E-Commerce in South-East Asia - Figuring it all out?
To put forward a forecast of how the E-Commerce landscape in Southeast Asia will change, let alone perform over the next few years is no easy task. While most analysts are in agreement that the region will undoubtedly prove to be one of the star performers in online retail, the rate of that growth as well as the regional variations have proved to be notoriously unpredictable. Case in point, M-Commerce did not quite have the measured impact that many expected. South-East Asian consumers, in stark contrast to their Chinese counterparts, appear more prone to browsing on their smart phones, as oppose to following through with the purchase.
The barriers of low online connectivity and concerns of online security did not achieve the level of progress required for the ASEAN nations to unleash the potential they hold in online retail. Yet few would question that this potential will be realized over the next few years. South-East Asia does after all, have all the major ingredients required for this rapid evolution to take place. It’s population is heavily tilted towards the young (more than half are under the age of 35), growing disposable incomes, and growing (if not quite as expected) levels of internet and mobile penetration. There has also been a dramatic increase in the level of capital injections.
Alibaba invested $249 million into SignPost and over $100 million into Indonesia’s Tokopedia, and then of course there is Lazada which reeled in $250 million in funding. All this indicates that there is a great deal of confidence that the tremendous potential for E-commerce growth in this region will be realized, and realized soon! What the analysts are pretty much unanimous on, is that the market in this region is set to become a lot more competitive. The big global players are increasingly paying attention, and South-East Asia now figures high up on their priority list. Despite the fact that Amazon appears far more focused on its operations in India and China, it is still playing a significant role in the region, with consumers fully engaged with Amazon sites elsewhere in the world!
Online shopping in South-East Asia currently only accounts for around 0.2% of all retail sales. If it were to rise to just 5%, the market could be worth anything up to around $22 billion. In many ways the South-East Asian market bears many similarities to the Chinese E-Commerce market in its early days. It was after all between 2006 and 2008 when internet and mobile penetration began to soar in China, doubling in the space of two short years. Few expected such astonishing growth, and it would be foolish to dismiss the ASEAN region experiencing a similar rate of growth. Indeed, the online market intelligence consultancy E-consultancy projects that in just three years, the number of people online in South-East Asia will rise to around 294 million (around a 48% increase) in just two years. That’s around 100 million more than China currently has, and with its online sales now standing at around $296 billion, you can see where the optimism for South-East Asia’s potential comes from.
Such growth will more than likely translate to a huge upsurge in the number of sellers present on the third party platforms within the region (hence the substantial investments). The reality is that as South-East Asia’s digital infrastructure continues its rapid development and matures, we will see a fundamental transition towards more sophisticated payment solutions. Small vendors, reassured by this development, will feel more secure in accepting online payments and subsequently get involved with the multiple online marketplaces in the region. Of course the next stage in this process is for those same retailers to create their own online stores, though naturally, this requires a skill set that many will not possess at present, therefore positioning the third party platforms as the most suitable option.
The development of the necessary financial infrastructure required for E-Commerce, is of course an essential pre-requisite for this anticipated growth becoming a reality. For example, in some South-East Asian markets, less than 10% of the population own credit or debit cards and in some countries up to 50% of the population lack bank accounts. In Indonesia, very high levels of internet fraud are a source of real discouragement for E-Commerce use. Such barriers however, have also been a source of both adaptation and innovation. With only 25% of Indonesians owning a bank account, many Indonesians consider mobile to be the best way to carry out transactions. The Country has subsequently witnessed a large number of branch-less banking services.
Here, it would appear, we have the underlying dynamic of E-Commerce in the ASEAN region. The barriers to growth in the region, be they logistical, financial, or technological are significant. Yet in many ways, the level of both innovation and adaptation in this region has been astounding. The problem analysts appear to have, is being able to forecast which particular barrier will be overcome, and which will remain stubbornly in place, at least for the mean time.