1. Playing to Win

    By Ewan Markson-Brown. Spring 2021
    Illustrations by Phil Morrell.
  2. The race is on to secure the loyalty of south east Asia’s increasingly prosperous consumers. Ewan Markson-Brown, manager of Pacific Horizon Investment Trust, tells us why Singapore’s Sea Limited is in pole position

    Please remember that the value of an investment can fall and you may not get back the amount invested.

    This article originally featured in Baillie Gifford’s Spring 2021 issue of Trust magazine.

  3. As any video or mobile gamer knows, a ‘battle royale’ is one where you win by outwitting and outgunning online all-comers to be last player standing.

    In person, Forrest Li, founder of consumer internet company Sea Limited, bears no resemblance to the garish, trigger-happy avatars scurrying around the island warzone of Free Fire, Sea’s smash hit game. But the softly spoken, game-obsessed Li, who took his name from the film Forrest Gump, will need all the strategic cunning and whiplash reflexes of Free Fire’s pixilated predators to succeed.

    To win as big as Li intends, Singapore’s most valuable company must gain the loyalty of gamers, online shoppers, savers and traders across the multicultural expanse of south east Asia, and beyond. And in the battle royale now raging for these online riches, his company has command of the field.

    Sea is far more than just a gaming company. Founded in 2009 as Garena, and renamed Sea Limited in 2017, the company is made up of three parts: Garena (games), Shopee (ecommerce) and SeaMoney (digital payments and financial services). When it floated on the New York Stock Exchange in October 2017, it was valued at $5bn. By the end of 2020 it was worth $102bn. Gaming and social media pioneer Tencent holds a 25 per cent stake, allowing Sea to distribute the Chinese giant’s games and benefit from its strategic guidance.

    Garena’s Free Fire was the world’s most downloaded game of 2019 and has 80 million daily users. Shopee is south east Asia’s most popular shopping website. And SeaMoney is one of the fastest-growing digital financial services networks in the region. All three Sea divisions have seen demand skyrocket during the pandemic, which has accelerated the growth of digital platforms.

    The group operates in seven major markets, namely Indonesia, Vietnam, Thailand, the Philippines, Malaysia, Singapore and Taiwan. In gaming, Sea is making forays into emerging markets from south Asia to Latin America. Li told me his sights are set on becoming a truly global player.

    Sea has replicated in ecommerce its success in gaming, a rare double that even the Chinese titans Tencent and Alibaba struggled to pull off. Why is this so hard? Because in terms of culture, ecommerce and gaming are as different as advertising and investment banking: few of their skills are interchangeable. Game development people work best with unsupervised freedom to play, unburdened by key performance indicator (KPI) measurements. Ecommerce people need rigorous KPIs and close monitoring. Li and Chris Feng, chief executive officer of Shopee and SeaMoney, understood this difference and learned what not to do from strategic shareholder Tencent.


    Now, the growth of ecommerce is where the exciting action is. Less than half of south east Asia’s 670 million-strong population shops online. We think that the value of online merchandise could soar from $32bn in 2020 to $200bn by 2025. Shopee is well placed to dominate.





    The platform has succeeded by being accessible and ‘sticky’ to both sellers and buyers across this multilingual patchwork of nations and cultures. I got a sense of its appeal to the ‘mom-and-pop’ businesses when I met Li in Jakarta in 2017. He took me to visit some new Shopee traders, a couple in their 40s selling locally-produced mass-market clothes. Sitting in a concrete warehouse, we were surrounded by piled-up bags and boxes. I think they lived upstairs. Through an interpreter, they described how their turnover had increased ten-fold since they started selling on Shopee, and how they were taking on new people. It struck me that if success at connecting grass-roots traders to new buyers achieved critical mass, it could create a virtuous spiral. More users would increase the value of the site for others, making it hard for rivals to gain enough traction to catch them.

    In a region which lacks commercial infrastructure, Shopee’s technology boosts competition and breaks down barriers to trading locally. The company likes to stress the beneficial social impact of enabling small-time traders, and it has a point. Much of the region’s commerce is dominated by webs of often politically connected elite families. These incumbents are ripe for the kind of disruption that empowers start-ups and consumers. In 2019, Shopee overtook its biggest pan-regional rival, the Alibaba-owned Lazada Group, based in Singapore. Li has proved an excellent delegator, as shown by Garena’s successful localisation of gaming in these different markets. Recruiting locally for Shopee means that the webpage ‘shopfront’ is subtly attuned to local buying preferences, while technical and administrative systems are unified across the group.

    Experience and profits from Garena and Shopee are being poured into SeaMoney, where Sea benefits from being the dominant ecommerce player. The most common activity for a fintech company is ecommerce payments. With an established online shop, it’s easier to acquire new customers for your financial products than it is for pure fintech companies. Exhibit A is China’s Ant Group (formerly Alipay), which was spun out of the online hypermarket of Alibaba. Like Ant, Sea can use detailed knowledge of customers’ spending choices to tailor and offer new financial products to fit their needs.

    The digital payments market in south east Asia is expected to reach $1tn by 2025, so a dominant position could make SeaMoney, which still accounts for only 1 per cent of the group’s income, far more important than it is now and eventually perhaps the most valuable part of the group.

    SeaMoney only launched in 2019 but it already processes 45 per cent of all transactions on Shopee platforms in Indonesia, its main market and the world’s fourth most populous country. That makes it the largest online finance company in that vast archipelago, leapfrogging incumbent payments companies Gojek (founded in 2009) and Grab (2012).

    Here, as in other parts of Sea’s complex field of operations, there are local players to take on, but the quality of these incumbents is often not good enough for them to withstand assault by a skilled and experienced player. There’s no guarantee that Forrest Li and Sea can sustain the flawless execution of their three-pronged game plan but as things stand, this battle royale looks like theirs to lose.

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  6. Ewan Markson-Brown

    Ewan Markson-Brown has managed Pacific Horizon Investment Trust since 2014. Prior to joining Baillie Gifford he worked in senior investment roles specialising in the Asia-Pacific region.