1 2023, Chinese smartphone brands held over 60% market share in Southeast Asia, while Chinese EVs accounted for nearly 75%. Tea chains are rapidly carving out space, while fashion and cultural brands targeting young and female consumers are also growing rapidly.
Tang Honglei, founder of cosmetics company Hebe Beauty, added that Southeast Asia’s young consumer base is highly receptive to emerging, affordable, and creative brands. “Brands that are both budget-friendly and high-quality can quickly gain recognition,” Tang said. YOU Beauty, a localized cosmetics brand under Hebe Beauty, has proven popular among Southeast Asian youth, establishing deep roots in the region.
Localization gathers pace across Southeast Asia
One emerging trend among successful brands is their establishment of local teams or subsidiaries in Southeast Asia. Some have even launched native brands like YOU Beauty, mom-and-baby brand Makuku, mouthwash label MeToo, and home appliance company Simplus.
These brands have an edge by focusing on international markets from the start, allowing them to better understand and respond to local needs. For instance, before entering Indonesia, Makuku noticed that local diapers often used outdated materials that caused rashes and irritation in infants. The team introduced advanced, highly absorbent products and quickly rose to become one of the top three market players.
“Since 2021, we’ve seen a growing number of Chinese teams permanently stationed in Southeast Asia, especially in e-commerce logistics and consumer retail,” Xu said. This change marks a departure from the previously low investment in local talent and market penetration.
Brands can succeed by embedding their core teams into the local environment, gaining nuanced insights. While blind box toys are not a necessity for young Southeast Asians, Chinese brands used localized strategies to carve out market share. Similarly, while tea shops are abundant, Chinese tea brands’ franchising systems have accelerated their localization efforts.
Connecting with local consumers and markets
From a value chain perspective, Southeast Asia is still in the component production and assembly stage, with local brands struggling to compete internationally. Unlike China, the emergence of large-scale domestic alternatives is slower or less likely, leaving room for Chinese brands to expand.
Growth strategies for success in Southeast Asia typically follow two main paths.
The first relies on cross-border e-commerce or finding agents to access multiple markets simultaneously. Platforms like Shopee, Lazada, and Tokopedia enable brands to reach consumers directly. In 2021 alone, over 2,000 Chinese brands entered Southeast Asia through Lazada.
The rise of live streaming has also reversed the conversion pathway of Southeast Asian consumers, as people increasingly search for products that meet their needs, rather than the contrary. TikTok Shop, launched in Indonesia in 2021, sparked the region’s live commerce boom. Brands like Posee, Seaways, and Into You quickly gained traction.
On November 5, the latest e-Conomy SEA report, jointly published by Google, Temasek, and Bain & Company, projected that the gross merchandise value (GMV) of Southeast Asia’s digital economy would reach USD 263 billion in 2023, marking a 15% year-on-year increase. Total digital economy revenues are expected to grow to USD 89 billion, a 14% annual growth rate, while profits are forecast to rise to USD 11 billion, a substantial 24% increase.
While e-commerce provides a cost-effective way to explore new markets, its overall scale in Southeast Asia remains constrained. Despite rapid growth, penetration rates are still relatively low, with Malaysia, Thailand, and Vietnam each below 6%. For now, offline channels continue to dominate the region’s retail landscape.
According to Xu, cross-border e-commerce in Southeast Asia is still in its early growth phase. Brands entering the market through this channel may face growth limitations, often plateauing after achieving annual sales of several hundred million per country.
By contrast, offline channel development offers brands a viable pathway to overcome these growth barriers and sustain long-term expansion.
Offline channels hold a dominant share of the retail market in Southeast Asia. In Indonesia, the retail market reached a valuation of USD 191.3 billion in 2023, with traditional, modern, and e-commerce channels accounting for 37%, 30%, and 32% respectively. Within the modern segment, specialty stores, convenience stores, supermarkets, department stores, and hypermarkets accounted for 19%, 8%, 2%, 1%, and 1%, respectively. Convenience stores, like e-commerce, are seeing particularly notable growth.
A 2024 report on B2B retail in Southeast Asia by Ninja Van noted that as offline consumption rebounds, retailers are adapting their physical store strategies. Some are incorporating digital innovations like virtual try-ons and adopting tactics such as pop-ups and co-branding to optimize layouts and enhance the customer experience.
Ninja Van’s Han observed that brands aiming to cater to diverse socioeconomic groups in Southeast Asia must focus on expanding and diversifying their sales channels. The stark differences between urban and rural markets make offline channel growth in rural areas a critical priority.
For example, YOU Beauty has built its success on a robust offline presence. Since entering the Indonesian market in late 2018, the brand has expanded to the Philippines, Malaysia, and Thailand, establishing nearly 60,000 offline sales points. The brand prioritizes the image and layout of its store consultants, supported by a comprehensive training system. By leveraging offline data, YOU Beauty can adapt strategies in areas such as product packaging, formulations, marketing timelines, and brand positioning.
However, building an offline channel network places greater demands on a brand’s supply chain. When expanding into lower-tier cities, brands must consider supply chain efficiency and cost at every stage to avoid losing customers or damaging brand reputation due to infrequent product updates or stock replenishment.
The tea and coffee sector in Southeast Asia provides a compelling example of these challenges. Many brands in this space have chosen the region as their first base for overseas expansion. However, obstacles such as challenging terrain and underdeveloped transportation infrastructure complicate supply chain operations.
Pickup Coffee, a Philippine brand focusing on grab-and-go coffee, faced such challenges. Due to space limitations and the need for freshness, supplies such as coffee beans, milk, syrups, and packaging materials required constant replenishment. Previously, the brand relied on manually planned delivery routes, which proved both costly and inefficient.
To address these issues, Pickup Coffee partnered with Ninja Van to optimize deliveries to stores in the Greater Manila Area and beyond. Ninja Van provided monitoring and management of inventory levels, transportation routes, and restocking frequencies tailored to regional store characteristics. Over three months, Pickup Coffee expanded to 30 new outlets while reducing operating costs by 20%.
While rapid expansion is critical, maintaining operational efficiency is equally important. As online and offline channels increasingly converge in Southeast Asia, brands must strike a careful balance in their channel strategies, with a strong emphasis on supply chain stability.
“Brands venturing into Southeast Asia should focus on long-term development and strategic planning. For small and medium enterprises entering the region early, I would recommend testing the market’s suitability with low-investment methods, such as cross-border e-commerce,” Han said.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Chang Weiqian for 36Kr.