E-commerce is gaining traction in Southeast Asia

In this picture taken on November 20, 2009, people walk around a shopping mall in Jakarta. (AFP Photo/Adek Berry)

In recent years, online shopping has been gaining traction in the Southeast Asian region as consumers become more tech-savvy. The growing smartphone and internet penetration rate in the region has driven the rise of digital shoppers. Virtual stores are becoming more popular particularly amongst youngsters who prefer to shop online due to its affordability, variety and convenience. On top of that, the region has one of the fastest growing middle-class population who are tech-savvy millennials.

Frost & Sullivan is optimistic about the potential of e-commerce in Southeast Asia and expects e-commerce revenues to surpass 25 billion dollars by 2020 despite market challenges. In 2015, the market earned 11 billion dollars despite several acquisitions and market exits while many online retailers were struggling to achieve profitability. “Despite being relatively young, the e-commerce market in Southeast Asia is developing quickly, thanks to the astounding rate of digital adoption in the region,” Cris Duy Tran, the lead consultant in e-commerce, digital transformation at Frost & Sullivan Asia-Pacific said. Total revenues in the six largest Southeast Asian countries – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam – in terms of B2C (business-to-consumer) e-commerce are expected to increase at a compounded annual growth rate of 17.7 percent. Frost & Sullivan has also identified several key factors inhibiting growth in e-commerce. One of the key factors includes low credit card ownership that stands at less than 7 percent in every Southeast Asia markets except in Singapore and Malaysia. In some countries, more than 50 percent of the population does not even have bank accounts and making payment is the biggest challenge faced by e-commerce companies in the region.

Logistics is another issue hampering the growth of e-commerce in Southeast Asia, especially in areas with complex geographies such as Indonesia and the Philippines. However, recent investments from regional logistics players such as aCommerce and SingPost to strengthen the e-commerce logistics infrastructure in these markets could accelerate the growth of online retail within the region. The rapid expansion of the Chinese e-commerce market is providing a new impetus for online retail growth in Southeast Asia.

E-commerce versus traditional retailers

Under the National E-commerce Strategic Roadmap, Malaysia aims to double its e-commerce growth rate and reach a GDP contribution of over 50 billion dollars (RM211 billion) by 2020. The roadmap outlined six thrust areas, namely accelerate seller adoption of e-commerce, increase adoption of e-procurement by businesses, lift non-tariff barriers (e-fulfilment, cross-border, e-payment, consumer protection), realign existing economic incentives, make strategic investments in select e-commerce players and promote the national brand to boost cross-border e-commerce.

Meanwhile, the objective of Indonesia’s e-commerce roadmap is to boost growth in the e-commerce sector with a long-term goal of stimulating Indonesia’s overall digital economy. Indonesia’s ICT (Information and Communications Technology) Ministry targets its e-commerce market to grow to 130 billion dollars in 2020 from 19 billion dollars in 2016. This puts Indonesia ahead in terms of digital economy growth against its other ASEAN counterparts – with a year-on-year growth of 51 percent. Indonesia’s growing digital economy is riding on its fast-growing usage of smartphones – which amounted to 71 million users in 2016. Out of the 261.1 million Indonesians, 93.4 million of them are internet users while 8.7 million of them shop online.

The Philippines E-Commerce Roadmap highlights the importance of e-commerce in economic development and presents the trends in e-commerce development in ASEAN, the Asia-Pacific region and across the globe. While a lot of opportunities exists, there are also a number of challenges that the country still has to face in order to maximise the benefits of e-commerce.

The AEC (ASEAN Economic Community) Blueprint 2025 outlined that global electronic commerce or e-commerce has become an increasingly vital element of the global economy as part of a retailer’s multichannel strategy. In a globalised world interconnected through ICT, e-commerce plays a key role not only in cross-border trade, but also in facilitating foreign investment through the supply of intermediary services. E-commerce has significantly lowered entry barriers and operating costs for businesses. In view of the potential contributions that e-commerce could make towards supporting the economic integration within the ASEAN region, the association is intensifying the cooperation on e-commerce building upon Article 5 of e-ASEAN Framework Agreement adopted by ASEAN leaders in November 2000, with a goal of developing an ASEAN Agreement on e-commerce to facilitate cross-border e-commerce transactions in the Southeast Asian region. Strategic measures that have been put in place include harmonised consumer rights and protection laws, a harmonised legal framework for online dispute resolution, taking into account available international standards, inter-operable, mutually recognised, secure, reliable and user-friendly e-identification and authorisation (electronic signature) schemes, as well as a coherent and comprehensive framework for personal data protection.

On the other hand, stiff competition from the e-commerce has driven retailers in Southeast Asia to leverage on this new business model to transform their retail landscape. This evolution in the retail industry is to complement the changing consumer behaviour, digital influences as well as the ability to compete in the global arena. While online shopping is the latest trend, many consumers around the world still prefer the brick and mortar stores when they shop as people would love to see and touch a product before deciding on a purchase.