E-commerce set to grow rapidly in South-East Asia

Internet Retailing

2nd Sep 2016

South-East Asia e-commerce revenues are projected to exceed US$25 billion by 2020, according to new research by growth partnership company Frost & Sullivan.

Despite acquisitions, market exits and many online retailers struggling to achieve profitability, the market earned $11 billion last year, according to the Frost & Sullivan report, Analysis of the Southeast Asian E-commerce Market. The study examined market trends and opportunities in six key South-East Asian markets – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Key findings include continuing rapid growth as the industry evolves.

Total revenues from business-to-consumer (B2C) e-commerce in the six markets will increase at a compound annual growth rate of 17.7 per cent.

Malaysia and Thailand were the largest e-commerce markets in the region last year, generating revenues of $2.3 billion and $2.1 billion respectively. But by 2020, both these markets are expected to be eclipsed by such emerging economies as Indonesia and Vietnam.

“Despite being relatively young, the e-commerce market in South-East Asia is developing quickly, thanks to an astounding rate of digital adoption,” said Frost & Sullivan Asia-Pacific lead consultant for e-commerce and digital transformation, Cris Duy Tran.

“However, companies pursuing an Amazon-style B2C mass-market business model are struggling to turn a profit, and there have been several mergers and acquisitions and market exits,” he said.

“With fewer players in the market, e-commerce players are beginning to compete beyond price points and logistics, and are moving into new areas such as online-to-offline e-commerce and loyalty programs.”

Although the mass-marketing approach has not worked so far in South-East Asia, he said there are many exciting opportunities in specialised e-commerce and peer-to-peer e-commerce. Services such as Carousell, Shopee and Tokopedia are aggressively pursuing a “mobile first” strategy, and Frost & Sullivan expects to see more sector-specific services in areas such as travel, food delivery and luxury goods.

Challenges

While the opportunities for growth are immense, according to the report, the e-commerce market in South-East Asia is not without challenges.

Several key factors that inhibit growth have been identified, including low credit-card ownership – less than 7 per cent of the population in all South-East Asian markets except for Malaysia and Singapore. In some countries, more than half of the population does not have a bank account, making payment the biggest challenge for e-commerce companies.

Logistics is another issue hampering e-commerce growth, especially in areas with complex geographies such as Indonesia and the Philippines. However, recent investments by regional logistics players such as aCommerce and SingPost have strengthened e-commerce logistics infrastructure in these markets.

China’s rapid expansion in e-commerce is providing further impetus for online retail growth in South-East Asia, according to the report.

“The e-commerce revenue in China represented 12.1 per cent of all retail sales last year, surpassing the US, Europe and Japan,” said Tran. “Given the massive adoption of e-commerce in China, South-East Asia is set to follow a similar upward trajectory, even though e-commerce now represents less than 2.5 per cent of all retail sales.”

With more mergers and acquisitions likely during the forecast period, more exciting market developments can be expected in the near future, said Tran.

This story first appeared on sister site, Inside Retail Asia.