South­east Asia’s USD 34.5 Bil­lion E- commerce Fu­ture: Does it Check Out?

Thai-American Business (T-AB) Magazine - - Contents - Writ­ten by: Aung Kyaw Moe

Arose by any other name, ac­cord­ing to Shake­speare, would smell as sweet. And whether the ten mem­ber clus­ter of na­tions sur­rounded by eco­nomic pow­er­houses Aus­tralia, China and In­dia goes by the As­so­ci­a­tion of South­east Asian Na­tions ( ASEAN), or sim­ply as South­east Asia ( SEA), the re­gion’s star is set to shine.

Com­pris­ing ten mem­ber na­tions ( Brunei, Cam­bo­dia, In­done­sia, Laos, Malaysia, Myan­mar, Philip­pines, Sin­ga­pore, Thai­land and Viet­nam), ASEAN looks to be­come an eco­nomic pow­er­house in its own right. It is home to around 625 mil­lion peo­ple, 744 mil­lion mo­bile de­vices, nearly 200 mil­lion In­ter­net users and a GDP over USD 2.6 tril­lion.

It will boast a 400 mil­lion- strong mid­dle class by 2020 ac­cord­ing to Nielsen. Amid the back­drop of po­lit­i­cal rhetoric trans­form­ing into eco­nomic re­al­ity, Mckin­sey at­tributes ASEAN’S rise to three pow­er­ful so­cio- eco­nomic trends – rapid eco­nomic growth, ur­ban­iza­tion and tech­nol­ogy adop­tion ( no­tably In­ter­net pen­e­tra­tion and mo­bile tech­nolo­gies). More­over, with the wheels in mo­tion for a uni­fied ASEAN Eco­nomic Com­mu­nity set to come into force as early as end- 2015, the re­gion has em­barked on per­haps its most ex­cit­ing phase of in­te­gra­tion and cross border trade in the as­so­ci­a­tion’s 48 year history.

To­gether th­ese fac­tors are trans­form­ing the re­gion, its peo­ple and its economies, with e- commerce and mo­bile commerce lead­ing the way.


With ris­ing on­line con­nec­tiv­ity, with im­prove­ments in fi­nan­cial, lo­gis­ti­cal and se­cu­rity in­fras­truc­tures, with more and more e- commerce M& As and with the AEC kick­ing in, ASEAN is ripe with po­ten­tial. Frost & Sul­li­van es­ti­mates that the B2C e- commerce com­pound an­nual growth rate ( CAGR) of In­done­sia, Malaysia, Philip­pines, Sin­ga­pore, Thai­land and Viet­nam at 37.6 per­cent from 2013 to 2018, grow­ing from USD 7 bil­lion to USD 34.5 bil­lion – a num­ber that would be even higher if we were to in­clude the re­main­ing five mem­ber states.

Here’s why ASEAN holds such prom­ise for gov­ern­ments, busi­nesses and in­vestors:

On­line con­nec­tiv­ity

South­east Asia com­prises 744 mil­lion in­ter­net con­nec­tions, with 119 mo­bile sub­scrip­tions per 100 peo­ple ac­cord­ing to Weareso­cial. It al­ready ac­counts for 7% of global in­ter­net users, catching up to Western Europe ( 12%) and the U. S. ( 11%). In­ter­net pen­e­tra­tion has risen 414% in Cam­bo­dia, 346% in Myan­mar, 47% in Thai­land – year- on- year – in FY2014. The av­er­age per­son in the Philip­pines spends 6.3 hours a day on­line, in Thai­land 5.5 hours, in Viet­nam 5.2 hours, in In­done­sia 5.1 hours and in Sin­ga­pore 4.7 hours. Th­ese are ahead of China’s 3.9 hours, South Korea’s 3.4 hours and Ja­pan’s 3.1 hours. The pro­lif­er­a­tion of tablets, ph­ablets, smart­phones and 3G – even 4G – ser­vices will play a role in fur­ther driv­ing in­ter­net pen­e­tra­tion rates, as tech­no­log­i­cal ad­vances con­tinue to make de­vices af­ford­able even to the lessaf­flu­ent, key to en­abling the re­gion’s ecom­merce fu­ture.

Fi­nan­cial in­fra­struc­ture

What’s re­mark­able about the 2014 USD 7 bil­lion es­ti­mate of ASEAN’S B2C e- commerce is that it has achieved this de­spite a fi­nan­cial in­fra­struc­ture, which has a lot more po­ten­tial – and need – to grow. An es­ti­mated 70 per­cent of SEA res­i­dents lack ac­cess to tra­di­tional bank­ing ser­vices, says Mckin­sey. More­over, with credit card pen­e­tra­tion in some mar­kets be­low 5 per­cent, e- commerce in ASEAN is un­der­stand­ably un­der­de­vel­oped. Con­se­quen­tially, SEA on­line re­tail ac­counts for around 1 per­cent to 2 per­cent of to­tal re­tail sales, com­pared to China, at 11 per­cent, as quoted by FT Confidential Re­search. How­ever this fig­ure for China was, as re­cently as 2010, 2.5 per­cent – a growth tra­jec­tory many an­tic­i­pate SEA will fol­low in the com­ing years, against this back­drop of rapidly evolv­ing fi­nan­cial in­fra­struc­ture.

Lo­gis­ti­cal in­fra­struc­ture

Lo­gis­tics and e- commerce have so far proven to some­times be a mis­match for South­east Asian shop­pers, as only a small por­tion re­ceive free de­liv­ery. This means shop­pers are in­cur­ring lo­gis­ti­cal costs that re­tail­ers would usu­ally, in a com­pet­i­tive mar­ket, help to ab­sorb. South­east Asia’s land­scape poses a unique set of chal­lenges that is slow­ing the mo­men­tum e- commerce should be see­ing. Th­ese in­clude late de­liv­ery, dam­aged or lost pack­ages, the pre­vail­ing prac­tice of cash on de­liv­ery, lengthy re­turn pro­ce­dures, and a lack of spe­cial ser­vices such as trial or in­stal­la­tion – par­tic­u­larly when given the ge­o­graph­i­cal bar­rier be­tween buyer and seller.

In re­sponse, firms can ei­ther build their lo­gis­tics sys­tems or part­ner with lo­gis­tics com­pa­nies. China’s Alibaba has, for ex­am­ple, ac­quired a 14.5% stake in Sin­ga­pore Post, which it­self will spend USD 145 mil­lion on build­ing a re­gional e- commerce hub. Alibaba’s e- commerce site Aliex­press is see­ing tremen­dous growth

across the re­gion. Mean­while, Uber has part­nered with LBC Ex­press in the Philip­pines to de­liver Christ­mas presents on­de­mand. And that’s the role pri­vate and pub­lic sec­tor ac­tors with deeper pock­ets play – the ‘ uber­fi­ca­tion’ of the re­gion’s un­der- de­vel­oped lo­gis­ti­cal sec­tor, in turn build­ing in­tra and cross- border commerce.

Trans­ac­tion Se­cu­rity

Rapid progress has been made in the do­main of pay­ment in­fra­struc­ture and on­line se­cu­rity. Con­sumers are, how­ever, put off from buy­ing on­line – the Fi­nan­cial Times re­cently es­ti­mated that 90 per cent of vis­its to e- commerce sites do not re­sult in sales. Part of the rea­son is be­cause e- re­tail­ers are bound by Caveat Ven­di­tor, where gov­ern­ments im­pose strict reg­u­la­tions to ham­per il­le­gal money laun­der­ing oper­a­tions across bor­ders, in­di­rectly turn­ing off shop­pers, who are re­quired to pro­vide credit card in­for­ma­tion to trans­act.

While this can be over­come as gov­ern­ments pro­mote non- cash trans­ac­tions and co­or­di­nate e- pay­ment reg­u­la­tions, se­cu­rity laws needs to catch up with what is com­mon­place in other de­vel­oped mar­kets. ASEAN coun­tries are re­spond­ing, de­vel­op­ing and en­forc­ing se­cu­rity laws and reg­u­la­tions for e- commerce data pro­tec­tion and elec­tronic trans­ac­tions. Sin­ga­pore’s Mon­e­tary Author­ity of Sin­ga­pore ( MAS) has, for ex­am­ple, made the 2- fac­tor au­then­ti­ca­tion ( 2FA) process manda­tory for any trans­ac­tion, lo­cal or over­seas. The move­ment to­wards in­tra- re­gional co­or­di­na­tion of shared cybersecurity, best prac­tices, and leg­isla­tive frame­work will al­lay th­ese fears, boost­ing e- commerce.

Al­ter­na­tive Pay­ments

E- commerce re­quires a healthy and ro­bust pay­ments in­fra­struc­ture, to­gether with in­te­grated in­no­va­tions, to over­come de­fi­cien­cies in a re­gion un­der­served by tra­di­tional bank­ing. In SEA, where well over 400 mil­lion peo­ple are un­banked, com­pounded by ex­ist­ing se­cu­rity con­cerns among dig­i­tal buy­ers, al­ter­na­tive pay­ment so­lu­tions are ris­ing in im­por­tance, build­ing the ro­bust­ness of the pay­ments in­fra­struc­ture. They are a nec­es­sary op­tion for busi­nesses to reach out to un­banked cus­tomers, through new ways to com­plete trans­ac­tions via ATMS, on­line bank­ing and over the counter pay­ments. Al­ter­na­tive pay­ment so­lu­tions will also play a fa­cil­i­tat­ing role in con­vert­ing un­banked to banked users.

Rise in M& As

South­east Asia is al­ready draw­ing global e- commerce play­ers, in­clud­ing Ger­many’s Rocket In­ter­net, with in­vest­ments in on­line mar­ket­place Lazada along with on­line fash­ion re­tailer Zalora, Ja­pan’s Rakuten, Soft­bank, and China’s Alibaba and JD. com, Ten­cent, to name a few. The pace of e- commerce and pay­ment in­no­va­tion in South­east Asia is cer­tain to ac­cel­er­ate. Ris­ing in­vest­ments are ex­pected over the next few months, de­vel­op­ing the re­gion’s e- commerce through in­vest­ment, ac­qui­si­tion and sub­se­quent con­sol­i­da­tion.

Ad­vent of AEC

The word “frag­mented” is used con­sis­tently by econ­o­mists, politi­cians and busi­ness vi­sion­ar­ies alike to char­ac­ter­ize ASEAN – and not with­out rea­son. With ten coun­tries, ten dif­fer­ent lan­guages, ten dif­fer­ent cur­ren­cies and economies with vary­ing ( of­ten too high) lev­els of eco­nomic na­tion­al­ism, ASEAN is in­deed made up of ten very unique parts.

Some are highly de­vel­oped – Sin­ga­pore, for ex­am­ple, has a 2014 per capita GDP of USD 60,410, while Myan­mar’s was USD 1,405 ac­cord­ing to the IMF. Sin­ga­pore presents one of the most busi­ness friendly busi­ness en­vi­ron­ments in the world, whereas Myan­mar was, as re­cently as 2013, twinned with Su­dan in an ar­ti­cle by The Econ­o­mist.

For AEC to hold any mean­ing, even in less eru­dite cir­cles, it would need to ad­dress the no­tion of piec­ing some of th­ese frag­ments to­gether, by open­ing up cross­bor­der trade. And then, there’s the big­ger con­text – where ASEAN fits in the broader Asia- Pa­cific nar­ra­tive.


ASEAN’S awak­en­ing lies not only in more ef­fi­cient and trans­par­ent in­tra- re­gional trade, but also in do­ing busi­ness with its neigh­bors, par­tic­u­larly China.

That’s the big­gest chal­lenge, and even greater op­por­tu­nity, one which is par­tic­u­larly at­trib­ut­able to e- commerce. China’s trade with ASEAN is es­ti­mated at USD 224.38 bil­lion in H1 2015, up 1.6% year- on- year. More cru­cially, since 2010, over sixty per­cent of its out­bound in­vest­ment has been in ASEAN, with in­ter­net and e- commerce cited as key ar­eas of in­ter­est.

With bet­ter in­fra­struc­ture, and with trade ef­fi­cien­cies, e- commerce has the po­ten­tial to drive the 21st cen­tury’s ren­di­tion of the Mar­itime Silk Road. ASEAN’S fu­ture is bright!

Aung Kyaw Moe is Founder and Group CEO of 2C2P, a Sin­ga­pore- head­quar­tered pan- ASEAN pay­ment ser­vices com­pany. He can be con­tacted at: Aung@ 2C2P. com

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