E-commerce in Asia – Will South East Asia be the next China?

Skyline

Chinese influence is driving new e-commerce buying patterns across the region

The emerging internet economies of South East Asia are gaining global attention, and for good reason. Burnished by commercial and behavioral influences from China’s soaring e-commerce sector, South East Asia’s increasingly assertive online buyers offer significant potential for brands.

South East Asia currently counts around 260 million netizens, making it the world’s fourth largest internet market – and its fastest growing. This figure is predicted to reach 480 million by 2020 – creating sizeable consumer interest for domestic and cross-border e-commerce.

Newly Conscious Online Consumers

Despite broad disparities in population size, demographics, spending power and internet speeds between its nations, South East Asia’s fast-growing middle class is eagerly adopting the speed and convenience of buying online – particularly via smartphones.

As online consumer sentiment strengthens, shoppers are taking their lead from behavioral trends in China. From Jakarta to Hanoi, and Manila to Phnom Penh, consumers regularly research products and prices online, read and share reviews and recommendations, and access promotional coupons and vouchers via social media. Using apps to book flights, travel accommodation and rides across a city is now the norm in most major cities.

In addition, conscious online consumers are demanding more ‘click-and-mortar’ commerce, by purchasing products online to collect in-store or at a third-party location. And, stop by any health and beauty store in Bangkok, Singapore or Kuala Lumpur, and shoppers will be testing products to purchase by smartphone on their way home.

China’s Diversifying Digital Impact in South East Asia

Much of the impetus for South East Asia’s online buying boom is spreading from China, the world’s largest e-commerce market. Brands that expanded their online retailing in China are now looking at high-growth markets across Asia. Meanwhile, China’s online marketplaces are investing heavily in the development of e-commerce in Singapore, Thailand, Malaysia and Indonesia.

As a result, South East Asia’s online consumer landscape is starting to mirror that of China. Here are four key factors that will speed up this process:

Chinese internet giant Alibaba is setting the pace in South East Asia via its USD1 billion majority stake purchase in Lazada – an online marketplace that operates in Indonesia, Malaysia, Philippines, Singapore, Vietnam and Thailand – its acquisition of online food portal Redmart in Singapore, and stake purchase in SingPost, a regional e-commerce logistics player.

Following Alibaba’s lead, JD.com, which owns China’s popular Yihaodian e-commerce site, has set up an operation in Indonesia, and has plans to expand further. In the future, integrated businesses such as Alibaba, JD.com and Tencent plan to offer global and Chinese branded products to consumers not just in China, but across South East Asia and beyond.

Alibaba isn’t just acquiring e-commerce assets in South East Asia, it is also extending its influence through knowledge-driven initiatives. In 2016, Alibaba’s founder Jack Ma accepted e-commerce advisory roles with both the Indonesian and Malaysian governments, and will assist in developing the still-nascent digital economies in both countries.

Meanwhile, in Thailand, Alibaba signed an e-commerce partnership with the Thai government, is working on e-logistics with Thailand Post, and has partnered with the University of the Thai Chamber of Commerce to create its first e-commerce training center for online entrepreneurs and SME staff.

Another China-inspired development is the proliferation of cybersales. Created by Alibaba in 2009, the Singles Day 24-hour cybersale on November 11 (11/11) – which was modeled on Black Friday in the United States – generated USD17.8 billion in sales in China in 2016. Singles Day discount promotions also ignited excitement and strong online sales revenues across South East Asia.

Heavily marketed cybersales offer consumers time-limited discounts and incentives across multiple product categories – and are proving popular with value-conscious consumers in South East Asia, where ‘flash sales’ tactics have long proved successful for low-cost airlines, such as Air Asia. In addition to Singles Day, cybersales events in South East Asia are increasingly being themed around cultural festivals and holidays, such as Chinese New Year, Eid al-Fitr, Songkran and Deepavali.

Unlike China, where digital wallet systems such as AliPay and TenPay are widely used, South East Asia’s payment preferences vary from credit and debit cards to online bank transfers and, in some markets, cash on delivery. Adding to the challenge, around 150 million people aged 25 or over in South East Asia do not have a bank account.

Ongoing investments in the payments ecosystem are expected to drive greater cashless online sales. In late 2016, Ant Financial, Alibaba’s digital payments subsidiary, signed a deal with Thailand’s Ascend Money to expand e-payment services across the country. More new collaborations are expected in 2017, and it seems likely that Tencent will also promote the TenPay system to support its regional online expansion.

Driving Growth in a Fast-Changing Landscape

So what does the future look like for e-retailing in South East Asia? Well, the growth predictions are impressive. By 2025, South East Asia’s e-commerce market could reach USD88 billion, with Indonesia alone expected to top USD46 billion.

To achieve such growth, vast resources are being invested into infrastructure projects. South East Asia’s airports, ports, highways, railways and telecoms networks are being transformed. This is especially important in challenging topographies like Vietnam and Myanmar, and vast archipelagos like Indonesia and the Philippines, where infrastructure is weak and Internet speeds are slower.

Within this fast-changing environment – as acquisitions are negotiated and partnerships are forged – finding a partner with a pan-regional understanding of e-commerce markets is crucial. DKSH’s broad-based regional expertise across North East and South East Asia and local market knowledge, together with a strong platform, enables our teams across Asia to assist our business partners to adapt to new dynamics as they unfold – and to meet the evolving needs of consumers in one of the world’s fastest growing online market.