Why a South-east Asian e-commerce giant shut shop in India

On March 28th, Shopee announced that it was shutting shop in India. After breaking records for app downloads the sudden decision to leave India was quite surprising! So, what caused this move? Lets find out!

31st March 2022
3 min read

In January 2022, a newly launched e-commerce platform became the 2nd most downloaded app on Google Play in India. It had 20 million+ downloads & 20,000 sellers onboard and overtook the likes of Amazon & Myntra in terms of daily & monthly active users!

Shopee achieved this feat in just ~3 months, and it seemed like a serious threat to existing e-commerce players like Amazon, Flipkart & Meesho.

But one fine Monday (28th March), they announced that they are shutting shop and won't be operating in India any longer.

Of course, this came as a huge surprise to everyone, including the company's employees. So what went SO WRONG that Shopee had to abruptly shut down its operations?

Well, read on to find out!

Firstly, what does Shopee do?

Right then, let's set some context first. Shopee is basically a global online shopping platform, just like Amazon.

They are the largest e-commerce marketplace in Southeast Asia. They first started operations in Singapore in 2015, and then expanded to Malaysia, Thailand, Taiwan, Indonesia, Vietnam, and the Philippines.

Of course, India was the logical next destination for them, and they launched as a low-cost e-commerce platform in November, 2021.

What does a low-cost e-commerce platform mean, you ask?

So, Shopee functions in exactly the same way as Amazon, just that their target audience is price-conscious consumers, particularly in tier-2/tier-3 cities or towns in India. What this means is that the goods sold on Shopee would ideally be low price items.

Got it, but what makes Shopee special?

Before we get into this, let's quickly look at Shopee's interesting backstory.

So, Shopee's parent company is the Sea group founded in 2009. It originally started as a game development company, called Garena, and for 5 long years, they made a hugely profitable business by building multiple popular games.

To set some context, Garena (now the gaming division of Sea group) netted $4.32 billion in 2021, and made a handsome 58% profit on top of it!

In 2015, when e-commerce was seeing rapid adoption in South-east Asia, they jumped in and launched their own platform, Shopee.

But again, what sets Shopee apart from others?

Well, here are a few things Shopee does differently:

  1. Shopee took a mobile app-first approach. Even before they had a website, they launched their mobile app. This bet played out well, as the app downloads hit record numbers, as we saw earlier. Here, the experience of designing & buildd-ing top-notch products was borrowed from Garena.
  2. The second thing that works in favour of Shopee is its local offering & localisation features. They onboard local vendors heavily, and also focus on region-specific offers & discounts. Plus, their app is well designed to support local languages.
  3. Most importantly, Sea group's deep pockets help fund all of the great discounts Shopee is able to offer. Put simply, the profits Garena earns are used to subsidise Shopee's e-commerce business. Of course, unless they had such deep pockets, it'd have been tough for them to compete with the likes of Amazon & Flipkart.

Wow, but what happened in India then?

Well, India's crackdown on Sea group first started in February, 2022.

Sea group's flagship game is "Free Fire", which boasts of 75 million monthly active users globally. Now, 40 million of those 75 million users are from India! (what can we say — we're gaming fanatics 😎)

One of the major shareholders of the Sea group is China's Tencent. So, the Indian government suspected that the Sea group was sharing user data with China. Now, India's relations with China are not particularly great, especially after the pandemic.

India had already banned multiple popular Chinese apps including TikTok and PUBG. In yet another move, India banned 53 more such apps in February this year, including "Free Fire".

Of course, this was a huge setback for the Sea group. So much so that it wiped off $16 billion of Sea group's value in a single day!

Ahh, but why did they shut down Shopee in India after that?

So finally, we arrive at the main event. One fine day Shopee announces that it's shutting shop in India. This after a dream run of 5 months, clocking millions of app downloads and overtaking the likes of Amazon & Myntra in monthly active users.

Here's a set of things that must have pushed Shopee to take this sudden decision:

  1. Indian government doesn't have any particular affinity towards foreign players in the e-commerce industry. These e-commerce giants eating up the share of local kirana shops doesn't go well with the Indian government. In fact, the ban on "Free Fire" was possibly the start of a larger crackdown by India on the Sea group.
  2. Secondly, the e-commerce industry in India is fiercely competitive, with the likes of Meesho & Flipkart now doing away with seller commissions altogether! Yes, you read it right — no commissions from sellers and heavy discounts for consumers.

Net net, it doesn't look like a risk worth taking for Shopee. And so, in a single shot, Shopee moved out of India.

Now, the official reason by the company is still a bland "global market uncertainty". But of course, we now know that there's a lot more at play here, than what meets the eye 😉

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Physics Wallah started as a simple YouTube channel back in 2014. But, the creator of Physics Wallah, Alakh Pandey, had a long experience in teaching students Physics. In fact, after he quit engineering college in his 3rd year he moved to work as a Physics teacher in an offline JEE coaching centre.

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